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http://www.nytimes.com/2006/06/14/business/worldbusiness/14cnd-airbus.html?hp&ex=1150344000&en=27fd63048e97bdbe&ei=5094&partner=homepage
June 14, 2006
Shares Plummet After Delay in Airbus Jet Delivery
By NICOLA CLARK International Herald Tribune
PARIS, June 14 — Shares in the parent company of Airbus plummeted today, wiping nearly $7 billion off its market value, as a fresh delay in the delivery of the new double-decker A380 airplane raised questions about the company's management and strategy.
The stock of European Aeronautic Defense and Space slid as much as a third after the French-German company warned late Tuesday that a six- to seven-month delay in the A380 delivery schedule would probably reduce operating profits by $2.5 billion between 2007 and 2010. Several leading customers for the aircraft, including Singapore Airlines, Emirates and Qantas Airlines, suggested that they would seek compensation for the delay, adding further momentum to the sell-off.
"This is in our view very damaging both to the credibility of EADS management, and also to Airbus's reputation for program management," Sash Tusa, an analyst at Goldman Sachs, wrote in a note to investors.
EADS stock closed down 26 percent at 18.73 euros, or $23.65, the lowest since the stock debuted in July 2000 and on par with some of the biggest one-day plunges in corporate history. Enron shares, for example, fell by 23 percent on Nov. 20, 2001, after the company restated earnings a second time.
Vivendi's shares fell 26 percent on July 2, 2002, after its debt was cut to junk.
Airbus is betting its future on the A380, the world's largest passenger jet, but the plane has been dogged with problems, ranging from engine noise to weight and fuel consumption. The latest delays compound concerns about the company's direction that had already been raised after it was forced to admit that it erred in the design of another key plane, the mid-sized A350. The A350 was announced in 2004 as a competitor to Boeing's new Dreamliner 787.
In the short term, the latest fumble casts a cloud over the future of Noël Forgeard, a Frenchman who is now EADS's co-chief executive but who oversaw the launching of the superjumbo project when he was head of Airbus from 1998 to 2005.
Over the longer term, analysts said, Airbus's troubles were likely to give a competitive lift to Boeing, which last year fell behind Airbus in terms of total aircraft orders but has been regaining lost ground as Airbus stumbles.
"This sets up a scenario for further market share gains by Boeing with its 777 and 747," said Howard Rubel, an aerospace analyst at Jeffries & Company in New York. "And when the 787 Dreamliner comes on line, Boeing will have a relatively modern and attractive product line."
Singapore Airlines — unhappy that its A380 orders will be delayed — announced today that it would buy 20 Boeing Dreamliners worth $4.52 billion, and take options on another 20 planes.
Analysts noted that internal squabbles over the leadership of EADS and Airbus had possibly served to distract top managers in recent years from addressing the challenge posed by the Dreamliner, which has proven extremely popular with airlines. Airbus last month announced that it planned a radical redesign of its A350 — which was hastily developed to compete with the Dreamliner — after customers complained that it compared poorly with the Boeing model, especially in terms of fuel efficiency.
"There has been a lot of criticism that Airbus has been asleep," said Nick Cunningham, an aerospace analyst at the Panmure Gordon brokerage in London. "They massively underestimated how strong a product the 787 was going to be, and the only explanation for this seems to be that they have been too busy engaging in infighting."
To be sure, it is too early to write the A380's obituary, Mr. Rubel said.
"It's a unique plane that will serve a purpose — it was just overhyped," he said.
But he added: "What Airbus has to do is to go back to work. Its laid out its problems to the public and now it has to got to work and implement its plan and not just focus on marketing. They have overpromised and now how well they recover will test their mettle."
How quickly Airbus can recover will depend to a large extent on how Mr. Forgeard manages the situation. Analysts say that will not be an easy task, because the latest delay had dealt a serious blow to his reputation.
"It's hard not to put the blame on Forgeard," said Richard L. Aboulafia, an analyst at the Teal Group in Fairfax, Va.
During a conference call with analysts today, Mr. Forgeard was contrite.
"I'm extremely sorry," he said. "I built my entire industrial career on building confidence with shareholders. This announcement comes as a big blow."
But Mr. Forgeard played down the suggestion that his job might be at risk.
"That is a shareholder decision," he said. "We have to find the right way forward rather than finger-pointing any responsibilities of the past."
EADS named Mr. Forgeard and a German, Thomas Enders, as co-chief executives of the company last July after a protracted struggle aimed at preserving the balance of power between the company's largest French and German shareholders. The months of wrangling also delayed the naming of Mr. Forgeard's replacement at Airbus, Gustav Humbert, a German-born engineer.
"This is obviously going to weaken his position with the Germans," Peter Hearne, a British aerospace consultant, said of Mr. Forgeard. But while the late A380 deliveries betrayed "a certain arrogance" on the part of EADS and Airbus managers, Mr. Hearne said, he did not believe the episode would result in any dismissals of top managers.
Mr. Cunningham of Panmure agreed: "We've just very recently had a change of management and I think given all of the challenges they are facing with the A350 and now these delays, it would be very difficult to put the company through another change of leadership now."
"Airbus is a company that has come from nothing to more than half of the market in 30 years, most of that during Forgeard's watch," he added. "So there is a danger that by getting rid of him you would be throwing the baby out with the bathwater."
Airbus has said it will announce details of the A350 revamp before the Farnborough International Airshow in Britain next month. The new design is expected to include a slightly wider fuselage and have a greater flight range, according to news reports.
"There is a risk that things will get worse before they get better," Mr. Aboulafia said, noting that Airbus's focus on getting the A380 delivery schedule back on track was likely to drain engineering resources away from the A350.
"I certainly hope that's not the case, because customers don't like a monopoly," he said. "It's bad for our industry."
