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Airbus Raises Prospect of Ditching A380 as Orders Vanish - Bloomberg

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Airbus Group NV (AIR) raised the prospect of discontinuing its A380 superjumbo as soon as 2018, the first admission that it may have misjudged the market for the double-decker after failing to find a single airline buyer this year.

While Airbus will break even on the plane in 2015, 2016 and 2017, that outlook doesn’t hold for 2018, forcing the company to either offer new engines to make the A380 more attractive or discontinue the program, Chief Financial Officer Harald Wilhelm told investors at a meeting in London today.

His comments come as 2014 shapes up to be the first since the doubledecker entered service without a new airline customer. Its only buyer was a leasing company that has yet to line up a single carrier to take any of the 20 planes it ordered. The backlog remains as thin as it is fragile, highlighted by the cancellation of six jets ordered by Japan’s Skymark Airlines Inc. (9204), with two close to handover.

In its seventh year in operation, the aircraft that cost $25 billion to develop threatens to become a costly misstep. While popular with travelers, most carriers prefer smaller twin-jet models that are more fuel efficient and can access more airports. Emirates is the only stand-out sponsor, having ordered 140 units, while other airlines have either backed off or are struggling to fill the two decks of the jumbo.

Order Boom

“It’s an excellent plane but it only works for the right destinations,” said Air France-KLM (AF) Group Chief Executive Officer Alexandre de Juniac, who aims to cancel the last two of a dozen A380s on ordered and swap them for smaller models.

Chris Buckley, Airbus’s Executive Vice President, Europe, Asia and Pacific, said the company has been “at fault” in the way it marketed the aircraft, letting carriers customise the interiors in whatever way rather than pushing the high-density credentials of the double-decker.

The four-engine wide-body airliner is a rarity, after Airbus killed its A340. Boeing Co. (BA) said yesterday that it will cut back production of its 747 jumbo.

Emirates President Tim Clark is pushing Airbus to upgrade the A380’s engines to improve fuel efficiency, a move Airbus is resisting because the cost of doing so doesn’t match demand for the plane. Keeping the plane unchanged may mean running down the backlog and eventually shutting down production, now at just under 30 a year, analysts said.

‘A Pity’

“Airbus will be obliged to make a decision one way or the other in 2015,” said Yan Derocles, an analyst at Oddo Securities in Paris, who estimates an engine upgrade may cost Airbus 2 billion euros ($2.47 billion) because of work required on the wing.

An engine upgrade would take about four years, according to Derocles. The A380 now comes with a choice of engines either by Rolls-Royce Holdings Plc (RR/) or a joint venture between General Electric Co. (GE) and United Technologies Corp.’s Pratt & Whitney.

The A380’s lackluster demand contrasts with a boom in orders for other models. Airbus’s bestseller remains its A320 family of single-aisle jets, which it made even more popular by offering new engines. The same concept added momentum to the A330 wide-body jet.

The all-new A350, a twin-engine long-range wide-body plane made of advanced light-weigh materials, has almost 800 orders before its first handover.

‘A Pity’

Airbus has won orders for 318 of the jumbos. That’s a fraction of the 1,200 it thought airlines needed in that size category when it started marketing in 2000. Emirates accounts for 40 percent of the order book, while airlines including Virgin Atlantic Airways Ltd., Hong Kong Aviation and Air Austral are increasingly unlikely to ever take their planes.

Japan and China, originally seen by Airbus as key markets for the A380, have been disappointments, with only one Chinese airline taking 5 units. Boeing’s 747-8i, the only rival, has fared even worse, winning 51 orders from four airlines.

“It’s a pity,” Clark, the Emirates president, said of the A380 “It’s a very big cash generator for us. I just open the doors and the people come.”

Emirates has been successful with its fleet of A380s because the airline uses its Dubai hub as a central point from where to connect major routes around the globe with just one stop. The A380 is also popular on capacity-restricted airports such as London Heathrow, while many smaller airfields lack the infrastructure to accommodate the plane.

Richard Aboulafia, vice president at the Teal Group and longtime critic of the plane, said the new large twin-engine planes coming to the market will be the death of the A380.

“I don’t think it lasts more than a few years into the next decade,” he said of the A380. “The quicker they let go, the quicker they can devote themselves to marketing efforts on other products.”

Seems like its bye, bye A380. Aircraft is old before it lived a decade. Massive failure if they need to stop production, guess boeing was right regarding point-to-point.