Airbus Terminates Skymark Order for Six A380 Superjumbos

Airbus Group NV terminated an order for six A380s from Skymark Airlines Inc., in a blow to the manufacturer as it seeks to erode Boeing Co.’s dominance in Japan and rekindle demand for its flagship superjumbo.

Airbus said its decision stemmed from “the airline’s expressed intentions for the aircraft,” adding that it reserved all rights and remedies related to the planes, according to a release today. Skymark President Shinichi Nishikubo said the two sides had been in talks since April, after the carrier told Airbus it needed to alter plans on introducing the plane because of a weaker yen and competition.

“This is going to damage Skymark’s financial situation,” said Senri Sasahara, an individual investor and chief executive officer of Innovative Advisor Corp., which advises on takeovers and mergers. “It gives the impression they are not confident of expanding flights. Management must be pessimistic about their own future.”

Losing the Skymark order extends a drought for the A380, which has failed to attract a new airline customer in two years and drew a blank this month at the Farnborough Air Show, typically a forum for deals. Finding another taker for the first of Skymark’s planes may be tough given that it has already been partly customized. Airbus said in April that Skymark’s first A380 performed its maiden flight and was heading for cabin installation and final painting in Germany.

Changing Contract

Airbus dropped as much as 55 cents or 1.3 percent, to 43.4 euros, and traded at 43.47 euros as of 10:17 a.m. in Paris. Skymark shares dropped 13 percent, the most since May 2011, to 250 yen as of 3 p.m. close of trading in Tokyo today after gaining as much as 12 percent earlier.

Airbus had asked Skymark to become an affiliate with a larger airline as a condition for altering the contract, and then asked for a cancellation fee after the carrier rejected the request, Skymark’s president said. Airbus today didn’t specify plans for re-marketing the aircraft or say if it would return any of the airline’s deposits.

Airbus’s most loyal buyer for the A380 is Emirates, with 50 in service and a total of 140 on order, almost half the backlog. Skymark last month delayed entry into service of the superjumbo by as long as six months, saying specifications of the plane’s interiors don’t match. No other carrier in Japan has bought the aircraft, which typically fits about 525 people.

“It’s hard to see how this ends,” said Richard Aboulafia, vice president at the Teal Group, based in Fairfax, Virginia. “They have exactly one enthusiastic customer.”

Already Painted

Japan is a key battleground for Airbus because the market is a traditional stronghold of Boeing. Airbus logged a success with its A350 wide-body jet when Japan Airlines Co. picked the aircraft instead of the competition, though Boeing still dominates in terms of the overall market share, an anomaly in an industry where the two rivals are otherwise neck and neck.

The only Japanese airline to order the double-decker model, Skymark initially signed a firm contract for four A380s in 2011, and later came back for two more. The aircraft, the biggest and most expensive commercial airliner, has a list price of $414 million per unit, though customers get discounts and the jet would have been cheaper in 2011.

“It’s not an aircraft that can be used regionally or domestically,” said Timothy Ross, a Singapore-based analyst at Credit Suisse AG. “It was a bull-market kind of conception and reality has hit home before it was too late.”

Airbus suffered its biggest-ever plane cancellation last month, when Emirates scrapped 70 A350s valued at $16 billion. Still, it will be easier for Airbus to fill open delivery slots for the A350 than for the bigger A380, given the A350 backlog is for more than 700 planes from a broader customer base.

The aircraft tail had been painted with Skymark’s signature yellow star against blue background when the plane made its first flight. Airbus is already struggling to find airline customers slated for early 2016 deliveries willing to take planes that will come off the production line in late 2015.

Before it's here, it's on the Bloomberg Terminal.