Aircraft Slowdown

Stall Warning as Airbus Enters 2017

  • Why it matters

    Why it matters

    Sales of Airbus’s A380 superjumbo have ground to a halt and the firm is cutting back production, despite its huge development costs.

  • Facts

    Facts

    • Airbus has cut back production of the A380 from a planned 25 aircraft per year to 10 or 12.
    • Emirates, the type’s largest customer, has agreed to the delayed delivery of 12 of the aircraft.
    • U.S. rival Boeing has also been hit by a slowdown in the aviation market, with Delta Airlines cancelling a big order.
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    Audio

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File photo of the first Airbus A380 superjumbo delivered to Singapore Airlines descending to land at Singapore’s Changi Airport
The A380 superjumbo has become a serious threat to Airbus. Source: Reuters

It’s a sort of ritual. Every year around Christmas, there is speculation about the future of the Airbus A380, the European aircraft maker’s slow-selling superjumbo.

Sometimes it is an ill-phrased statement by the chief financial officer of Airbus that ignites the discussion. Sometimes statements by managers of Emirates, the Persian Gulf airline that is the A380’s biggest buyer, bring the double-decker plane into the headlines.

This year both companies are playing their part in the tradition. On Tuesday evening, Airbus announced an agreement with Emirates to delay the delivery of 12 A380s. Six will be delivered in 2018 instead of in 2017, and six further in 2019 instead of in 2018.

And because Airbus officials know that this sort of news immediately casts doubt on the future of the gigantic jet, they are taking countermeasures. “Airbus confirms the goal of delivering 12 A380s each year starting in 2018,” said the terse announcement.

2017 could herald the beginning of a new crisis for the industry.

Only recently, the head of Airbus, Tom Enders, told news magazine Der Spiegel: “I continue to be optimistic about the future of the A380.” He conceded that Airbus will soon be building only 10 or 12 instead of the once-planned 25 aircraft per year. “But we can maintain that for a few years because we were able in recent years to dramatically lower production costs.”

But such statements won’t stop speculation about an end to the A380. That’s because things also aren’t going well with the modernization of the superjumbo. At the Dubai Air Show in November, the head of Emirates, Tim Clark, was still claiming the A380neo, a new fuel-efficient version, was coming and a model had already been developed on paper. But these plans now seem to have been put back in the drawer.

The word from Airbus sources is that without a business model, the idea won’t be pursued further. Emirates, which had been pushing for the modernization, accepted the decision, according to the industry information service Strategic Aero Research.

Mr. Clark certainly wasn’t loath to make that decision. The same is true for the delivery postponements for the A380. Problems with the new generation of engines are said to have also played a role.

But other reasons are taking over: The Gulf airlines are suffering from the competition they ignited. Emirates’ net earnings in the first half of the year fell by 75 percent to $214 million (€204 million).

The airline is suffering as a result of several developments. First, there is extensive overcapacity in the air travel business. The consequence is that empty seats on airplanes are reducing profits.

Second, strongly increasing supply is meeting up with decreasing demand; tourists are avoiding more and more countries because of geopolitical crises.

Third, whether it be Norwegian in Europe or Jet Blue in North America, low-cost airlines are thrusting themselves into the long-distance routes that until now were the exclusive domain of the premium providers.

Airlines are accordingly reluctant to make investments or are postponing the outlays. This is not only hurting Airbus: Its arch-rival Boeing has also suffered setbacks.

Major U.S. carrier Delta Airlines has now canceled orders for 18 Boeing 787-8 aircraft. These Dreamliners had been ordered by Northwest Airlines, which was taken over by Delta in 2008. Because of excess capacity, there is now no need for the new machines.

The increasing restraint of the airlines is also a sign of rising skepticism on the part of their managers with regard to the coming year. It could herald the beginning of a new crisis for the industry.

Experts expect the price of oil, and hence of aviation fuel, to begin to climb. And there is great uncertainty in key markets. No one knows how things will go in China. And as for the U.S., everyone is waiting tensely about the still-unclear policies of President-elect Donald Trump.

The International Air Transport Association is accordingly cautious about the coming 12 months. It recently predicted that the net earnings of all its member companies will fall from $35.6 billion to $29.8 billion. “That is a very soft landing,” said the association in response to fears of a severe crisis.

Thomas Hanke is Handelsblatt’s correspondent in Paris. To contact the author: hanke@handelsblatt.com

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