Airlines are routinely known to write up multi-billion dollar orders to two of the most powerful plane-making companies; Airbus and Boeing. However, Airbus has suffered an expected and frankly speaking, large setback as its most loyal customer, Emirates Airlines, cancelled its order.
Dubai's Emirates Airlines, tore-up an order valuing $16 Billion, mere months before the long-haul jet is due to enter service. Emirates Airlines is the largest customer of Airbus and the cancellation of the order is certainly not a small hiccup. The canceled order strips away 9 percent of the order backlog for a plane which took eight years and $15 billion to develop, reported Reuters.
The news has badly affected not just Airbus, but also engine and related components maker Rolls-Royce. The European plane-maker as well as Rolls-Royce witnessed significant reduction in their cumulative wealth as share prices plummeted. The fall of the shares was quite sharp when analysts told investors, the abrupt move by Emirates raised serious long-term questions over the aircraft's demand; whether for the A350 itself or implying a more general wobble of confidence that could hurt Airbus's main rival, the U.S. plane-maker Boeing as well.
Shares in Airbus settled down 3.1 percent at 52.21 Euros ($70.5) and those of Rolls-Royce, fell 5.5 percent to 10.17 Pounds ($17.10). But the surprising part about this whole unfortunate debacle is that Airbus decided to play it cool and accepted the decision, without strongly urging Emirates to reconsider, reported Bloomberg.
Airbus Sales Chief John Leahy told reporters, "It is not good news commercially but not bad news financially. There is certainly going to be no hole in production"
Interestingly, Airbus said it isn't worried about replacing the lost orders. Its top salesmen are apparently in talks with some airlines and they have immediately expressed interest in buying some from the Emirates' cancelled order. Emirates Airlines was set to receive the entire fleet in 2019. Apparently Airbus hasn't ceased production of these 70 aircraft. Hence the other airlines who do order will get planes within the same time-span. With all 'Delivery Slots' booked for 2020, Airbus will have "no trouble" selling the planes, said Leahy.
The deal was worth around $16 billion according to 2007 list prices, but would be worth close to $22 billion if placed now. However, since these planes now fall under 'cancelled order' status, customers will surely drive a hard bargain.
Airbus is already trailing its arch rival Boeing. Coupled with this setback, it would be interesting to see how low Airbus will go, to ensure its newest planes stay in the sky.
[Image Credit | 24 Tanzania]