Airbus A380 Program Suffers Fresh Blow

Friday, March 2nd 2007, 3:56 pm
By: News On 6

PARIS (AP) _ Airbus was left with an empty order book for the cargo version of its much-delayed superjumbo plane after UPS Inc. said Friday it would cancel its order for 10 A380s.

The move comes just a week after UPS, the world's largest shipping carrier, and Airbus announced a revised agreement that gave either party the right to terminate the order.

In a statement, Atlanta-based UPS said it decided to cancel after it learned Airbus was diverting employees from the freighter program to work on its passenger plane program.

UPS said the final cancellation decision will be formally presented to Airbus on the first date specified under last week's agreement.

``We lost confidence in their ability to meet those schedules,'' UPS spokesman Mark Giuffre said of the A380F agreement with Airbus.

The announcement by UPS comes four months after rival FedEx Corp. also scrapped its 10-plane order, and leaves Airbus with no orders for the superjumbo freighter _ dealing a new blow to its A380 program, whose two-year delay cut 5 billion euros ($6.6 billion) off profit forecasts for 2006-2010. Airbus still has orders for passenger versions of the A380.

``We respect the client's decision,'' Airbus spokeswoman Barbara Kracht said in response to the cancellation. ``UPS is and remains a valuable and strong customer and business partner for Airbus.''

The A380 program as a whole ``is progressing well and in line with the new timetable, with the first delivery to the first customer in October 2007,'' she said, referring to launch customer Singapore Airlines _ set to become the first carrier to take paying passengers in the double-decker plane.

UPS declined to comment on whether the company was likely to order other aircraft from Airbus or turn to Chicago-based Boeing Co. to fill the gap left by the cancellations. ``We're looking at our next steps,'' Giuffre said.

Chris Lozier, an analyst for Chicago-based Morningstar, said the cancellation is a crippling blow for the entire Airbus cargo program and a boon for Boeing.

``It almost spells the demise for that cargo business, because the alternative to the 380 is the (Boeing) 747,'' he said. ``You would expect UPS to be at the negotiating table with Boeing right now, if not weeks ago, working out details for the 747.''

Howard Rubel of Jefferies and Co. said in a note to investors that the cancellation ``effectively gives Boeing complete ownership of the very large freighter market for the foreseeable future.''

Boeing declined to say whether it was in talks for the UPS contract.

``While UPS is a longstanding and valued customer of ours, we do not and cannot comment on any discussions we might be having with customers,'' said Jim Proulx, a spokesman for Boeing's commercial airplane division in Seattle.

UPS, also known as United Parcel Service, had ordered its first 10 A380 aircraft in January 2005 for use on U.S.-Asia routes. The deal included an option to buy 10 more planes.

Shares of Airbus parent European Aeronautic Defence and Space Co. had already been tumbling on the freighter program freeze, announced late Thursday. The stock ended the day down 4 percent at 23.63 euros ($31.23) in Paris trading.

The A380 setback came as French unions called for a one-day strike next Tuesday to protest 10,000 planned job cuts and the sale or closure of six Airbus plants under the ``Power8'' restructuring plan unveiled by Chief Executive Louis Gallois Wednesday.

German Airbus workers may join the strike, union officials said, along with staff at other EADS facilities in both countries.

Shares of UPS fell 65 cents to $69.47 on the New York Stock Exchange, where Boeing shares fell 82 cents to $87.03.