Boeing Frontiers
February 2003
Volume 01, Issue 09
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Industry Wrap

Report questions A380 financing as insufficient

Slowing orders for the jetliners of today threaten to sour Airbus's plans for its giant airplane of tomorrow. The Wall Street Journal reported that as Airbus throttles up development of the double-decker A380, the European plane maker aims to fund about half of the superjumbo's $12 billion development bill from its own cash flow. But as struggling airlines buy fewer of the planes that Airbus already makes, dwindling revenue is forcing managers to scramble for cash to finance the planned 555-seat plane.

So far, Airbus executives say they have enough cash. But if market conditions worsen significantly over the next two years, they may force Airbus to borrow to fund the A380. The cost of interest could hurt the plane's business case, which Airbus managers presented to their two shareholders, European Aeronautic Defense & Space Co. and BAE SYSTEM, when they approved the program in December 2000, the Journal reported.

At that time, when the airline industry was still buoyant, Airbus expected to increase its output of current-generation planes by 50 percent, to about 450 planes annually, and dramatically boost revenue. Instead, Airbus has held production steady at 300 planes and implemented drastic cost-savings measures.

Under that rosier market outlook, "financing of the A380 was extremely, extremely easy," Airbus Chief Executive Noel Forgeard told the Journal. "It's obviously more difficult at a production level of 300 or lower," although he said the original plan "had big buffers."

Forgeard said Airbus's revenue for 2002 was down 5 percent. It received 300 orders during the year and removed 67 doubtful or canceled orders from its books, for 233 net orders. EADS, which consolidates Airbus's results and will report its own 2002 results on March 10, owns 80 percent of Airbus.

Forgeard said Airbus expects to deliver about 300 planes again this year, although world events could reduce that number. It will be "an extremely difficult year," and Airbus will update its plans in spring, he said. He predicted new orders this year could fall by almost half, to about 170 planes. Forgeard said that if Airbus manages to deliver 300 planes this year, its cash flow situation will improve slightly. Yet even at 300 deliveries, the cash situation is tightening.


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