Massive A380 order cancellation

Reports from the US say that FedEx has cancelled its order for 10 Airbus A380s, becoming the first customer to actually cancel orders as a result of the delivery delay debacle being experienced by the European manufacture.

Providing the ultimate sting in the tail insult to Airbus, FedEx also announced that he order will instead go to its Airbus’ American rival Boeing, with an order to supply FedEx with 15 Boeing 777 freighters, an aircraft also designed for long-haul cargo flights.

Frederick W. Smith, the Chairman and CEO of FedEx, said that faced with a rapidly growing cargo market, Airbus’s recent decision to delay delivery of the superjumbo jet for at least two years was the reason for shifting its order to Boeing.

Howard Rubel, an aerospace analyst with Jeffries & Company said, “This is a watershed event, with Fedex 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 and 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 added insult to injury, by dropping its options for the purchase of 10 A380s at an unspecified date in the future.

The cancellation also goes well beyond a dollar loss, because FedEx has a reputation for careful decision-making, with the switch bolstering 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.

Until FedEx abandoned the A380, Airbus had 159 firm orders for the aircraft, but far more orders are needed for Airbus to break even, much less earn profits, with in the past, Airbus saying it expected to sell about 750 aircraft.

Other customers could now follow FedEx’ lead, however with Virgin Atlantic Airways, another major customer, saying 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 and Qantas not taking up all its options deciding not to take up options on four out of twelve and extending delivery of some to 2015, an unheard of timescale for the speedily changing aviation business with analysts saying that the A380 could well have been superceded by that date.

Airbus has also been negotiating its largest customer, Emirates which last month sent teams to Toulouse, France, and Hamburg, Germany, the main Airbus production sites, to look into its orders for 43 planes and a second team of Emirates engineers is expected to arrive in Toulouse later this month to study the progress of A380.

Report by The Mole