Airbus Group NV (AIR) suffered its biggest-ever order cancellation as Gulf airline Emirates scrapped a deal for A350 planes valued at $16 billion, hurting efforts to break Boeing Co. (BA)’s dominance in wide-body aircraft.
Emirates will drop orders for 50 A350-900s and 20 larger -1000s, Airbus said today. The deal was struck in 2007 and the planes were due for delivery from 2019, shortly before Boeing’s new 777X, for which the Dubai-based airline is the No. 1 buyer.
The world’s largest carrier by international traffic reviewed its fleet requirements after last year topping up orders for the A380 superjumbo, adding 50 more to become by far the largest operator. The surprise decision on the A350 comes with the jetliner months away from entering commercial service.
“The A350 is a good aircraft, it’s a clean ship, it’s cutting edge, but I don’t think the delivery schedule of the A350 fits in line with Emirates’ growth capabilities at this moment,” said Mark D. Martin, chief executive officer of Dubai-based Martin Consulting LLC.
Airbus fell as much as 2.34 euros, or 4.3 percent, to 51.53 euros. The stock is down 7 percent this year after almost doubling in value in 2013. Rolls-Royce Holdings Plc (RR/), which makes the engines for the aircraft, declined as much as 3 percent in London, where the company is based.
Emirates President Tim Clark, who is equally loyal to Boeing and Airbus, had long been a critic of the A350-1000, saying the aircraft didn’t meet his specifications. Smaller regional rivals Qatar Airways Ltd. and Etihad Airways PJSC had also bemoaned the airliner, with Abu Dhabi-based Etihad at one stage dropping its order, only to come back last year for more.
“It’s not great news,” John Leahy, the Airbus chief operating officer who is also the company’s chief salesman said at a briefing. “Tim does change his mind from time to time, so maybe we could persuade him later on to change his mind again.”
Other airlines have already contacted the Toulouse, France-based manufacturer to enquire about taking up the vacant delivery slots, Leahy said, adding that with most positions sold out through 2020 there’ll be “no trouble” selling the planes.
The A350-900 typically seats 315 passengers, while the -1000 version can fit about 369 travelers. Airbus says the aircraft’s use of weight-saving materials and swept wings help save fuel, typically the single-biggest expense for airlines.
At the Dubai Air Show last year, Emirates said it would buy 150 777Xs, the re-engined version of the Boeing wide-body, and take out 50 options with a total value of $76 billion.
Emirates is the biggest customer for the existing 777, a twin-engine model that boasts the world’s biggest powerplant and is one of the Chicago-based Boeing’s bestsellers.
Today’s announcement may indicate that the Gulf carrier has undertaken a fleet re-appraisal and will standardize around just the 777 and A380, said John Strickland, an aviation specialist and director of JLS Consulting Ltd. in London.
Rolls-Royce is the sole engine provider for the A350, and the company said today that Emirates’s decision will cut its order book by 2.6 billion pounds ($4.36 billion). Emirates doesn’t use Rolls powerplants on its A380s, opting instead for the alternative Engine Alliance model that’s made by General Electric Co. (GE) and United Technologies Corp. (UTX)’s Pratt & Whitney.
Rolls-Royce said it’s confident the delivery slots dropped by Emirates will be taken up by other carriers, saying it is “disappointed” with the decision to cancel the A350s.
Airbus and Boeing are the only manufacturers of twin-aisle aircraft, a market that’s more lucrative than the narrow-body segment because of the higher prices and margins. Customers are largely purchasing two-engine wide-bodies that are more efficient than the larger superjumbos, with both Airbus and Boeing struggling to add customers for their largest jets.
“Airbus is very confident in its A350 program,” the company said in the release, adding that the order book stands at “a healthy 742 firm orders.”
While the planemaker would like to have Emirates as an A350 buyer, airlines are “hungry” for planes of that size and it should “pick up business elsewhere,” Strickland said.
The A350 will enter commercial service with Qatar Airways, which remains the biggest buyer of the twin-jet that’s largely made of light composite materials. The airliner comes in three sizes -- including the -800 with about 260 seats -- and competes both with the Boeing 777 and the smaller 787 Dreamliner. Airbus has won by far the most orders for the mid-sized version.
While the development of the A350 has been free of major glitches for at least a year -- an increasingly rare occurrence for aircraft programs -- Airbus has struggled to keep the momentum particularly for the smallest variant, with customers dropping purchases to move to bigger planes.
The A350-1000 staged a comeback about two years ago after an order dearth as customers preferred the popular 777.
“The 777 is now increasingly becoming the mainstay fleet of Emirates,” said Dubai-based Martin. “In fact, if you look at how they deploy the 777, the 777 is flying to almost all their key destinations.”