European aircraft maker Airbus on Thursday announced that it had signed a memorandum of understanding with Emirates airline to purchase 20 Airbus superjumbo A380 passenger jets, along with an option on 16 more, for a total of $16 billion at list prices. The order, if it is eventually firmed up, would be the first new order for the Airbus planes in more than two years.
Last year Airbus delivered 15 of the massive jets and 41 of the remaining backlog were already set to fill previous orders from Emirates. Airbus plans to cut production of the planes to eight per year in 2019, and the new order extends the life of the A380 to around 2029.
As late as 2016, Emirates CEO Sir Tim Clark said his airline would order 200 more of the planes if Airbus would upgrade the A380’s engines to a more fuel-efficient version. Today’s announcement falls well short of that number and likely represents an agreement that buys Airbus additional time to drum up more orders for the plane.
At a signing ceremony this morning, outgoing Airbus sales chief John Leahy said:
This new order underscores Airbus’ commitment to produce the A380 at least for another ten years. I’m personally convinced more orders will follow Emirates’ example and that this great aircraft will be built well into the 2030s.
What Airbus has agreed to do is to continue building the A380 at least through about 2029, and in return Emirates has agreed to accept fewer of the planes per year. Teal Group analyst Richard Aboulafia had this to say about Airbus, Emirates and the A380 last November:
[G]uaranteeing a production line for 10 years is a difficult demand. To do that, Airbus would need to really believe that the A380 has some kind of future outside Emirates, despite all the trends that clearly indicate the market thinks otherwise. Meanwhile, Airbus will need to continue losing millions of dollars on each A380 it delivers to one customer, which may or may not be willing to go back to 11-per-year acceptance rates.
If Airbus guarantees the line and then finds it too painful to keep going after five years, it will face demands for compensation from Emirates, whose A380 residual values would decline as a result of the line closure. That could easily run into the hundreds of millions of dollars, above and beyond the lawyers’ fees.
Unless those other orders materialize, however, the A380 will continue to be a money-loser for Airbus and Aboulafia’s prophecy may well come true.
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