Airbus’s Emirates Deal to Save A380 Jumbo Has Stalled
Airbus A380-Saving Emirates Deal Is Stalled Due to Engine Impasse
(Bloomberg) -- Airbus SE’s latest order for the A380 superjumbo has reached an impasse amid drawn-out talks involving the engines, according to people familiar with the matter, possibly imperiling a crucial deal seen as a life-saver for the giant aircraft.
The $16 billion accord for as many as 36 additional double-decker aircraft has hit a snag as Emirates negotiates with Rolls-Royce Holdings Plc on price and fuel burn on an engine that’s already falling short of performance parameters, said the people, who asked not to be named discussing confidential information. The companies have missed a deadline to select the engines, possibly delaying first delivery in 2020 -- and even threatening the deal outright.
Emirates, the A380’s only major customer, came to the rescue in January, signing on for more after months of tense back-and-forth. The Dubai carrier accounts for about half the total order book, having switched to Rolls-Royce as its engine provider a few years ago after using a joint venture between General Electric Co. and Pratt & Whitney on the first batch of the aircraft.
That duo, called Engine Alliance, is the only competitor for the A380 engine, but the JV partners haven’t aggressively pursued the bid at supplying the 36 planes because they’ve not picked up new orders in years and have turned their attention to other programs, said the people. Besides Emirates, the Engine Alliance model is flown by Etihad Airways PJSC, Qatar Airways, Korean Air Lines Co. and Air France.
Engine Alliance has offered to provide Emirates with more of the GP7200 engines, which have “exceptional fuel burn and durability,” the venture said in an emailed statement. “We look forward to an Emirates announcement, and we are also focused on supporting their fleet for decades to come.”
Spokesmen for Airbus, Rolls-Royce and Emirates declined to comment.
Airbus shares fell as much as 1.8 percent after the Bloomberg report, and traded 0.4 percent lower at the close in Paris. Rolls-Royce lost 4 percent in London.
Airbus separately on Monday named commercial-aviation chief Guillaume Faury as its next chief executive officer, succeeding outgoing Tom Enders next year. With talks with Emirates stalled, the final decision could fall to Faury on whether to scrap the superjumbo program.
When Rolls-Royce took over from Engine Alliance in 2015, the $9.2 billion deal to power 50 aircraft was heralded as a historic milestone for the U.K. manufacturer. But Rolls-Royce hasn’t being able to meet the fuel-improvement guarantees it previously promised, according to a person familiar with the talks. Rolls-Royce itself has racked up millions in charges against durability issues on the engine’s high-pressure turbine blades.
Sale Delays
Airbus needs the latest Emirates A380 deal if it wants to see the entire program continue. Originally earmarked for the Dubai Air Show in November last year, the sale was delayed on concern Airbus might not commit to the future of the program because of slack orders. Emirates then came through in January with a firm order for 20 aircraft and 16 options, which would bring the airline’s total order book to 178 aircraft. Of the overall A380 aircraft yet to be delivered, more than half are destined for Emirates.
The A380 has been on shaky ground for years. Designed as an answer for the surge in passenger traffic at the world’s busiest airports, the four-engined, 550-seat behemoth has found favor at just a handful of operators that are able to fill the plane and make the fuel-burn economics feasible. Emirates is by far the largest buyer, and its existing fleet risks losing significant re-sale value if the program ends up getting scrapped.
Airbus is cutting production of the plane to six a year from 15 in 2017 in an attempt to stretch out the remaining order book for the plane. The planemaker has in the meantime been trying to use the latest Emirates deal to sign on additional buyers, including from British Airways, which have so far not materialized.
--With assistance from Richard Clough.
To contact the reporters on this story: Benjamin Katz in London at bkatz38@bloomberg.net;Layan Odeh in Dubai at lodeh3@bloomberg.net
To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Benedikt Kammel
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