Airbus to cut output of slow-selling A380 superjumbo

Thomson ReutersAn Air France Airbus A380 passenger jet is parked at New York’s John F. Kennedy International Airport

By Tim Hepher

PARIS (Reuters) – European planemaker Airbus plans to cut production of its A380 superjumbo from 2017 as it struggles to revive sales of the world’s largest passenger jet, two industry sources said.

It has told its suppliers to slow production to support an assembly rate of 1.7 aircraft per month from next year, compared with production of just over two a month now, the sources said.

The exact month in which the slowdown would be felt in the Toulouse assembly plant was not immediately clear.

Airbus declined to comment on talks with suppliers.

“We can’t comment on any discussions which may or may not have happened,” a spokesman said.

The company does not publish production figures for its biggest model, but only targets deliveries.

Sales of large four-engine airliners like the 544-seat A380 have been hit by improvements in the range and efficiency of smaller two-engined models, which can be easier to fill.

Airbus, which has delivered 143 A380s since it began service in 2007, says the double-decker is becoming more attractive due to lower oil prices and also helps to solve airport congestion.

But because of long lead times the sources said Airbus had been forced to ask suppliers to slow the flow of parts.

Depending on the exact timing of the change, any slowdown could test the company’s ability to continue to break even on the jet, after stemming losses for the first time last year.

Last year it delivered 27 A380s and has said it expects to continue to break even based on similar deliveries in 2016.

It meanwhile continues to cut costs in an effort to lower the breakeven point to as low as 20 aircraft a year.

Based on a full year, which Airbus counts as 11.5 months, the new production rate would yield 19.6 superjumbos a year.

In February Airbus Group Chief Executive Tom Enders said it had between 20 and 30 A380s on its delivery list for 2017.

RBC Capital Markets analyst Rob Stallard said he estimates Airbus will deliver 24 A380s next year, with its profit margin on the jet staying at zero, or exactly breakeven.

ORDER UNCERTAINTY

Production and deliveries do not always match because of extra customization work needed for new airline versions.

At the end of March Airbus had 135 aircraft on its books that have been sold and are waiting to be produced, mainly for leading customer Emirates which recently topped up its order.

But after deducting aircraft that are unlikely to be delivered, analysts say the order situation is weaker.

Air France has said it plans to cancel two A380s listed on the Airbus order book. Another 10 listed anonymously are believed to have been canceled by Hong Kong Airlines and 20 are allocated to leasing firm Amedeo, which are seen as unlikely to enter production until the lesser places them with airlines.

Analysts also say Qantas and Virgin Atlantic are unlikely to take a combined total of 12 of the jets.

The project received a boost earlier this year when Iran announced a preliminary order for 12 superjumbos as it emerges from sanctions, but doubts remain over how quickly the order can be finalised as Iran faces continued financial restrictions.

Airbus says it is working on several sales campaigns.

(Editing by Greg Mahlich and Keith Weir)

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