Etihad Locks $10b Airbus Deal

PARIS — Abu Dhabi airline Etihad has firmed up a $10 billion Airbus plane order in a landmark deal that could see the planemaker build part of its next generation of jets in the emirate, a source close to the deal said on Friday.

By (Reuters)

Published: Sun 7 Dec 2008, 12:27 AM

Last updated: Sun 5 Apr 2015, 11:20 AM

The order, whose fate had been left uncertain as financial turmoil engulfs even the world’s fifth largest oil producer, follows a manufacturing deal between Airbus parent EADS and Abu Dhabi fund Mubadala Development.

It is also the tip of the iceberg in a wider contest for orders with Boeing spanning 3 continents, industry sources said.

The order includes up to 25 future Airbus A350-1000s worth $270 million each. Although the deals are not publicly linked, industry sources said part of the A350’s lightweight composites structure would be built at a new high-tech plant in Abu Dhabi.

Airbus and EADS declined to comment. Latest Airbus monthly orders are due to be published in the next few days.

Etihad has said its pending plane order from Airbus, part of a $20 billion purchase split between Airbus and Boeing that was first unveiled at an air show in the summer, is not directly connected to the Mubadala Development industrial deal.

However, the extent of talks and the length of time it took to confirm the deal, and a supportive political climate between France and Abu Dhabi, all point to a broad-based negotiation.

“It is clear that the Mubadala deal was a structural element of the whole thing,” a source familiar with the region said.

The A350 is being developed as a response to Boeing’s 787 Dreamliner, which has so far dominated the lucrative market for next-generation mid-sized planes designed to be less thirsty for fuel but which is also facing a new round of delivery delays.

The Etihad order follows a particularly fierce battle between Airbus and Boeing that is significant at two levels — strategic and commercial, industry sources said.

By putting down industrial roots in Abu Dhabi, part of the United Arab Emirates, EADS is forging ahead with a strategy of increasing its global industrial footprint.

The industrial deal is also seen as an insurance policy as both Airbus and Boeing face a slew of potential order cancellations or deferrals as the airline industry weathers a downturn in travel due to the global financial crisis.

Airbus is most heavily exposed to the Gulf region, which represents a significant slice of its order book and the lion’s share of orders for the A380, whose biggest customer is Etihad’s local rival Emirates Airlines, based in neighbouring Dubai.

Intercontinental Chess Game

On the commercial level, the Etihad deal is the latest move in an intricate chess game being played across global aircraft markets which involves the future of Boeing’s latest 747.

Boeing decided not to build a direct rival to the 525-seat A380, which it regards as an oversized behemoth for modern aviation, but it launched an upgraded and expanded version of its 747 jumbo, the 747-8, to protect the upper end of its range.

Although the freight version of the 747-8 is selling well, Boeing has only found one passenger airline customer for the 747-8, Germany’s Lufthansa. And under most traditional plane contracts, Lufthansa could cancel if it is the only buyer.

Airlines tend to balk at extra costs and fleet risks associated with being the only buyer of an aircraft.

That usually leaves the manufacturer needing to find a second customer before others will sign up for the plane. And in this case the repercussions are being felt thousands of miles away from the Gulf in the key market of Japan, industry sources said.

Winning Etihad was crucial in veteran Airbus sales chief John Leahy’s efforts to capture the biggest prize still eluding his company, the Japanese market, which is all but locked up by Boeing.

As long as Lufthansa is the only 747-8 buyer, that model could be at a disadvantage with carriers like Japan’s All Nippon Airways and both suppliers are wrestling for advantage.

“There is a major campaign in Japan,” one industry source said.

To boost the 747-8 and protect its flank in Japan, industry sources said Boeing is pushing the plane to airlines including Bahrain-based Gulf Air, with the promise of an all-luxury top deck, and that move is certain to be countered by an A380 offer.

None of the sources contacted agreed to be identified because pending deals have not yet been made public.

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