International Herald Tribune
Airbus loses its first A380 customer
By Carter Dougherty
International Herald Tribune
FedEx, the American freight and logistics company, on Tuesday canceled an order for 10 Airbus A380 superjumbo jets, becoming the first customer to abandon the plane in the wake of the production delays that have shaken the European company.
The order will instead go to its American rival, Boeing, which will supply FedEx with 15 of its 777 Freighters, a plane also designed for long-haul cargo flights.
Frederick Smith, chairman and chief executive of FedEx, cited Airbus's recent decision to delay delivery of the superjumbo amid production bottlenecks as the reason for shifting its order to Boeing.
"Global demand for air cargo and express services continues to grow rapidly, and FedEx has made significant investments in our network to meet customers' needs and fulfill our business objectives," he said. "Therefore, it was necessary and prudent for us to acquire the Boeing 777 Freighter."
The value of the FedEx contract for Airbus was confidential, but the passenger version of the A380 lists for about $300 million. Still, Airbus is not likely to lose $3 billion because freighters, which have less elaborate interiors, are somewhat cheaper, and because the FedEx order was placed at the lower rates from 2001, an Airbus spokeswoman, Barbara Kracht, said.
Though the industry has been rife with speculation about possible cancellations of A380 deliveries, FedEx's decision is nonetheless a jolt to Airbus orders at a time when it can ill afford such losses. It also could set off what Airbus likely fears the most: other cancellations and fewer orders.
"This is a disaster for Airbus," said Doug McVitie, managing director of Arran Aerospace, a consultancy in Dinan, France. "The fact that it is a freighter and not a passenger version does not minimize the impact in any way."
The company has also been jousting with its largest customer, Emirates, which last month sent teams to Toulouse, France, and Hamburg, the main Airbus production sites, to review its orders for 43 planes. A second team of Emirates engineers is expected to arrive in Toulouse this month to study the progress of A380 assembly there.
Two weeks ago, Virgin Atlantic Airways announced it would postpone by four years an order for six A380s, becoming the first airline to step back from its commitment to the plane.
At the very least, analysts said, FedEx's move will be a heavy burden for the Airbus sales force, though whether it will prompt further cancellations from other A380 customers is unpredictable. Airbus, already in the deepest crisis of its 36-year history, has said it expects to sell 751 planes during the life of the program. That goal is now in jeopardy.
"Having the first outright cancellation of an A380 won't make it any easier to sell it to other airlines," McVitie said.
Until FedEx abandoned the A380, Airbus had 159 firm orders for the plane, unchanged in about a year, making the decision a painful blow, analysts said.
The future of the A380, the world's largest passenger jet, began to look uncertain last year when Airbus announced a first delay amid problems in wiring the planes at its factory in Hamburg. But the problem persisted into this June, when Airbus announced another delay, lost a new chief executive to political turmoil, and began laying the groundwork for a cost-cutting program designed to shave ?2 billion off its yearly costs.
To achieve that goal, Airbus plans to reduce the number of suppliers it uses to 500 from 3,000, though that shift will affect general procurement of things like office supplies and furniture rather than aircraft parts.
Thousands of jobs, most likely spread across its German and French facilities, are also at stake.
Airbus, the main subsidiary of European Aeronautic Space & Defense, said it regretted the FedEx decision. "That said, we respect their need to address capacity growth," an Airbus spokesman, David Voskuhl, said.
Boeing, for its part, touted a new success for its 777, the world's longest- range twin engine aircraft, which will replace FedEx's aging fleet of McDonnell Douglas-11F airplanes.
"We're looking forward to working with FedEx on this new chapter in our relationship," said Ray Conner, vice president of sales for the Americas at Boeing Commercial Airplanes.
The order is worth up to $3.6 billion for Boeing based on the list price of the 777, double that if FedEx exercises options it has also obtained to purchase another 15 planes, according to a spokesman, Bob Saling.
FedEx announced plans to buy the freighter version of the A380 for its FedEx Express subsidiary in January 2001 after a two-year study of the its long-term needs for long-range jumbo aircraft.
The 777 freighter was not available in 2001.
"The Boeing 777F will allow FedEx Express to fly directly between major markets and hubs in Asia, Europe and the U.S. wit