Tuesday, June 24, 2014

Beyond Emirates' A350 Order Cancellation

This blog first appeared in Bangalore Aviation under the title of Analysis: Emirates Banks on 777X with A350 XWB Order Cancellation jointly authored by Devesh Agarwal and Oussama Salah

On June 11, 2014 Emirates and Airbus announced the cancellation of the A350 order 50 A350-900 and 20 A350-1000 as a result of a fleet requirements review. The order cancellation was downplayed by Airbus as "not good news commercially" but not "bad news financially". It must have been a disappointment to lose 9% of the A350XWB order book by one of the most prominent Airbus customers. Emirates deliveries would have started in 2019 giving Airbus ample time to recover. However, it sends the message that B777X can easily perform the missions of the A350XWB.

I am certain the fleet requirements review went beyond the A350 cancellation, Emirates has emphasized that the passenger growth forecast has not been changed which makes one wonder what the fleet composition will eventually be?

The cancellation has many advantages for Emirates:

  • Rationalizing the fleet back to two (2) types; A380s and B777s currently the fleet consists of  (A380/A340/A330 and B777);
  • Removing the financial and human resources burden of entry into service of a new fleet (maintenance facilities, simulators, parts, training and hiring etc..);
  • An improved cash flow due to reduced pre delivery payments; and
  • Less financing requirements in the tune of Sixteen (16) Billion USD.
The only disadvantage at this time, there is no aircraft to cover the 230 to 300 passengers requirement which is now covered by the A330/A340 and some of the B777-200, in other words their thinner routes. One can argue that with the newer standards of first and business seats, cubicles and apartments the passenger loads of the aircraft will automatically be reduced. 

Emirates wants an A380neo which Airbus is starting to look at, however the A330neo is still their priority. Emirates is an influential customer and very persistent, remember the B777X so eventually Airbus will develop the A380neo. In the meantime Emirates and Boeing are discussing the B747-8i which has slightly lower passenger load than the current A380 configuration but the same range capability and as the latest reports intimate a slightly better fuel consumption on a seat/mile basis. Whether Emirates will accept the B747-8i fuel efficiency argument and actually buy the B747-8i or it is only meant to pressure Airbus towards the A380neo, remains to be seen.

In any case, the Farnborough Air Show is just round the corner.

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