Accessibility links

Airbus Future in Question After Major Misstep


Officials from the parent company of aircraft manufacturer Airbus are meeting in Germany to discuss aircraft delivery delays announced last week, which have cost the company billions of dollars.

The A-380, the world's largest commercial plane, was supposed to lift European jet manufacturer Airbus to new heights of profitability. Instead, the company appears to be crashing under the weight of production delays.

Parent company EADS lost more than $6 billion of its market value last week after Airbus announced the second delay since construction on the super jumbo jets began.

Richard Aboulafia, an airline industry analyst at Virginia consulting firm Teal Group Corporation, says Airbus may be learning that bigger is not always better. "I think Airbus has lost about 10 years in new product development money and they desperately need to turn their attention now to the market that matters," he said. "Obviously until they recover from this stumble, Boeing is the big gainer."

Shares of U.S.-based Boeing rose sharply after news of the Airbus delay. Singapore Airlines, the first carrier to order the 555 passengers A-380, demanded compensation for the delays. Then it bought 20 of Boeing's smaller 787's for more than $4.5 billion.

"There's a strong risk right now because most of the world's airlines are shopping for planes that are smaller and the expectation was that Airbus would offer them something."

Adding to Airbus's troubles are questions about how much the company's management knew about the delays. Last week shareholders learned Airbus co-chief executive Noel Forgeard made $3 million after selling company shares.

Aboulafia said management changes may be necessary to restore the company's credibility. "Airbus needs to take action now. It no longer has the luxury of time, it has to make sweeping management changes and it has to bring in leadership that really understands where the resources need to be devoted," he said.

At least four airlines say they plan to renegotiate their orders for the new Super Jumbo Jets. Airbus warns delays and late delivery penalties could cut the company's operating profits by $625 million every year from 2007 until 2010.

XS
SM
MD
LG