The much anticipated deal between Emirates Airlines and Airbus fell apart last week. Emirates was supposed to have ordered additional A380 jumbo jets. The deal, supposedly solidified only with a handshake, had been planned as a highlight for the Dubai Air Show.
With a wink and a promise, the expectation was that Emirates would order between 36 and 38 of the Airbus jumbo jets with a price tag of between $16 to $18 billion. Even the Associated Press was reporting, “The order is expected to be one of the highlights of the November 12 to 16 event (Dubai Air Show).”
Airbus was definitely courting Emirates. Earlier this month in Hamburg, Germany Airbus SE made a grand gesture of handing over the 100th A380 to Emirates. But just a few days later amidst all the pomp and circumstance, the bubble burst when Emirates decided instead to do $15 billion dollars worth of business with Airbus’ arch rival, Boeing.
Emirates unexpected decision to back away has shaken confidence in the relationships between the plane manufacturers and their main clients. Airbus CEO Tom Enders put it succinctly, explaining the interdependency this way, “Emirates has become synonymous with the A380, and the A380 with Emirates.” The ties are so close that the flagship Airbus 380 model may not survive without UAE support. Emirates represents more than half of the A380’s whole order book. Both Emirates and Airbus officials have refused to publicly comment.
Without Emirates, the program is dead
Airbus clearly needed the plan for additional orders to move forward to ease backlog and production concerns. Airbus sales chief John Leahy, known for shrewd sales pitches, had tied his retirement to the pending sale. But in just a couple of days time, the deal turned to dust when UAE voiced concerns about Airbus’ commitment to continue developing the A380 and reluctance to be left as the biggest operator of a jumbo jet that had reached the end of its production lifecycle.
The breakdown of an agreement was multifaceted. Emirates asked Airbus to do a buy back of some older jets. Engines were an additional concern for the order. Emirates also had no solid go-forward plan in place with Rolls-Royce, who makes the massive engines. In 2015, Rolls-Royce won its largest order contract ever with Emirates to power 50 A380s. To win Emirates’ business and displace the U.S. Engine Alliance, Rolls-Royce offered ambitious fuel consumption targets and maintenance agreements. Under CEO Warren East, Rolls began to retrench from their promise. They also began to question an earlier promise for an upgrade to the Trent 900 turbine that powers the A380. To add more complexity to the matter, Engine Alliance production of their A380 engine is scheduled to end in 2018. The future of that partnership depends on iffy funding agreements with parent companies General Electric and Pratt & Whitney. If Rolls Royce does not do engine upgrade as promised and Engine Alliance evaporates, there is no viable engine option for the massive airliner.
Emirates went smaller instead
Emirates ended up ordering billions of dollars worth of aircraft at Dubai but not the A380 as promised. Instead, smaller aircraft such as the 787, variants of the Airbus A320NEO and Boeing 737 MAX were ordered. Softening the blow somewhat for Airbus, a U.S. buyer inked a deal with Airbus a few days ago for 430 narrow body aircraft.
The Last Gasp for the jumbo
Meantime Airbus COO Fabrice Bregier told Bloomberg TV that there is still a small chance the program could be rescued by the end of the year. For the first time, Bregier spoke about the size and scale of the decision now facing Airbus and said any future deal with Emirates would require a solid pledge by the carrier to stand by the A380 and may even include upgrades to the jumbo jet in the future, stating, “If we finalize it we will be committed to producing this aircraft, I believe, for at least for the next 10 years.”
Editors note: An earlier version of the story incorrectly described the engine choices that Emirates faced with a new A380 order. The latest version of the story has been corrected to reflect the two options.