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> Big planemaker – available for free! |
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Big planemaker – available for free!
posted by
Vivek Sharma
27 May 2008, 08:37
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labels: companies, aviation/aerospace
Imagine this. A very high profile industry, worth over $60 billion a year, and a virtual duopoly. New orders and product deliveries are at a record high. Most customers are not at the best of health, but some of them – backed by wealthy governments - have been on a buying spree. The industry also receives very strong backing from powerful governments as the two dominant companies are seen as industrial champions in their respective geographies.
Airbus, one of these dominant companies, is now available for free! That’s right, free! Airbus is not listed separately, but is a subsidiary of the European aerospace and military equipment major EADS. The stock of EADS has been on a downward spiral for sometime now and, analysts believe, has now reached a point where the Airbus business is valued at zero. By their estimates, other businesses and assets of EADS fully account for its current valuation. And that means investors think Airbus is worthless.
How can that be, when Airbus has a healthy order book and continues to receive new orders in good numbers? Are investors making a mistake? The biggest problem for Airbus is that it made a strategic blunder by committing itself completely to the A380 Super Jumbo programme, when the demand was shifting to mid-size and more fuel efficient planes because of rising oil prices.
Boeing, on the other hand, came up with the 787 Dreamliner which is designed to be light-weight and more efficient. The order figures reveal where the demand is headed. Orders for mid-size aircrafts in the 787 class have crossed $400 billion in the last decade, while orders for very large planes – like the A380 or Boeing 747 – are only around $80 billion. To make it worse, Airbus slipped up badly on the A380 production schedule – which is now running late by three years.
Because of the delays, analysts estimate that Airbus profits will be lower by as much as $6 billion over the next couple of years. To catch up with Boeing after the 787 ran up record number of orders, Airbus launched the A350 programme. While the model has received some large orders from new airlines in the Middle East, funded by oil money, the 787 is at least 4 years ahead. Besides, the strong euro is making it difficult for Airbus to be price-competitive when Boeing is enjoying the dollar decline.
The last proverbial straw is record oil prices. Many large airlines are struggling to stay afloat as fuel costs have hit the roof, even as passenger growth is slowing down because of global economic slowdown. If this situation continues, new airplane orders will take a hit and Airbus will suffer more. Given all these, it may not be all that surprising that Airbus is going for free!
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