Airbus to Cut A380 Output Below One a Month If No New Orders

(Bloomberg) -- Airbus SE is planning a further cut in build rates for the beleaguered A380 superjumbo airliner amid a continuing dearth of new orders for the 525-seat behemoth.

Airbus is assessing how best to drop output below the 12 planes a year, known as “rate one,” that the company said in July should be sustainable from 2018, the manufacturer's head of programs said Monday in Cancun, Mexico. A decision will be made before the end of this year in the absence of further sales.

“It's likely that we may have to go below rate one, and we will do that,” the Airbus executive, Didier Evrard, said at a briefing on the sidelines of the International Air Transport Association's annual meeting. “We will continue to study opportunities to go below, while keeping our program as easy as possible on the financial side.”

Airbus is in talks that could secure fresh commitments for the A380, and the Toulouse, France-based company might also bring forward jets from the existing backlog to bolster rates if it's decided that 12 planes a year are necessary to break even on a unit-by-unit basis, sales chief John Leahy said at the briefing.

“I'm trying to maintain 12, he's trying to protect if we have to go below that,” Leahy said of Evrard's comments, while adding that there's no truth to suggestions that completed A380s are already being parked amid a lack of customers willing to take them.

Airbus fell as much as 0.8 percent and was down 0.2 percent at 74.63 euros as of 9:14 a.m. in Paris. That pared the stock's gain this year to 19 percent, valuing the planemaker at 57.8 billion euros ($65.1 billion).

Emirates Opening

Leahy said Airbus is seeking to manage the A380 program through “a period of softness in the market for large aircraft” and hasn't given up on the model. Still, the production cut announced last year was widely regarded as the beginning of the end for the double-decker, with output to be slashed from a break-even rate of 27 deliveries achieved in 2015.

Airbus won no new A380 orders in 2016 after Iran opted not to go ahead with an outline deal for 12 planes. At the same time, the manufacturer handed over 28 aircraft. Subsequent deliveries had reduced the backlog to 107 as of April 30, though some of those may be vulnerable to cancellation or deferral.

A follow-up order from Dubai-based Emirates, the No. 1 operator of the A380, may now be the only development likely to stave off the program's demise. Airbus had wanted to put the jetliner on life support until a hoped-for revival in demand fired by Asian economic growth and crowded runways at major airport hubs.

While Emirates is due to have A380s coming off lease in the next few years, it had aimed to replace them with an upgraded variant that Airbus and engine suppliers have been reluctant to develop for a single operator. The Persian Gulf carrier in December also put back six A380s due in 2017 and the same number scheduled for 2018 by a year, prompting Airbus to say it would accelerate cost cuts at the operation while reiterating the 12-a-year production goal.

Zodiac Concerns

Airbus still has concerns regarding quality-control issues at seats-and-interiors manufacturer Zodiac Aerospace, Leahy said at the briefing, though the French supplier is catching up with deliveries. Finnair Oyj Chief Executive Officer Pekka Vauramo said earlier in Cancun that all nine A350 jets it has received will need refitting by the planemaker because of problems with their Zodiac-supplied business berths.

The planemaker last year handed over 49 A350s plus two test models, versus a target of 50, only after a December surge that saw previously built jets rapidly fitted out with delayed interiors. It had delivered only 12 of the planes in the first half.

Production of all A320neo single-aisle planes powered by engines made by the Pratt & Whitney unit of United Technologies Corp. also remains delayed to some extent, Leahy said.

To contact the reporter on this story: Benjamin Katz in Cancun, Mexico at bkatz38@bloomberg.net.

To contact the editors responsible for this story: Chris Reiter at creiter2@bloomberg.net, Christopher Jasper, Brendan Case