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Airlines in crisis: Airbus' teething problems.

European Aeronautic, Defence and Space Co subsidiary Airbus is likely to be affected by the deferral or cancellation of aircraft orders amid the downturn in the civil aviation industry - but the group's A380 super-jumbo project will go ahead, according to analysts.

'It's going to be a while before the plane is commercialised so hopefully the project shouldn't suffer too badly,' said Robin Horne, an airline analyst with HSCB Securities.

Deliveries of the super-jumbo are scheduled to commence in 2006, by which time the civil aviation cycle is forecast by most analysts to have fully recovered.

However, some analysts said the group may struggle to clock up the planned orders for 100 planes by the end of 2001.

Currently, Airbus has 67 firm orders for the A380, and one analyst said recent indications by airlines that they are cutting capacity may imply that Airbus will not reach its targeted order number by the set deadline.

He added that the bankruptcy of Swissair and problems faced by other major European airlines may spark a consolidation in the sector.

'This could also lead to the cancellation of several A380 orders as airlines reassess their needs after potential mergers or acquisitions,' he said.

On another count, analysts at Goldman Sachs emphasised that, while the project may go ahead as planned, the increasing research and development costs of the A380 project - estimated at around pounds 7 billion - could dampen EADS' profit growth.

'We see the market as having been transformed by the events of September 11 into one with major and immediate risks in terms of cancellations, deferrals, and demands for customer financing,' said the analysts in a note.

Although EADS is trying to portray itself as a company with growing exposure to the defence market, analysts pointed out that some 70 per cent of its revenue is generated by Airbus.

'So the combination of falling deliveries, order deferrals and high research and development costs could affect EADS' bottom line considerably,' said the analyst.

The Goldman Sachs analysts team said that it has cut its forecasts for Airbus deliveries from 354 in 2002 to 277, and from 399 in 2003 to 274. Given essentially fixed R&D spending on the A380, these volume falls halve Goldman's Airbus profit estimates to pounds 434 million and pounds 465 million for these years.

In the meantime, Airbus and EADS executives have repeatedly underlined that the group intends to proceed with the A380 project.

Speaking after EADS released its interim results, co-chief executive Rainer Hertrich said the A380 is an 'economic solution' for airlines and that Airbus still expects firm orders for its A380 super jumbos to number around 100 by the beginning of 2002.

Airbus will deliver some 320 aircraft this year and has firmly contracted delivery positions for 375 aircraft in 2002 and some 350 in 2003.
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Publication:The Birmingham Post (England)
Date:Oct 4, 2001
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