In our previous posting yesterday, Supply Chain Matters highlighted the sudden delay in first customer ship of the brand new Airbus A350. Launch customer Qatar Airways announced that it was delaying delivery of the launch A350 XWB aircraft without citing a specific reason for the postponement. Reports seem to indicate that rather than a major setback, Qatar, an influential and highly demanding airline customer is exercising its negotiating powers.
We further echoed reports that a new era of air travel has facilitated a shifting of influence among global airlines in favor of deep-pocketed Middle East based carriers such as Qatar and Emirates.
News of this week’s sudden announcement caused Airbus stock to drop over 10 percent on the Paris exchange immediately after the announcement. It would appear however, that there was other related news that might have prompted the selloff, namely the Airbus investor conference in London where other announcements were made.
At the investor conference, Airbus indicated that it was cutting the production of the long-range A330 model to nine aircraft a month from the current level of ten, and a subsequent further cut in 2016, prompted by a weakening of demand for that model. Instead Airbus executives indicated that they will explore plans to develop and introduce a new A3330 neo model.
At the same conference, Airbus’s CFO reportedly indicated that the aerospace company would break even on its super jumbo A380 long-range aircraft though 2018 “if we do something on the product, or even if we would discontinue the product.” He also cautioned that inventory levels would rise in 2016 amid ramp-up of the new A350 program and that cash flow could be negative.
The largest existing customer for the A380 is Emirates Airways.
Earlier today, both Reuters and The Telegraph reported that Tim Clark, the head of Emirates, was one very unhappy customer upon hearing the Airbus news concerning the A380 program. Clark indicated to Reuters that Airbus could double its investment on this aircraft if it agreed to upgrade the model. In a telephone interview to Reuters, the Emirates CEO indicated: “I am not particularly happy as you can imagine.” The article further states: “Clark said he was worried about the effect Airbus’s sombre message would have on future A380 purchases by other airlines, as well as the supply chain and the European aerospace industry which has been a darling of politicians by creating jobs.” Clark further raised broader questions about Airbus’s product strategy for wide-bodied jets, threatening to hold Airbus’s feet to the fire to deliver all of its contracted aircraft to Emirates.
The Telegraph indicates in its reporting that on the second day of the London conference, Fabrice Bregier, head of the commercial aircraft segment sought to ease the row, indicating: “We will one day launch a 380neo, we will one day launch a stretch. This is so obvious, there is extra potential. Where is the problem with the A380?”
In our previous posting we referenced the stunning June announcement by Emirates to walk away from a 2007 deal to purchase 70 A350 aircraft. In today’s Reuters report, the Emirates CEO indicated that he wanted to look at in-service performance data on the A350 before deciding whether to place a new order.
The takeaway at this point is that in one week, Airbus has managed to get embroiled in openly communicated unhappiness among its top two most influential long-range, wide body customers. Once more, in the case of Emirates, product strategy for the expensive A380 program has become a public debate, and, at least for the moment, the Airbus supply chain ecosystem is caught in the middle.
And you might have thought that you had a bad week.