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Airbus Bust, Boeing Boost
POSTED: 9:21 a.m. EDT, November 10,2006

Airbus suffered a major setback yesterday when FedEx Corp. canceled its order for 10 A380 super-jumbo jet freighters, adding to the problems faced by the European aircraft maker and its signature program.

FedEx said it would instead buy 15 freighters from Airbus's rival, Boeing Co. Terms of the Boeing deal were not disclosed. The 777 lists for about $235 million.

FedEx chief executive Frederick W. Smith said the switch was necessary to make sure the company would have enough planes to keep pace with the growing demand for delivery services.

"The availability and delivery-timing of this aircraft, coupled with its attractive payload range and economics, make this choice the best decision for FedEx," Smith said in a written statement.

The cancellation could not have come at a worse time for Airbus. The aircraft maker, which is battling Boeing for dominance in the commercial airplane market, has had substantial setbacks in the production of the super-jumbo, the largest commercial jetliner ever made.

Wiring problems have pushed back delivery of the A380 by two years and led to the departure of several top executives. The plane lists for about $300 million.

The company had taken 134 orders for passenger versions of the jet, which can seat as many 550 people, and 25 for freighter versions.

Airbus said in a written statement that it "regrets today's decision made by FedEx, but we understand the airline's need to urgently address capacity growth." An Airbus spokeswoman declined to comment further.

The A380's problems have led to talk in the aviation business that some airlines may pull their orders.

Virgin Atlantic Airways deferred delivery of its first A380s until 2013, and Emirates Airlines, the biggest A380 customer with 45 orders, said it would send a team of auditors to Airbus's home base in France to determine whether the planes would be delivered on their new schedule, according to news reports.

It is not known how FedEx's decision will affect United Parcel Service Inc.'s order for 10 A380 freighters. International Lease and Finance Corp., one of the word's biggest airplane leasing companies, has ordered five A380 freighters.

A UPS spokesman did not return a phone call seeking comment. Representatives of International Lease and Finance could not be reached.

Analysts said that because so few A380 freighters will be in service, FedEx's cancellation might reduce the amount of available spare parts, making the planes more costly to maintain. That alone could push the other customers out of the market, they said.

The Boeing 777 has about the same range as the A380 but can carry only about half as much cargo, according to information supplied on FedEx's Web site.

Jim Proulx, a Boeing spokesman, said only that Boeing was "very, very pleased that we were able to meet the needs of such an important customer."

Industry sources familiar with FedEx's decision said the company's executives grew increasingly frustrated at the delays and Airbus's inability to offer firm delivery dates.

FedEx was supposed to get its first A380s in 2008. But the delays pushed delivery back to 2010 or 2011. The 777s will be delivered over three years beginning in 2009.

FedEx made the decision even after being offered major financial concessions from Airbus, industry sources said.

Airbus has offered airlines huge incentives to keep them from dropping orders. Those deals could make the A380 one of the cheapest wide-body planes to operate on a per-seat basis, analysts said.

Airlines are not likely to cancel their orders because of the incentives offered and because there is not another competitor on the market that could take the place of the A380 in terms of capacity, analysts said.

"This is certainly a public relations blow, and a blow to the program, but it is certainly not fatal," said Scott Hamilton, an analyst for Leeham Co.

From: washingtonpost
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