Airbus in back-to-basics pledge after more delays

European defense giant and Airbus parent EADS plans to delay deliveries of its A380 super jumbo by another year, leaving the beleaguered program two years behind schedule.

By AUDE LAGORCE, MARKETWATCH
October 5, 2006 07:32
2 minute read.

 
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MarketWatch: In-depth global business coverage European defense giant and Airbus parent EADS plans to delay deliveries of its A380 super jumbo by another year, leaving the beleaguered program two years behind schedule. The latest setbacks are expected to slice €4.8 billion from earnings through 2010. Airbus will now deliver just one aircraft in 2007, instead of the nine it forecast in June, a move that has rattled many of its key customers. In an effort to soften the fresh blow to investors, who at the worst had expected another six-month delay, EADS management pledged to transform the company and "break taboos" at Airbus. "The lesson we take away is that Airbus must change and change quite radically," EADS Co-Chief Executive Thomas Enders said in a conference call late Tuesday. Under the new restructuring plan, called Power8, the company said it plans to cut overhead costs by 30% by 2010 and increase productivity by 20%. It refused to rule out plant closures. Airbus blames the delays, which have sent the stock down 29% so far this year, on the complexity of installing 300 miles of wiring within each of the double-decker superjumbo aircraft. The wires are bundled through harnesses that are strung through the aircraft. Airbus CEO Christian Streiff said the root cause of the problems was that Airbus engineers had been using outdated and incompatible design tools. "The teams didn't have the right tools for the 3D design. Their work methods weren't adapted to the present complexity," he said. Streiff reiterated, however, that all other parts of the program were on time. "There's no hidden issue behind the harnessing issue," he said. But some analysts were reluctant to take Airbus' word on that. Debt rating agency Standard & Poor's overnight said it might cut its rating on EADS. "As the delay will disrupt the expansion strategies of a number of major airlines, the group's competitive position on wide-body aircraft could be adversely affected," the agency said. The schedule now in place calls for one A380 delivery in the fourth quarter of 2007, and 13 in 2008. In 2009, 25 A380s will be delivered, followed by 45 in 2010. The first freighters are expected that year as well. Qantas Airways, Australia's biggest airline, said its first super jumbo will be delivered in August 2008, two years behind schedule. The aircraft, which in a standard configuration can carry up to 555 passengers, has a sticker price of $300m. "We expect to have four aircraft by the end of 2008 and seven by mid-2009," Chief Financial Officer Peter Gregg said. The airline is "disappointed with the delay," he added. Qantas is reportedly reviewing its options as a result of the delivery woes. Emirates Airlines, the A380's biggest customer with 43 orders, said it was also reviewing all options. The Times of London newspaper Wednesday reported, without identifying its sources, that Emirates is in talks with Boeing over sharing its order. According to the paper, Emirates could buy some of the new 747-8 instead of the A380. Singapore Airlines will still be first airline to receive the A380. Despite the fresh delays, Streiff said he saw "no significant sign of risk of cancellation" to Airbus' 159 orders for the A380. "All the customers are on board. They are really eager to get the plane," he said. Compensation fees are expected, but Streiff declined to go into specifics. EADS management pledged to overhaul the company and change its work methods, but remained vague about the number of jobs that would eventually be cut. MarketWatch: In-depth global business coverage

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