11th hour switch amounted to much more than just a lost order for Airbus, sending ripples across the aviation industry
At the handover of the 100th A380 superjumbo to Gulf carrier Emirates earlier this month in Hamburg, Airbus rolled out the red carpet to airline executives and Dubai royalty, who in turn winked and nodded that another multi-billion-dollar order for the double-decker was on the cards.
Ten days on, dignitaries were filing into a conference room at the Dubai Air show to witness the unveiling of a lifeline order for the slow-selling jet - when the unimaginable happened.
Excitement over a mammoth follow-on contract from the A380’s only significant backer turned first to bewilderment as word spread that no announcement would be forthcoming, and then to mortification for Airbus as Emirates proceeded instead to hand a $15 billion deal to arch-rival Boeing Co.
The eleventh hour switch amounted to much more than just a lost order for Airbus, sending ripples across the aviation industry as the superjumbo’s already uncertain future turned a shade darker. It also provided a rare insight into how decisions are made at the word’s biggest long-haul airline - as well as the uneasy interdependence between a planemaker and its key clients.
Airbus and Emirates have developed an almost symbiotic relationship around the A380. The Gulf giant has given the superjumbo a public profile it would otherwise have struggled to attain, while the airline put the 550-seat jet at the heart of its bid to divert a significant proportion of global traffic via a former aviation backwater.
Airbus CEO Tom Enders summed it up at the handover event, saying: “Emirates has become synonymous with the A380, and the A380 with Emirates.”
So close are the ties that what is still regarded as Airbus’s flagship model couldn’t survive without the Gulf operator - which in turn would have a gaping hole in its strategy without the superjumbo. No surprise, then, that Airbus officials were left shell-shocked by the turn of events in Dubai. The gloom eased only three days later after the announcement of an order for 430 narrow-body jets from a US buyer, a record deal for the company.
The mood at the Hamburg ceremony on Nov. 3 had been rather more upbeat.
Emirates Chairman Sheikh Ahmed Bin Saeed Al Maktoum flashed a victory sign to photographers, with Enders and the carrier’s President Tim Clark sharing a joke nearby. Emirates Chief Operating Officer Adel Ahmed Al Redha stood next to Airbus sales chief John Leahy, known for seducing airlines worldwide with his honeyed voice and sharp pitches.
Less than a week later, the sides had agreed a handshake deal, according to people familiar with the deal, who asked not to be identified because the deliberations were private. Emirates would take another 36 A380s worth $17 billion, bringing its total to a staggering 178 aircraft, more than half the model’s entire order book, the people said. The upcoming air show in Dubai provided the ideal backdrop to unveil the accord, a farewell gift from Emirates to Leahy, who had tied his retirement to the program-saving sale.
Officials at Airbus and Emirates and declined to comment.
Yet in the space of a few days the plan unraveled, and Leahy’s victory lap turned into a public humiliation. At the heart of the turnabout was concern at Emirates about the commitment of Airbus to carry on developing the A380, with the carrier loath to place on order only to see the program terminated a few years later, leaving it as the biggest operator of a dead-end model. It pushed the planemaker to buy back some its oldest jets to help ease those concerns.
Airbus clearly needed the deal to bolster the dwindling superjumbo backlog and keep production ticking over, but could it be trusted to carry on investing in the 550-seat jet in the blind hope that much-needed orders from beyond the Gulf would somehow materialise?
Significantly, Emirates also had no agreement in place with engine supplier Rolls-Royce Holdings, said the people. The carrier’s last A380 deal for 50 planes in 2015 saw it switch to the UK manufacturer following a pitch that was keenly priced and offered particularly appealing terms for the maintenance work from which engine-makers usually draw most of their profits.
As Rolls retrenches under CEO Warren East, a similar offer is off the table, along with an earlier pledge to upgrade the Trent 900 turbine that powers the superjumbo, introducing further imponderables into Emirates’s calculations. Representatives at the engine maker declined to comment.
Al Redha, responsible for engineering and flight operations and seen as one of the strongest internal candidates to succeed Clark, 67, was among those to highlight the doubts, people familiar said. As concerns mounted and Sheikh Ahmed - the uncle of Dubai’s ruler and not often involved at the business-end of major orders - prepared to show up at the press conference, Emirates representatives approached Airbus on Sunday to break the bad news.
The decision has created a standoff between the airline and the manufacturer, with Clark saying of Airbus that the future of the order is “in their hands,” while Leahy, questioned on whether the sale might be resurrected, replied: “Ask them.”
Fabrice Bregier, Airbus’s chief operating officer and the head of its jetliner business, offered a calmer assessment in an interview with Bloomberg TV.
There remained a prospect of rescuing the transaction before the end of the year, perhaps even in “a few more weeks,” he said.
At the same time, he commented for the first time on the scale of the decision now facing the manufacturer, revealing that a deal with Emirates will ultimately require a pledge to stand by the A380 come what may and to “massively” upgrade it in the future, saying:
“If we finalise it we will be committed to producing this aircraft, I believe, for at least for the next 10 years.”
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