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Airbus Debacle Worsens: New A380 Delays To Cost Billions

European aircraft manufacturer Airbus has plunged deeper into crisis with Tuesday night's announcement that delivery of its giant new A380 jet will be delayed by a further year. The delays caused by wiring installation problems are set to cost €4.8 billion in lost earnings up to 2010. The share price has slumped amid concern that buyers may start cancelling their orders.

Parent company EADS announced further delays to the delivery of the Airbus 380
REUTERS

Parent company EADS announced further delays to the delivery of the Airbus 380

Airbus' parent company EADS, European Aeronautic Defence and Space Co., on Tuesday announced further delays to its A380 superjumbo, sending its share price plummeting and sparking fears that airlines may cancel orders.

Shares in EADS fell as much as 11.7% on Wednesday after the company said it did not expect to deliver its first Airbus A380 superjumbo until the second half of 2007. It is the third delay the company has announced within the last six months.

With the fresh delay of a year, the world's largest passenger jet is now two years behind schedule. Airbus CEO Christian Steiff said the delay was caused by problems with the installation of wiringon the planes.

EADS is predicting a profit shortfall of €2.8 billion over four years on top of €2 billion euros disclosed in June and is embarking on sweeping reforms of its industrial processes in 16 plants in France, Germany, Britain and Spain. The restructuring is aimed at saving at least €2 billion a year in costs from 2010, while increasing productivity by 20 percent.

In 2007 the company expects to deliver just one aircraft, instead of the nine it had promised originally. The first company to take delivery will be Singapore Airlines, and it has now been told to expect its first A380 in October next year instead of December 2006. The inaugural flight is due to take off from London, and the company had even run a competition for seats on the flight. The airline has described the delays as "disappointing."

Airbus has sold 159 of the $250 million jets to 16 airlines and it now aims to deliver 13 of the planes in 2008, 25 the following year, and 45 in 2010. The biggest customers, Emirates and Lufthansa, confirmed Tuesday that they were expecting delays of between 10 months and a year. Lufthansa now expects to see its first A380 aircraft delivered in the summer of 2009.

According to Airbus, there is no sign of any of its customers canceling their orders. CEO Christian Streiff told the BBC, "Everybody is still on board." However, Qantas, which will now receive its first A380 in August 2008 -- two years late -- was more equivocal. Executive General Manager John Borghetti told Reuters: "I'm not going to speculate on that. That's just between us and Airbus." Meanwhile Emirates said it was examining all options.

The European aviation company is expected to have to pay out sizeable penalties to its disappointed customers. While this is expected to actually make the aircraft a more attractive purchase than ever, the constant delays amount to a PR disaster for the company and could well deter prospective customers.

"This could be the tipping point -- not necessarily for those customers that have already ordered the A380, but for those who are about to order some large aircraft," J.B. Groh, an analyst with investment bank D.A. Davidson & Co., told Associated Press.

Another knock-on effect of this latest A380 debacle is that the production of the company's smaller A350 aircraft is now certain to be delayed, as Airbus scrambles to get the supersize jet to its customers. The A350 model will now probably only appear in 2012, instead of 2010 as originally announced. That's a good four years behind competitor Boeing's new long-range, fuel-efficient passenger liner, the 787 Dreamliner. The US company already has 380 orders for the aircraft.

There are concerns in Germany that the delays and restructuring program will lead to job losses at the Airbus plant in Hamburg, amid fears that the entire production of the aircraft could be moved to Toulouse. German Economy Minister Michael Glos is to hold crisis talks with Airbus CEO Christian Steiff in Berlin on Thursday.

Airbus' German works council and the IG Metall trade union issued a statement criticising the management. "Planning and guidelines for the launch of the A380 were totally unrealistic, they said in a joint statement, adding that serious errors of judgment by the management were the main cause of the current crisis. The trade union also warned that it would protest against any threatened job cuts.

According to Spiegel sources, the German government is now considering investing in EADS if the major German shareholder DaimlerChrysler sells further shares in Airbus' parent company.

The state-owned German development bank Kreditanstalt für Wiederaufbau (KfW) might temporarily take over EADS shares to ensure that they stay in German hands and act as a counter-balance to the French shareholders in EADS.

smd/spiegel/ reuters/ap/ftd/bbc

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