Tuesday, June 9, 2009

Thai Air May Become First to Axe A380 Passenger Plane

By Anuchit Nguyen and Angus Whitley

June 9 (Bloomberg) -- Thai Airways International Pcl said it may cancel Airbus SAS A380 orders, threatening to become the first customer to scrap contracts for the passenger version of the world’s largest commercial plane.

“We need to determine whether it’s worth the large investment,” President Narongsak Sangapong said by phone today from Kuala Lumpur. The Bangkok-based airline, with six A380s on order, has begun a review which may lead to the planes being axed or delayed, he added.

Emirates Airline, the largest A380 customer, also said today it may join Air France-KLM Group and Deutsche Lufthansa AG in delaying planes as the global recession hammers travel. Customer delays may lengthen the time Airbus needs to recoup spending on the A380’s development, which has ballooned to about $18 billion from the originally planned $12 billion on cost overruns and penalties.

Emirates may defer as many as 10 planes, either A380s or Boeing Co. 777s, beginning in about 18 months, President Tim Clark said in an interview today. Still, Clark reiterated that the Dubai-based carrier wouldn’t axe any of the 53 A380 it has on order. The airline is already flying five of the planes.

Delays, Cancellations

The A380 program has suffered two years of delays caused by manufacturing problems related to wiring systems. FedEx Corp. and United Parcel Service Inc. have also canceled orders for a total of 20 A380 freighters, forcing Toulouse-based Airbus to shelve plans for an all-cargo version.

International Lease Finance Corp. is also re-examining its order for 10 A380s, according to WirtschaftsWoche. The magazine cited an interview with Steven Udvar-Hazy, the leasing company’s chief executive officer, yesterday in an advance report ahead of its next edition. The A380’s list price is $327 million, though the earliest customers for planes got discounts.

Airbus has scaled back production of the A380 this year as customers resist taking large planes on the travel slump. The planemaker plans to hand over 14 of double-decker aircraft this year, down from 18 previously, it said on May 6. Airbus has 200 orders for A380s, of which 15 had been delivered by the end of last month, according to data on its Web site.

International air travel fell for an eighth straight month in April as business and leisure passengers pared flights because of the recession. Price cuts and the impact of swine flu may cause airlines to post combined losses of $9 billion this year, almost double a previous forecast, the International Air Transport Association said yesterday.

Yields may drop a further 5 percent to 10 percent before reaching their bottom, Emirates’ Clark said today.

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