FedEx cancels Airbus jet order

Production delays prompt redirection of contract worth billions to Boeing

November 08, 2006|By Bloomberg News

NEW YORK -- FedEx Corp. scrapped an order for 10 Airbus A380s yesterday and switched to Boeing Co. 777s, the first cancellation as a result of repeated production delays on the world's largest commercial jet.

With the A380 program already struggling, "this could potentially be the domino that knocks the whole thing down," said George Hamlin, vice president of aviation consulting firm Morten Beyer & Agnew, adding that Airbus should consider ending the program.

FedEx's move marks the latest setback for Toulouse, France-based Airbus SAS after three A380 delays in 16 months spurred the departure of two top executives and prompted airlines to demand compensation and consider canceling orders. Airbus is a unit of European Aeronautic, Defence & Space Co.

The FedEx order for 15 Boeing 777 freighters is the biggest ever for the plane, with a list value of as much as $3.6 billion. The world's largest cargo airline will get its first 777 in 2009 instead of waiting until at least 2010 for an A380.

"Airbus has a heck of a mess on its hands, and Boeing is ready with its planes," Jim Corridore, a Standard & Poor's analyst, said in an interview. "You have to know you're going to be able to get what you need when you need it."

Emirates, the biggest A380 customer, is sending a team of auditors to Airbus factories to determine whether there will be a fourth production delay on its 45 planes. Virgin Atlantic Airways Ltd. postponed its A380 order last month.

"Airbus regrets the decision made by FedEx, but we understand their need to urgently address their capacity growth," said Barbara Kracht, an Airbus spokeswoman. "We continue to believe the A380 is an excellent aircraft."

Boeing's shares climbed $4.37 to close at $84.85 yesterday on the New York Stock Exchange. Shares of FedEx rose $1.09 to $115.03.

Shares of Airbus parent EADS declined 3 percent to 20.66 euros ($26.39) in Paris, the lowest level in a month. Airbus and Boeing are the two largest competitors in the $60 billion-a-year commercial aircraft industry.

FedEx's A380 order had a list price of $2.3 billion, and the company originally was supposed to begin receiving the planes in 2008 as it expands to meet growing demand for international freight shipments. Airbus later revised that delivery schedule to 2009, then pushed it back to 2010.

"FedEx has made significant investments in our network to meet customers' needs and fulfill our business objectives," Chief Executive Officer Fred Smith said. "It was necessary and prudent for us to acquire the Boeing 777 freighter."

UPS Inc. said yesterday that it's still evaluating information from Airbus on delays and hasn't made any decision on changing its 10-plane order. International Lease Finance Corp., a unit of American International Group Inc., has ordered five A380 freighters. The company didn't return calls seeking comment on its order.

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