Jumbo Deal

Airbus steals the air show

Airbus A320neo
The record sale will lift the spirits at Airbus. Source: DPA/Guillaume Horcajuelo

The year had gotten off to a rather poor start for Airbus, and things went downhill from there. But in an unforeseen reversal of fortunes, the European plane maker is now basking in the glory of the largest order in its 46-year history.

The deal inked at the Dubai Air Show on Wednesday features 273 A320neo jets along with 157 of the slightly larger A321neo variant. Airbus chief operating officer Fabrice Brégier hailed “an overwhelming success for Airbus and its A320 aircraft” and an “unprecedented trade agreement.”

The sale of the 430 aircraft to US private equity firm Indigo Partners is valued at $49.5 billion, or €42.2 billion, before discounts that are customary for sales of this magnitude.

“Their objective is to sell aircraft at the best possible and our objective is to buy aircraft at the best possible price.”

Bill Franke, CEO, Indigo Partners

Indigo’s managing partner Bill Franke was quick to point this out after announcing the deal. “Here’s hoping,” the 80-year-old said. “Their objective is to sell aircraft at the best possible and our objective is to buy aircraft at the best possible price.” The deal is also a crowning accomplishment for Airbus’s veteran sales chief John Leahy, who will retire in the coming months after joining the company in 1994. “I’ve known Mr. Leahy for 25 years. Sometimes he wins, sometimes I win,” Mr. Franke said when pressed to disclose more details on the agreed price.

Indigo Partners is a Phoenix-based investment firm specializing in leasing aircraft to low-cost carriers, founded by Mr. Franke in 2002. The planes will be allocated to four carriers across three continents – Denver-based Frontier Airlines, Chile’s JetSmart, Volaris of Mexico and Hungarian airline Wizz Air. Wednesday’s deal is set to reinforce Airbus’s leadership in the re-engined medium-haul market, which the European group dominates with a 55-percent market share.

The surprise announcement is a welcome breath of fresh air for Airbus after an embarrassing false start at Dubai Air Show. On Sunday, the company convened a press conference to announce it had struck a major deal with the state-owned carrier Emirates to sell its A380 double-decker jumbo jet. But instead, it was US competitor Boeing that signed a $15.1-billion deal with the airline.

Airbus-Rekordauftrag über 430 Flugzeuge
Gone with a bang: Airbus sales chief John Leahy (right) signed a record-breaking deal months before going into retirement. Source: DPA/Kamran Jebreili.

The deal also allows Airbus to overtake Boeing in orders this year, with 718 orders against 605 for the Chicago-headquartered company to date. Airbus had been trailing Boeing this year, with its share of the order tally dropping to 35 percent prior to the Gulf expo, down from a roughly 50-percent market share.

Airbus management, meanwhile, is dealing with investigations by German, French, US and Austrian authorities over alleged bribery in the sale of civil aircraft, helicopters and defense equipment. The dispute has triggered a power struggle, with the group’s French number two, Mr. Brégier, trying to oust German chief executive Tom Enders, Handelsblatt has reported. The mushrooming scandal has the potential to affect French-German relations, with both countries holding a 10-percent stake in the company.

And the joy of the mammoth sale will not suffice to clear another cloud on the horizon – the uncertain future of the A380 super jumbo jetliner. Unlike rival Boeing, which recently built the Jumbo 747 as a freighter, Airbus management officially continues to believe in a market for its double-decker, four-engine passenger aircraft. But sales have been sluggish at best. And indeed, Emirates still expresses interest in another order. Sheikh Ahmad ibn Sa’id Al Maktoum, the head of the Dubai-based airline, was present in person at a ceremony for takeover of the 100th A380 in Hamburg, a few days before the start of the Dubai Air Show, and demonstratively expressed that his airline was still in talks with Airbus to buy more jumbo jetliners.

However, apart from Emirates, no other airline is placing orders for the A380, which is difficult to operate. Production is expected to fall in 2018 from the current 15 aircraft per year to 12. From 2019, this should decrease even further to just eight. This is a level at which, considering the costly supply chain, it would be hard to make a profit with the jet.

But there’s still some hope for the European aircraft maker. The Gulf carrier has no interest in an abrupt demise of the A380: If Airbus stopped producing it in the near future, this would abruptly reduce the market value of Emirates’ own gigantic A380 fleet.

Jean-Michel Hauteville is an editor with Handelsblatt Global in Berlin. Jens Koenen leads Handelsblatt’s coverage of the aviation and space industry and writes about IT companies. To contact the authors: hauteville@handelsblatt.com, koenen@handelsblatt.com

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