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Airbus Hit Hard by A380 Setback

In delaying deliveries an extra year, the jet maker will see profit cut an additional $3.6 billion.

October 04, 2006|Peter Pae | Times Staff Writer

Airbus' woes worsened Tuesday as the world's largest aircraft maker said deliveries of its flagship A380 super-jumbo jet would be delayed a year longer and airlines began considering the possibility of canceling their orders.

Two of Airbus' biggest customers -- Emirates Airlines and International Lease Finance Corp. of Century City -- said they were considering all options. That includes terminating orders for the $285-million aircraft, capable of carrying 555 passengers.

"This is a very serious issue for Emirates," said Tim Clark, president of the Dubai-based carrier, which with its $13-billion, 43-plane order is Airbus' largest A380 customer.

The threats came after Airbus informed airlines that the first A380 would not be available until October 2007 -- more than 18 months behind its original schedule -- because of problems installing electrical wiring.

Some airlines can expect delays of more than two years from the dates they were initially promised, Airbus said.

The latest delay, Airbus' third in a year, is likely to bolster rival Boeing Co.'s plans to build a larger version of its venerable 747 jumbo jet to compete against the A380. Chicago-based Boeing has had difficulty selling its latest 747 variant, the 450-seat 747-800. But the latest Airbus troubles could prompt carriers "sitting on the fence" to make a move, an airline industry executive said.

"Boeing may make inroads with the 747-800," said John L. Plueger, president of International Lease Finance, the world's largest jet-leasing company. "It could spur the launch of the 747-800."

Shares of Boeing rose $1.18, or 2.3%, to $81.78. Airbus' parent, European Aeronautic Defense & Space Co., rose 1% in Paris before the announcement.

Analysts said suppliers of parts for the A380, including about 100 Southern California companies, were unlikely to be affected significantly by the new delay. Other Airbus aircraft such as its single-aisle A320 line are selling well, and in recent years the company has had to ramp up production to meet demand.

Although A380 parts come from thousands of suppliers around the world, Airbus completes most of the assembly in Toulouse, France, and Hamburg, Germany. The latest delay was caused by problems with wiring installation at Hamburg, where much of the fuselage is assembled.

Airbus said the latest postponement would slash about $3.6 billion from its earnings over the next four years, bringing the total cost of the delays to more than $6 billion. As a result, the company, based in Toulouse, does not expect to post a profit until after 2010. Airbus said that to mitigate the loss it planned to cut about 20% to 25% of its managerial and support workforce not related to aircraft production. Airbus employs about 90,000 people.

"It is very disappointing that we find ourselves in this situation, but we need to be realistic with ourselves and our customers," said Christian Streiff, Airbus' president and chief executive. He was appointed to the position three months ago after the company shuffled top executives in the aftermath of a previous production delay.

Despite threats of cancellation, Streiff said no customer had given any indications of canceling orders.

"Everybody is still on board," he said during a conference call with reporters and analysts. Airbus has orders for 159 A380s from 14 airlines and two air cargo companies.

Airbus in June cited the wiring problems for the A380's second delay, which the company at the time said would push back production by about six months. But Streiff said a full analysis had revealed that the problems were much worse than expected.

The installation of wiring, which was expected to take two months for each plane, has grown to nearly six months, mainly because the computer software used to design the wiring system was not compatible with the A380's main design and engineering software, Streiff said. So when the fuselage assembled in Hamburg came to Toulouse to be mated with other parts, the wiring didn't match.

Scott Hamilton, an aviation consultant with Leeham Co. in Issaquah, Wash., doubted that customers would cancel A380 orders, noting that the carriers have a long-term interest in having two strong aircraft makers competing for their business.

Besides, he added, "by the time airlines get through raking Airbus over the coals and getting them to pay the penalties, they'll have the cheapest wide-body airplanes in the world."

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peter.pae@latimes.com

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