Leslie Wayne of The New York Times contributed reporting from New York for this article.
June 14, 2006
Shares Plummet After Delay in Airbus Jet Delivery
By NICOLA CLARK International Herald Tribune
PARIS, June 14 — Shares in the parent company of Airbus plummeted today, wiping nearly $7 billion off its market value, as a fresh delay in the delivery of the new double-decker A380 airplane raised questions about the company's management and strategy.
The stock of European Aeronautic Defense and Space slid as much as a third after the French-German company warned late Tuesday that a six- to seven-month delay in the A380 delivery schedule would probably reduce operating profits by $2.5 billion between 2007 and 2010. Several leading customers for the aircraft, including Singapore Airlines, Emirates and Qantas Airlines, suggested that they would seek compensation for the delay, adding further momentum to the sell-off.
"This is in our view very damaging both to the credibility of EADS management, and also to Airbus's reputation for program management," Sash Tusa, an analyst at Goldman Sachs, wrote in a note to investors.
EADS stock closed down 26 percent at 18.73 euros, or $23.65, the lowest since the stock debuted in July 2000 and on par with some of the biggest one-day plunges in corporate history. Enron shares, for example, fell by 23 percent on Nov. 20, 2001, after the company restated earnings a second time.
Vivendi's shares fell 26 percent on July 2, 2002, after its debt was cut to junk.
Airbus is betting its future on the A380, the world's largest passenger jet, but the plane has been dogged with problems, ranging from engine noise to weight and fuel consumption. The latest delays compound concerns about the company's direction that had already been raised after it was forced to admit that it erred in the design of another key plane, the mid-sized A350. The A350 was announced in 2004 as a competitor to Boeing's new Dreamliner 787.
In the short term, the latest fumble casts a cloud over the future of Noël Forgeard, a Frenchman who is now EADS's co-chief executive but who oversaw the launching of the superjumbo project when he was head of Airbus from 1998 to 2005.
Over the longer term, analysts said, Airbus's troubles were likely to give a competitive lift to Boeing, which last year fell behind Airbus in terms of total aircraft orders but has been regaining lost ground as Airbus stumbles.
"This sets up a scenario for further market share gains by Boeing with its 777 and 747," said Howard Rubel, an aerospace analyst at Jeffries & Company in New York. "And when the 787 Dreamliner comes on line, Boeing will have a relatively modern and attractive product line."
Singapore Airlines — unhappy that its A380 orders will be delayed — announced today that it would buy 20 Boeing Dreamliners worth $4.52 billion, and take options on another 20 planes.
Analysts noted that internal squabbles over the leadership of EADS and Airbus had possibly served to distract top managers in recent years from addressing the challenge posed by the Dreamliner, which has proven extremely popular with airlines. Airbus last month announced that it planned a radical redesign of its A350 — which was hastily developed to compete with the Dreamliner — after customers complained that it compared poorly with the Boeing model, especially in terms of fuel efficiency.
"There has been a lot of criticism that Airbus has been asleep," said Nick Cunningham, an aerospace analyst at the Panmure Gordon brokerage in London. "They massively underestimated how strong a product the 787 was going to be, and the only explanation for this seems to be that they have been too busy engaging in infighting."
To be sure, it is too early to write the A380's obituary, Mr. Rubel said.
"It's a unique plane that will serve a purpose — it was just overhyped," he said.
But he added: "What Airbus has to do is to go back to work. Its laid out its problems to the public and now it has to got to work and implement its plan and not just focus on marketing. They have overpromised and now how well they recover will test their mettle."
How quickly Airbus can recover will depend to a large extent on how Mr. Forgeard manages the situation. Analysts say that will not be an easy task, because the latest delay had dealt a serious blow to his reputation.
"It's hard not to put the blame on Forgeard," said Richard L. Aboulafia, an analyst at the Teal Group in Fairfax, Va.
During a conference call with analysts today, Mr. Forgeard was contrite.
"I'm extremely sorry," he said. "I built my entire industrial career on building confidence with shareholders. This announcement comes as a big blow."
But Mr. Forgeard played down the suggestion that his job might be at risk.
"That is a shareholder decision," he said. "We have to find the right way forward rather than finger-pointing any responsibilities of the past."
EADS named Mr. Forgeard and a German, Thomas Enders, as co-chief executives of the company last July after a protracted struggle aimed at preserving the balance of power between the company's largest French and German shareholders. The months of wrangling also delayed the naming of Mr. Forgeard's replacement at Airbus, Gustav Humbert, a German-born engineer.
"This is obviously going to weaken his position with the Germans," Peter Hearne, a British aerospace consultant, said of Mr. Forgeard. But while the late A380 deliveries betrayed "a certain arrogance" on the part of EADS and Airbus managers, Mr. Hearne said, he did not believe the episode would result in any dismissals of top managers.
Mr. Cunningham of Panmure agreed: "We've just very recently had a change of management and I think given all of the challenges they are facing with the A350 and now these delays, it would be very difficult to put the company through another change of leadership now."
"Airbus is a company that has come from nothing to more than half of the market in 30 years, most of that during Forgeard's watch," he added. "So there is a danger that by getting rid of him you would be throwing the baby out with the bathwater."
Airbus has said it will announce details of the A350 revamp before the Farnborough International Airshow in Britain next month. The new design is expected to include a slightly wider fuselage and have a greater flight range, according to news reports.
"There is a risk that things will get worse before they get better," Mr. Aboulafia said, noting that Airbus's focus on getting the A380 delivery schedule back on track was likely to drain engineering resources away from the A350.
"I certainly hope that's not the case, because customers don't like a monopoly," he said. "It's bad for our industry."
Leslie Wayne of The New York Times contributed reporting from New York for this article.
