FedEX cancels A380 order

FedEx canceled an order for 10 Airbus A380s on Tuesday, becoming the first customer to abandon the European superjumbo jet in the wake of production delays that have shaken the company.

The order will instead go to its American rival Boeing, which will supply FedEx with 15 Boeing 777 freighters, a plane also designed for long-haul cargo flights.

Frederick W. Smith, the chairman and chief executive of FedEx, faced with a rapidly growing cargo market, cited Airbus’s recent decision to delay delivery of the superjumbo jet for at least two years as the reason for shifting its order to Boeing.

“This is a watershed event,” said Howard Rubel, an aerospace analyst with Jeffries & Company. FedEx was “meticulous, thoughtful and analytical when they made their decision to buy the A380. They are an ideal lead customer, and for them to turn around in relatively short time and pull out is a stunning reversal.”

Mr. Rubel noted that this was the first time in a decade that FedEx would buy new Boeing planes. One reason, he suggested, was Boeing’s ability to deliver the 777 as early as 2009, as well as the flexibility of the twin-engine long-haul plane for many different routes.

FedEx also dropped its options for the purchase of 10 A380s at an unspecified date in the future.

The cancellation goes beyond a dollar loss. Because FedEx has a reputation for careful decision-making, the switch bolsters the reputation of the 777 at a time when the market for long-haul international cargo planes is growing faster than the international passenger market.

“It’s like the 777 just got the Good Housekeeping seal of approval,” Mr. Rubel added.

Until FedEx abandoned the A380, Airbus had 159 firm orders for the plane. Far more orders are needed for Airbus to break even, much less earn profits. In the past, Airbus has said it expected to sell about 750 planes — the A380 will be the largest commercial jet ever built, seating at least 555 passengers — during the life of the program.

The value of the FedEx contract for Airbus was confidential, but the passenger version of the A380 lists for about $300 million. Airbus may not lose as much as $3 billion in revenues from the order, though; freighters sell for less because their interiors are not as elaborate. Moreover, the FedEx order was placed at rates that would have prevailed in 2001, an Airbus spokeswoman, Barbara Kracht, said.

Other customers could follow FedEx’s lead, however. Virgin Atlantic Airways, another major customer, said less than two weeks ago that it was postponing for four years its order for six Airbus A380s, making it the first airline to step back from its commitment.

Airbus has also been jousting with its largest customer, Emirates Airlines, which last month sent teams to Toulouse, France, and Hamburg, Germany, the main Airbus production sites, to look into its orders for 43 planes. A second team of Emirates engineers is expected to arrive in Toulouse later this month to study the progress of A380s there.

Edmund S. Greenslet, publisher of Airline Monitor, a commercial aviation trade publication, said he doubted other airliners would follow suit. Mr. Greenslet pointed to the decision late last month by Qantas Airways of Australia to convert its options to purchase eight A380s into firm orders.

“I don’t think that this will start a landslide and cause other airlines to say, ‘Well, if FedEx is canceling, I will, too,’ ” said Mr. Greenslet. “Other airlines have made their own judgment and are basically committed to the plane.”

The cancellation by FedEx means that Airbus now has outstanding orders for just 15 freighter versions of the A380.

United Parcel Service ordered 10 A380s in 2005 and has options to buy 10 more. The remaining five will go to the International Lease Finance Corporation, an aircraft leasing company based in California.

A spokesman for U.P.S., Mark Giuffre, said that the company was in regular contact with Airbus about its A380 orders and had yet to make a final decision about whether to modify or cancel them. U.P.S., which had originally expected to receive its first A380 in September 2009 has been told by Airbus that the first delivery will not be made before the middle of 2010.

“We are asking for more detailed information from Airbus before making any decisions,” said Mr. Giuffre. “We are not making any changes to our order for now, but as a business, we have to be prudent in making sure that we can meet the needs of our customers over the long term.”

Airbus announced its first delay for the A380 last year, because of problems with wiring in the planes built at its factory in Germany. In June, Airbus announced another delay and appointed a new chief executive, who then stepped down in October. He had begun laying the groundwork for a cost-cutting program aimed at shaving 2 billion euros ($2.5 billion) from annual costs.

To achieve that goal, Airbus plans to reduce the number of suppliers it uses to 500, from 3,000, though that shift will affect general procurement of things like office supplies and furniture rather than aircraft parts. Thousands of jobs are also at stake.

With Airbus in the deepest crisis of its 36-year history, some analysts say it will be difficult for the company to obtain many more new orders for the A380. Airbus, the main subsidiary of the European Aeronautic, Space and Defense Company, said it regretted the FedEx decision. “That said, we respect their need to address capacity growth,” an Airbus spokesman, David Voskuhl, said.

Boeing, meanwhile, enjoys new success for its 777, the world’s longest-range twin engine aircraft. It will replace FedEx’s aging fleet of McDonnell Douglas-11F cargo jets.

Ray Conner, vice president of sales for the Americas at Boeing Commercial Airplanes, said, “We’re looking forward to working with FedEx on this new chapter in our relationship.”

Carter Doughtery reported from Frankfurt and Leslie Wayne from New York. Nicola Clark contributed reporting from Paris.