Turbulent times

European aircraft maker Airbus is having a turbulent time. The latest production delay for its A380 superjumbo, means that it is two years behind schedule, and this will no doubt cause problems for the company.

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By  Barbara Cockburn Published  October 10, 2006

|~||~||~|European aircraft maker Airbus is having a turbulent time. The latest production delay for its A380 superjumbo, means that it is two years behind schedule, and this will no doubt cause problems for the company. The production of such a large aircraft was always going to be a challenge, as much as for any other aircraft manufacturer. Additionally the firm has announced that financing for the A350 XWB may not be available and that major cost-cutting is necessary. On top of that, co-CEO of EADS, Louis Gallois, becomes the third Airbus CEO since July 2005, following the resignation of Christian Streiff after just three months on the job. Aviation analysts don’t think carriers in the region, namely Emirates, Etihad Airways and Qatar Airways, will cancel orders because the cost reduces with every concession and fine that Airbus has to pay, but they may demand compensation. According to a London news source, Airbus is keeping aside around 1.0 billion euros (US$1.26 billion) to compensate airlines for the delays. The European Aeronautic Defence and Space company (EADS), the Franco-German parent company of Airbus had said in a statement last month that it expected the A380 programme would cut expected cash flow by 6.3 billion euros from the previously estimated figure for the period 2006-2010. Part of this was an increase of 1.5 billion euros in the working capital needed to run the business. The remaining airlines of the region that are considering taking on new planes could well become frustrated and move in the direction of US manufacturer Boeing for its stretch version of the 747, which seats 450 passengers compared with the 550 seats on the A380. "While Emirates, the largest buyer of A380, will not cancel any of its 43 superjumbo orders worth $12.5 billion, it cannot be expected to wait indefinitely to sustain the momentum of its growth. So it will look for new aircraft options to fill the gap. In such a scenario, Boeing 747-8 can be an ideal choice," one analyst pointed out. The industry is a cyclical one and Munawar Noorani, Citigroup’s director of global aviation and chairman said at a conference in Dubai recently: “The industry is demonstrating its resilience. Even with adverse events such as five years of losses, fuel stocks, fare transparency and low cost carriers in the market with lower than average fares, but to great satisfaction we have survived.” Will the Airbus team be saying the same thing? ||**||

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