Airbus Loses $16 Billion Order


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Dubai’s Emirates airline has scrapped a 16 billion dollar order of Airbus’s A350, cancelling all 70 order planes. Airbus saw some decline in the value of their share prices at the news of the order being pulled, but company spokesmen have said that other airlines have jumped at the opportunity to buy some of the airplanes. Emirates, which is Airbus’s largest customer has declined commenting on why the order was cancelled. Airbus has been called the Rolls Royce of commercial jet liners to be produced in Europe, with its biggest competitor Boeing from the U.S.

Issues with Airbusairbus

This recent cancellation made by Emirates is not the first time the airliner has cancelled an order with Airbus. The decision to scrap the order has come from previous experiences in lag of production and on time delivery dates. Emirates had cancelled an order of the A340 back in 2000 due to time frame delivery issues. Emirates was one of the first companies to place an order for the newer and more larger A350 when it placed an order in 2007 for 50 A350-900s and an additional 20 A350-1000s. The order was originally worth about 16 billion dollars, which if it were placed to day it would be worth roughly 22 billion dollars. Airbus like many manufacturers tend to offer bigger discounts to their high end customers, much like when you buy in bulk. The focus of Emirates was once again shifted when Airbus changed the design of the A350 in 2012, giving the company ill feelings on what the projected delivery date was and how the change in design would affect the actual delivery date. The first of the A350’s to be produced has still yet to be delivered, and should be ready some time during the fourth quarter for Qatar Airways according to Airbus. Emirates and Airbus have both said that the final decision that was made in cancelling the order came from the fleet requirements of Emirates.

Maintaining Long Term Relationships

Just because Emirates cancelled this order and one before it, hasn’t changed the customer relationship between the airliner and Airbus as a manufacturer. In fact by cancelling the 16 billion dollar order, Emirates was able to increase their future order with Airbus for the A380 super jumbo jet, a 525 seat passenger jet. Airbus is looking to upgrade its current version of the A380, a move that would satisfy Emirates, its current largest customer. The company is also looking at updating the engines on its smaller fleet of A330’s which would help the company in sales to customers not accustomed to the wide body like Emirates which focuses heavily on international flights. In any case, the model lines that Airbus chooses to update will have long term effects on the type of customers they intend to pick up for regular production. The current relationships with their more frequent and consistent customers in not in danger due to the slight setback produced upon the cancellation of this 16 billion dollar order.

Competition with Boeingairbus 1

Unfortunately for Airbus, the allocated money that Emirates had set aside for the A350 has now been repurposed for the purchase of 150 revamped Boeing 777X, which will be ready for delivery in mid 2020. Boeing and Airbus are two of the biggest competitors in the industry, to date. It is because of their overall growth as manufacturers and the superiority of their products which have thrust both companies into the limelight. Both companies have dismissed what many industry analysts have coined as the bubble effect that has affected other industries globally, where the demand for newer aircraft will eventually downturn due to lack of demand and affordability. Airbus and Boeing alike have been relatively unscathed through the lagging global economic state because of their aging fleets needing to be replaced as the larger carrier companies are looking at long term growth and maintaining current models in operation. Boeing has long had an ace in its hand, as it is one of the top aircraft suppliers for the U.S. military. Should the bubble effect come into play, Boeing’s long term strategy had the company set up to hide in its government contracts which could help propel the company beyond any sorts of long term negative financial effects.

Amid slight devaluation of their share prices, Airbus has come out thus far relatively unaffected by the cancellation of a rather large order. The company says that there have already been a number of airline companies that have jumped at the chance to purchase some of the planes that have been given up by Emirates. Airbus is positive that it will be able to make an even greater profit now, since the original discounts tied into the sale are now void meaning that a greater profit can now be turned onto the new customers looking to pickup these soon to be ready airplanes.

 

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