Enders: Airbus Order Cancellations No Cause for Alarm

 - July 30, 2014, 11:46 AM
Airbus Group CEO Tom Enders (Photo: Airbus)

Airbus Group CEO Tom Enders told investment analysts on Wednesday that he doesn’t see an impending end to the upward cycle in demand for airliners despite the spate of order cancellations Airbus’s civil division suffered during the first half of the year. Speaking during the company’s quarterly earnings conference call, Enders, in fact, suggested that traditional cyclicality no longer exists in the form it once took, evidenced by the strong movement Airbus saw in its backlog and increasing deliveries during the global recession of 2008 and 2009.

Enders also said that of the cancellations for more than 200 airplanes during the first half of the year, only the withdrawal of an order for 70 A350s from Emirates Airline came as a surprise. The first-half total also included a recent “termination” by Airbus of an order for six A380s from Japan’s Skymark Airlines due to “the airline’s expressed intentions for the aircraft,” adding that it reserved all rights and remedies associated with a cancellation.

“If you take the 70 A350s out that Emirates canceled unfortunately, and that was really the only real unforeseen cancellation I should say in the first half of 2014, the bulk of these cancellations—roughly 140—are single-aisle aircraft,” explained Enders. “When we launched the Neo, we did say very clearly that we’re not converting… the current generation A320 backlog into neos, and we didn’t for the last three years.”

Enders further explained that as Airbus approaches entry into service of the A320neo in the fourth quarter of 2015, it can no longer manage its single-aisle order backlog by simply “pushing” overbooked delivery slots into late in the decade.

“We don’t want to move ceos into, say ’18, ’19, ’20,” he stressed. “In these years we want to build neos…It’s quite inevitable that we’ll have cancellations. I call them so-called cancellations that are actually conversions from ceos into neos, and, guess what? that usually gets us a higher price [and] better margins.”

Enders said he expects further cancellations in the second half of this year and into 2015 as the company prepares for the production transition from the current-generation A320s to the neo. He also said he expects Boeing will face a similar “challenge” once its 737Max reaches the A320’s current point in development. “I can also sure we are able to handle that, and I have no doubt that also our competitor is able to handle that,” he concluded.