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Airbus Cuts Production Targets

Tue Aug 07, 2001 8:53 pm

PARIS, Aug 7 (Reuters) - More clouds gathered over Europe's struggling airline market on Tuesday, as Airbus cut its forecast for aircraft deliveries and two carriers signaled they would press the plane maker and its archrival Boeing for cheaper jets.

Toulouse-based Airbus, which competes with Boeing Co in the market for large commercial airliners, said it had cut its target for 2003 deliveries to 400 planes from a previous goal of 450.

Owned by European aerospace giant EADS and Britain's BAE Systems Plc (LSE: BA.L - news) , Airbus also admitted for the first time that it was discussing delivery delays with a number of airlines.

Carriers on both sides of the Atlantic have been stung in recent months by weaker economic growth. High margin corporate travel, which accounts for up to two thirds of airline industry revenue, has been particularly hard hit as struggling companies scramble to cut costs.
"The situation is more clear now," said a spokeswoman for Airbus. "There is a softening of the market and we are aiming for 400," she said, when asked by Reuters whether the group was cutting its delivery goal for 2003 from 450.

The news contributed to a sharp drop in EADS shares in morning trade. At 1015 GMT, EADS stock was down 4.90 percent at 21.53 euros, under performing the DJ Stoxx European industrials index which was 1.29 percent lower. BAE Systems stock also fell, trading down 3.45 percent at 364 pence.

"This is significant for EADS," said Tim Bennett, an analyst at Morgan Stanley Dean Witter in London. "Airbus is the main driver of their profits."

Less than two months ago at the Paris air show, Airbus reaffirmed plans to boost annual production and deliveries from a targeted 330 this year to 450 in 2003.
Since then, however, economic weakness in the United States and Europe has seriously dented airline profitability.

German carrier Lufthansa announced on Tuesday it would cut capacity due to slowing global growth, saying demand for intercontinental flights had fallen significantly from the previous year.

And European budget airline Ryanair , which bucked the market trend by reporting a 28 percent rise in after tax profits on Tuesday, stepped up the pressure on Boeing Co -- its sole aircraft supplier -- to cut prices for new aircraft in what it plainly sees as a buyer's market.

The Irish group announced it was canceling options to purchase five new Boeing 737-800 jets in pursuit of better prices and warned it could cancel more.

"Unless their pricing begins to reflect the current market realities we will be forced in due course to cancel our remaining 12 options for 2004 and 2005 deliveries as well," the company said.

KLM Royal Dutch Airlines , which announced on Monday it would cut its winter capacity by three percent, also sought to take advantage of the deteriorating environment, inviting tenders for the possible purchase of planes worth up to $5 billion.

"The airlines are clearly trying to get better prices from the manufacturers," said a London-based airline analyst.

Reflecting the poor environment, Airbus confirmed it was discussing delivery delays with several airlines.

"We are discussing some delays but so far we are just seeing adjustments within a specific year, so it does not change total deliveries," the spokeswoman said, adding that delays currently being discussed concerned deliveries for 2001 and 2002.

Analysts said they had been expecting Airbus to cut back on its ambitious ramp-up plans following the recent stream of airline profit warnings and weak traffic figures.

While Airbus expects to deliver 330 jets this year, gradually ramping up over the next few years, rival Boeing plans to ship 538 jets this year and between 510 and 520 aircraft in 2002.

Most experts, however, estimate that long-term annual demand for jets averages around 750 -- far less than the combined totals of the two manufacturers.

One of the most interesting things about this article is the prediction that there will be a demand for only 750 planes a year, which is well below the combined output capabilities of Airbus and Boeing. If this becomes reality, how well will A & B cope with this?

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