FedEx′s Nixed Airbus Order Sends Parent EADS Into Tailspin | Business| Economy and finance news from a German perspective | DW | 08.11.2006
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FedEx's Nixed Airbus Order Sends Parent EADS Into Tailspin

A decision by US mail group FedEx to cancel its order for 10 Airbus A380 super-jumbo planes caused massive third-quarter losses at Airbus parent EADS. Still, Airbus expressed confidence in the embattled project.

Airbus A380 model with EADS letters behind it

Will FedEx's A380 order cancellation be the first of many?

European aircraft maker Airbus said Tuesday it regretted the decision of US mail group FedEx Corp. to cancel its order for 10 Airbus A380 planes but expressed confidence in its beleaguered superjumbo project.

Production of the A380 -- the world's biggest civilian airliner, which is available as a passenger and cargo plane -- has been beset by difficulties. Deliveries are running two years behind schedule.

FedEx truck

Once on land, FedEx packages are delivered by truck

"We regret the decision by FedEx but we understand that they had an urgent need for the means to continue their expansion," said a spokeswoman for Airbus.

"We think that the A380 freighter will be an excellent plane for the 21st century offering the best performances to its clients," she added.

FedEx turns to Boeing

On Wednesday, Airbus parent EADS said it reported a net loss in the third quarter, a reverse from a profit a year earlier. Its earnings were hammered by the troubled commercial airplanes division, notably the behind-schedule A380 program, and a weak US dollar, the European Aeronautic Defence and Space Co. said. It lost 195 million euros ($245 million) in July-September, from a net profit of euro279 million euros in the year-earlier quarter.

On Tuesday, FedEx Express, a unit of FedEx, said it had pulled out of an order for 10 freighter versions of the European superjumbo "after Airbus announced significant delays in delivery of the A380."

Instead, FedEx Express said it was buying 15 Boeing 777 Freighter planes with options to purchase another 15.

Airbus has orders for 15 other A380 cargo planes, five from US plane leasing group ILFC and 10 from UPS, the US-based rival for FedEx.

Restructuring plan

Over the past months Airbus has repeatedly cited persistent manufacturing problems as the reason for delays. In response to these problems, the company has announced plans to restructure, cutting the number of its suppliers by more than 80 percent, a spokeswoman confirmed earlier this week.

A380 landing in Sydney

Quantas got some: An Airbus A380 passes over Sydney Harbour

The number of suppliers will be reduced "from 3,000 to 500," Airbus spokeswoman Marcella Muratore told AP news service. No further information was available on which suppliers would be dropped or the timetable for the cuts, she said.

Airbus' comment confirmed a report in the German Financial Times Deutschland newspaper Monday that Airbus planned to cut procurement costs by 350 million euros by 2010; the report -- which cited the employee magazine of Airbus parent EADS -- said the amount of components produced in low-wage countries is to rise by 50 percent.

Help for suppliers?

Meanwhile, the German government may come to the aid of sub-contractors caught out by the Airbus crisis, according to two German newsweeklies.

Bildgalerie ILA in Berlin 2006 Airbus A380

Airbus is undertaking a restructuring in response to delivery problems

Der Spiegel and WirtschaftsWoche said Hans-Joachim Gante, who heads an industry group, BDLI, had written to suppliers during the week saying financial aid was possible if companies were in dire straits or on the verge of bankruptcy.

They said the circular had been suggested by the German government, and called for the companies to state the financial impact that the Airbus problems had had on them. Gante said the government was "willing to work with us on a solution."

Airbus has told customers that the double-decker passenger jets, which have nearly completed certification, will be delivered up to two years late, mainly because engineers must learn to use new production software.

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