Dubai-based Emirates, the largest airline in the Middle East, canceled a $16 billion order from 2007 on Wednesday for Airbus’ newest aircraft, the A350. Airbus and Emirates have both stated that the decision resulted from a review of Emirates’ fleet requirements. The 70 A350’s freed up will help eliminate about 9 percent of the current order backlog and have a current value of $21.6 billion based on list prices. Shares of Airbus and Rolls Royce, the makers of the A350 engines, have been hurt by this cancellation .
Emirates Decision on Different Models
The A350 competes directly with Boeing’s (NASDAQ: BA) 777 family of twin-engine wide-body planes. With this move,Emirates Air seems to have decided on the Boeing 777 series as its standard for twin-engine wide-body planes; having orders in place for 139 of the current generation, 150 of the next generation 777X, and an option for 50 more of the 777X.
Fortunately for Airbus, Emirates Air has also seemingly decided on the Airbus A380 as its standard for the larger four-engine superjumbo jet. Its 140 current orders make it the A380’s largest customer. This may come at a price though as Emirates has been asking Airbus to upgrade its A380 with more efficient engines. Earlier this month Emirates C.E.O Tim Clark said, “There is a distinct possibility that if neo (new engine option) is built it will give a 10-12 percent performance improvement.” It is to be seen if Emirates will apply more pressure to Airbus for the changes.
Commercial Airplane Order Slowdown
The market reacted to this move with fears that it may not be the first cancellation to come. Some industry analysts believe that there may be a bubble in commercial airplane orders. This belief took form in 2012 at the International Society of Transport Aircraft Trading conference as many attendees raised concerns about how many of Airbus and Boeing’s orders would actually be delivered. While Airbus does have itself protected by overbooking orders, future cancellations will be something to monitor for this industry moving forward.