UPS bails out of contract with Airbus
PARIS: The last customer for the cargo version of Airbuss A380 superjumbo jet said Friday that it was walking away from its $2.8 billion order, citing concerns that the troubled plane maker would not be able to meet even a delayed delivery schedule agreed last week.
The cancellation, by United Parcel Service, came after Airbus confirmed that it had halted work on the A380 freighter in order to divert engineering resources to the passenger version of the plane, now two years behind schedule.
The move Д four months after UPSs rival, FedEx, also abandoned an order for 10 of the planes Д leaves Airbus without a customer for the A380 freighter.
It represents a fresh blow to the company, which faces threats of mass strikes by unions in France and Germany after it announced this week that up to 10,000 jobs might be cut to save billions of euros following costly production delays of the A380.
Yet the UPS cancellation may hold a silver lining for Airbus.
The plane maker has said repeatedly in recent months that the lack of large orders for the A380 cargo jet made it possible to focus on getting 166 orders for passenger versions of the plane delivered to airlines as quickly as possible.
With UPS now abandoning its 10 production slots, Airbus should be able to offer them to other key airline customers, like Emirates or Qantas, which are eagerly awaiting the superjumbo.
UPS said its decision would be formally presented to Airbus at the first opportunity allowed under the terms of an agreement reached last week that gave either party the right to cancel the order.
The precise date has not been disclosed, but John Leahy, the Airbus chief operating officer for customers, said last week that the date fell in the second half of this year.
The announcement appeared to catch Airbus by surprise. In an e-mail exchange hours before the announcement, Leahy indicated that he had not been expecting a decision by the parcel delivery company for some time. “The order remains on our books until UPS makes a final decision,” Leahy wrote, which he said the company indicated would be “later this year.”
UPS, the worlds largest package delivery company, had originally expected its order Д valued at $2.8 billion at list prices Д to be delivered beginning in 2010. The company disclosed Friday that the latest agreement with Airbus had pushed those deliveries back by two years, to 2012.
“UPS had intended to complete an internal study of whether it could wait until 2012 for the aircraft, but now understands that Airbus is diverting employees from the A380 freighter program to work on the passenger version of the plane,” the company said.
David Abney, UPSs chief operating officer and president of UPS Airline, said: “Based on our previous discussions, we had felt that 2012 was a reasonable estimate of when Airbus could supply this plane. We no longer are confident that Airbus can adhere to that schedule.”
Barbara Kracht, an Airbus spokeswoman, declined to comment on whether the plane maker would seek to persuade UPS to change its mind. “We respect the customers decision,” Kracht said. “UPS is and remains a reliable business partner for Airbus.”
Analysts said the Airbus decision to reallocate personnel to other programs made perfect sense from an industrial point of view. “All available resources are needed for work on the A350 and the A380 passenger version,” said Richard Aboulafia of Teal Group in Fairfax, Virginia. “Demand for the cargo A380 is minimal at best.”
Airbus had forecast a market for as many as 400 cargo versions of the A380.
Meanwhile, some said UPSs abrupt decision to cancel one week after agreeing to a revised delivery schedule suggested that the company was piqued at Airbus for not communicating its plans earlier.
“This is another slap in the face for Airbus,” said Doug McVitie, a consultant at Arran Aerospace in Dinan, France. “UPS will probably turn to Boeing now for good.”
Last month, UPS announced an order for 27 Boeing 767-300ER freighters worth about $3.8 billion. Those planes are due to be delivered from 2009 to 2012. UPS said at the time that the Boeing order was not related to its review of its A380 order.
Airbuss parent, European Aeronautic Defense Space, warned last month that A380 production problems and the continued weakness of the dollar against the euro would push the company to a significant financial loss for 2006.
EADS is scheduled to report its full- year results next Friday.
