Europe's largest aircraft maker, Airbus, which once ruled the in-dustry, is now caught in a storm, paralyzed with a loss of $1 bn. Its ongoing struggles indicate its efforts to restructure itself even as its delivery delays continue to be its weak spot. This is causing a serious problem not only to Airbus but also to its parent company, European Aeronautic Defense and Space (EADS). Indeed, it failed in delivering Super-jumbo A380 on time, because of its major production troubles. Its whirling costs and charges are linked to the long-awaited restructuring program, Power8, announced in February 2007. Even though its twin-decked passenger jet is slipping back, its new twin widebody, the A350XWB, is still trying to take off.
EADS had recorded its first ever loss of €768 mn ($1.01 bn) over the fourth quarter of 2006, compared with a profit of €405 mn in the same period last year. Louis Gallois, the EADS co-Chief and Airbus Chief Executive, calls it, "The worst year for Airbus in its life," and cautioned that this bad patch is likely to continue, with another bout of "substantial" losses expected this year too. He blamed the losses to the spiraling costs of the A380 Super-jumbo. Airbus reported its first operating loss of €572 mn while it recorded a profit of €2.3 bn in 2005. Even the internal rate of return also dropped from 19% to 13% in the year 2006 due to delivery delays. The charges related to a delay in A380 deliveries, besides the weak dollar, resulted in a loss of €2.5 bn ($3.3 bn). The final cost of A380 delays is to likely exceed €4.8 bn. Because of its continuous delays, Airbus lost its major client, Singapore Airlines, which placed orders from rival company Boeing. The controversy continued with Quantas, FedEx, Emirates and the Malaysian Airlines. FedEx is negotiating over penalty, which industry sources say could reach $100 mn. |
