Wednesday, June 7, 2017

Airbus Superjumbo May Get Lifeline as Emirates Mulls 20-Jet Deal

Emirates, the biggest operator of Airbus's A380 super-jumbo, is in talks about the purchase of 20 more of the double-decker jets in a move that could extend the lifespan of a program dogged by slow sales, people familiar with the discussions said.

The contract would be worth $8.7 billion before discounts, though negotiations are at an early stage and it hasn’t been established exactly how many aircraft the Persian Gulf carrier requires, according to the people, who asked not to be named because the talks are private. Airbus might also be required to commit to measures to make the A380 more efficient before a deal is signed.

Dubai-based Emirates could reach an agreement to acquire the planes before the end of 2017 for deliveries starting in 2020, two people said. That would hand Airbus a lifeline in maintaining production at a level where it can break even on each jet, after the company warned this week it would have to cut output further in the absence of new orders this year.

Emirates said an email it has no plans “at this time” to buy more A380s, though regularly engages with manufacturers on “product updates and enhancement of current and future aircraft.” A spokesman for Toulouse, France-based Airbus said it doesn’t comment on confidential client discussions.

Shares of Airbus pared loses, and were priced 0.4 percent lower as of 2 p.m. in Paris after earlier trading down as much as 1.4 percent. That values the company at almost 58 billion euros ($65 billion).
Performance Gains

Emirates, the world’s leading long-haul carrier, is by far the biggest buyer and operator of the A380, with orders for more than 140 planes configured for 489 to 615 seats.

Tim Clark, the airline’s president, had indicated that it would buy as many as 200 more super-jumbos if Airbus and engine supplier Rolls-Royce Holdings Plc agreed to develop an upgraded version equipped with more efficient turbines. That’s something the plane-maker is reluctant to do given the lack of demand from other carriers, though Emirates is still pushing for performance improvements, according to one of the people.

The purchase under discussion, which could be split between firm orders and options, may be intended to replace A380s on leases that are set to expire in coming years, rather than to boost capacity at a time when regional demand is at a low ebb.

Emirates will decide in 2018 whether to extend those leases or dispose of the aircraft into the second-hand market, one person said. The carrier posted its first decline in annual profit for five years in the 12 months ended March 31 as the low oil price weighed on Gulf economies.

Airbus sold no super-jumbos in 2016 after Iran scrapped an outline deal, and Didier Evrard, the company’s head of programs, said Monday that a decision would need to be taken on how best to slow output below the level of one plane a month that it said last year should be sustainable from 2018.

Sales chief John Leahy, speaking with Evrard, said Airbus remained in talks that could secure fresh commitments for the A380. He added that he hadn’t given up on maintaining the agreed build rate, which is intended to prolong the program until a hoped-for revival in demand for bigger jets fired by Asian economic growth and crowded runways at major hubs.

While Airbus delivered 27 super-jumbo aircraft in 2015 and 28 last year, the dearth of orders had reduced the backlog to 107 planes as of April 30. Some of those orders may be vulnerable to cancellation or deferral. Adding 20 aircraft to the tally would therefore help sustain the program only in the short-term.

(Benjamin D Katz and Deena Kamel - Bloomberg Business)

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