£500m payouts for A380 late deliveries

Jul 31 2008 by Tony McDonough, Liverpool Daily Post

LATE deliveries of Airbus’ flagship A380 superjumbo have cost the company more than £500m in compensation payouts to airlines, it was revealed yesterday.

But despite the massive payouts Airbus parent company EADS said its profits increased by almost half in the second quarter after a “remarkable order intake” and cost savings.

EADS said it booked a charge of £560m to cover compensation for late delivery of its A380 superjumbo after announcing the latest round of delays to the giant jet in May.

It has had to throttle back on the projected number of A380s it will be able to build next year, cutting the figure from the 25 it had hoped to complete to 21 because of production problems in France.

Each of the superjumbos costs about £165m and so far Airbus has orders for around 200 – well short of the 400-plus it will need to sell to break even on the cost of the £10bn project.

Wings for the giant jet are made at the Airbus aerospace complex at Broughton, near Chester, where output of sets of the A380 wings is being ramped up. Around 7,000 people are employed there.

EADS said net profit for the three months to June rose 46% to £92m compared with £63m a year earlier, while revenue was up 5% to £7.8bn.

It said it expects Airbus to capture more than 850 orders in 2008, 150 more than it predicted in May, and despite a crisis in the global aviation market caused by sky-high jet fuel prices.

EADS chief executive Louis Gallois has said that to maintain competitiveness EADS has to tackle the slide in the value of the dollar against the euro – something which knocked £546m off profits in the first half of the year.

Unlike its US rival manufacturer Boeing, many of Airbus’ costs are in euros, though it prices its planes in dollars. EADS claims every 10 cent drop in the dollar cuts £787m from earnings.

However, the company’s hopes of moving more Airbus production into the dollar zone suffered a setback just weeks ago when an £18bn competition it won against US rival Boeing to supply the USAF with airborne fuelling tankers was reopened.

EADS says it is still confident of winning the deal which would see the wings for the tankers made in north east Wales and shipped from Deeside to Alabama for final assembly of the military aircraft.