Airbus Hit By Fresh A380 Delivery Delays

June 13, 2006

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Airbus revealed delays of at least six months in deliveries of its A380 superjumbo on Tuesday, in an embarrassing new setback that parent company EADS said could cut its earnings between 2007 and 2010.

The European planemaker said it would still deliver the first aircraft to Singapore Airlines in 2006, but would slow down deliveries from next year onwards because of problems with the installation of electrical wiring harnesses.

"We have had an industrial delay. It will shift the program to the right by six to seven months," John Leahy, Airbus' chief commercial officer said.

EADS said the delays would mean shortfalls in earnings, before interest and tax, of EUR500 million (USD$627 million) a year between 2007 and 2010, and acknowledged it would have to pay penalties to carriers which have signed up for the world's biggest airliner.

However, it said this year's earnings would not be affected.

Airbus upset airlines earlier in the A380 production cycle by announcing a 6 month delay in deliveries after insisting for months that the program was running to schedule.

Carriers were angered because the sudden news of a delay disrupted their plans for deploying the big plane on routes and in some cases could force airlines to lease other aircraft to use until the A380 is ready. Airlines have sought compensation from Airbus for these setbacks.

The first delays were also blamed on wiring as well as a surge in demand for customized interiors. The electrical harness threading through the A380 drives systems, including those used in in-flight entertainment systems that allow passengers to select from hundreds of films and songs.

Sixteen carriers have so far ordered 159 of the A380 planes, which list for just under USD$300 million (USD$376.3 million), though some analysts believe Airbus has done deals with customers for about half that.

"There have been bottlenecks on the installation of wiring harnesses but the test flying is still going well," Leahy said.

Delays in major new airliner projects are common, especially in one as large as the A380 -- Europe's biggest civil airliner project since the 1960s supersonic Concorde.

But the production problems come at a peculiarly difficult time for Airbus, which is in the middle of a potentially radical review of its wide-body aircraft strategy embracing the slow-selling A340 and the A350, its newest model.

Airbus faces its worst crisis in years as Boeing's twin-engined long-range models -- the current 777 and the 787 due in 2008 -- have dried up demand for the less cost-efficient four-engined A340 while denting early sales of the A350.

Airbus, after several false starts, has vowed to reveal a new model range to address the 777 and 787 by mid-July, though Boeing is confident Airbus cannot do it with just one new model range, meaning the US company could have a lucrative slice of the market to itself.

Airbus clung onto its position as the world's leading passenger jet maker ahead of Boeing in 2005, but decisions expected in the next few weeks are seen as crucial.

Meanwhile, the A380 delays raise the prospect of cash shortfalls on its most ambitious aircraft project and will tie up working capital until Airbus is able to get the undelivered planes out of its plants. Planemakers are paid on delivery.

EADS also hinted at the possibility of cancellations.

"Possible contract terminations under the new timetable have not been taken into account in this estimate," EADS said in a statement describing the accounting impact of the new delay.

Airbus's largest customer, Emirates, which ordered 43 of the giant planes, said it was among those that had been told its deliveries were delayed by six months and was considering its position ahead of talks with Airbus in coming weeks.

Leahy said the company was still on track to have the plane certified and to deliver its first aircraft to Singapore Airlines by year-end 2006, but deliveries in 2007 would be cut to nine aircraft from an original target of 20 to 25.

Airbus said there would be shortfalls of between five and nine planes in 2008 and of around five in 2009. It declined to identify which airlines may be affected.

(Reuters)