From: Reuters
Published May 13, 2008 12:21 PM

Airbus hit by new A380 delivery delay

By James Regan and Tim Hepher

FRANKFURT/PARIS (Reuters) - Planemaker Airbus announced another delay in deliveries of its A380 superjumbo on Tuesday, deepening the woes of Europe's biggest industrial project and risking further penalty payments to airlines.

Airbus said it was unable to boost production as quickly as it hoped as it tries to recover from two years of production delays caused by problems in installing the wiring on the world's largest passenger plane.

Airbus now plans 12 instead of 13 deliveries in 2008 and 21 instead of 25 in 2009.

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"Details about the new plan, and the further ramp-up and delivery slots in 2010 and the following years, will be discussed with customers in coming weeks," it said in a statement.

It gave no details on the financial impact of the latest delays to the aircraft, already two years behind schedule.

"We are in a four-year recovery program. We have to make some progress but we are not back to square one," Chief Executive Tom Enders told reporters in a conference call.

The announcement followed hints of delays that sent shares in Airbus parent EADS <EAD.PA> down last week, and they dipped only 0.1 percent to 15.72 euros on Tuesday.

It was the fourth time Airbus had announced delays in delivering the 525-seat double-decker plane. But damage to the production schedule was not as severe as some had expected.

Analysts also drew comfort from the fact some of the early planes are thought to have been produced at a loss, meaning any negative impact on earnings would be deferred.

"It's not a big surprise. The financial impact should also be minor but it's really hard to estimate," UniCredit analyst Stefan Halter said.

"Given the number affected -- we are just talking about five planes -- the impact really should be minor.

Airbus commercial director John Leahy said he did not expect airlines to cancel orders as a result of the latest setback. He now faces talks over possible penalty payments and rescheduling with airlines, which are increasingly outspoken about delays.

Tim Clark, the powerful head of Emirates <EMAIR.UL> -- by far the biggest A380 customer with 58 ordered -- has warned the airline faces "serious damage" from any further delays.

Emirates said on Tuesday the delays would not affect deliveries of the first five planes it expects to get this year.

"We are in dialogue with Airbus to determine the impact on our A380 deliveries in 2009. We have no specific dates or details at this time," an Emirates spokesperson said.

Airlines due to receive A380s in 2008 and 2009 include Emirates, Singapore <SIAL.SI>, Qantas <QAN.AX>, Air France <AIRF.PA> and Lufthansa <LHAG.DE>.

PENALTIES EXPECTED

"This announcement ... stresses the visibility on the story is still pretty limited. It's too early to give a precise estimation for the penalties due to the new A380 delay, but we are talking without doubt about several hundred millions of euros," said Landsbanki analyst Pierre Boucheny in a note.

The fresh setback for the A380 came days after Airbus was forced to scrap plans to sell some of its factories to attract investment in new materials for the A350, a future mid-sized jet needed to catch up with rival Boeing <BA.N>.

It also came weeks after Airbus announced a major review of production on the A380.

Airbus said last week Enders had written to A380 customers telling them production had reached a critical phase, but its officials denied the letter was designed to soften up airlines for a new round of delays.

The A380 went into service last year with Singapore Airlines. Four planes have been delivered with 17 in various stages of production.

The aircraft sells for $300 million at list prices and the planemaker is paid most of that when the jets are delivered.

The mammoth pan-European venture has faced repeated setbacks since mid-decade. It was first delayed in 2005, and in 2006 sections began reaching the French assembly plant from Germany with wiring flaws that caused production to halt.

Then Airbus pulled together a labor-intensive process for effectively wiring the first 25 planes by hand, with teams of engineers organizing wiring bundles on long tressle tables at the assembly plant in Toulouse, southwest France.

A second wave of production will use a new automated industrial process but Airbus is up to three months late in pushing aircraft through to this system, executives said.

Enders said he was confident Airbus could produce and deliver 30 to 40 of the A380s in 2010 compared with the most recent published target of 45.

Senior Airbus executive Tom Williams said it would not be before the first quarter of 2009 that Airbus would know for certain how many planes it could deliver in 2010.

(Additional reporting by Michael Shields, James Cordahi; editing by Sue Thomas/Rory Channing/David Hulmes)

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