FedEx cancels Airbus order to buy Boeing
By LAURENCE FROST
AP BUSINESS WRITER
Tuesday, November 7, 2006 · Last updated 3:44 p.m. PT
PARIS -- Boeing scored a victory in the airliner wars Tuesday when FedEx became the first customer to cancel an order for Airbus's much delayed A380 superjumbo jets and said it instead will buy Boeing 777s.
FedEx Corp., the world's largest express transportation company, cited production delays for its decision to retract an order for 10 of the new double-decker A380s. Its FedEx Express unit has ordered 15 Boeing Co. 777 freighters with a list price of $3.5 billion and taken options on an additional 15.
"The availability and delivery timing of this aircraft, coupled with its attractive payload range and economics, make this choice the best decision for FedEx," said Frederick W. Smith, chairman and CEO of the Memphis-based company.
The A380 cancellations leave just 15 superjumbo freighter orders on the Airbus books - from UPS Inc. and International Lease Finance Corp. - and 142 orders for the plane's passenger version. A spokesman for UPS said late Tuesday the Atlanta-based company it is still reviewing its options.
Boeing Co.'s stock rose more than 5 percent on the news - its biggest one-day jump since June 14, when an earlier announcement of A380 delays sent its shares up 6.5 percent. Boeing shares have more than tripled since March of 2003, driven in part by the strength of the aerospace company's commercial jet business - which stands in stark contrast to rival Airbus's woes.
Shares of Airbus parent European Aeronautic Defense & Space Co. fell 3 percent in Paris.
Airbus regrets the decision by FedEx, company spokeswoman Barbara Kracht said, "but we understand their need to urgently address their capacity growth."
Airbus shocked investors and customers in June by blaming wiring problems for pushing back delivery of the 555-seater A380's production delay by a year. Then in early October it doubled the holdup to a total of two years and said it would cost parent company EADS $6 billion in lost profits over four years.
To streamline production, Airbus announced Monday that it will slash the number of suppliers it uses from 3,000 to 500.
Emirates, which has ordered 45 of the A380s and is the program's largest customer, said last month it would send a team of technicians to France to assess the accuracy of promised delivery dates for the A380 superjumbo.
Virgin Atlantic Airways also said last month it would defer the delivery of the first of its six Airbus A380 superjumbo jets until 2013.
FedEx said it did not expect the shift in aircraft purchases to adversely affect its operations. Spokesman Maury Lane said that while the Boeing 777s carry slightly smaller payloads that Airbus A380s, "we believe that we have created advantages in more nonstop, point-to-point transoceanic routes that have shorter flight times."
FedEx expects to get four of the 777s in 2009, eight in 2010 and the rest the following year.
Boeing launched the cargo version of the long-range, twin-engine 777 in mid-2005, after winning an order from Air France. Boeing spokesman Bob Saling declined to say how far out it has booked 777 orders, saying only that it had some positions available in 2009 that it was able to make available to FedEx.
It will assemble the freighter version of the 777 on the same production line, in Everett, north of Seattle, as the passenger version of the airplane.
UPS spokesman Norm Black said the world's largest shipping carrier is conducting an internal review about whether to stick by or cancel its order for 10 A380s. "I can't tell you exactly how long it is going to take," he said.
UPS, also known as United Parcel Service Inc., had been expecting its first A380 delivery in September 2009, but has been told by Airbus not to expect the first one until May 2010 at the earliest, with delivery of the other nine to be completed by the end of 2012, Black said.
Boeing shares surged $4.37, or 5.4 percent, to $84.85 on the New York Stock Exchange Tuesday, making them the top gainer in the Dow Jones Industrial Average, and FedEx shares rose $1.07 to $115.01. Shares in EADS fell to 20.66 euros ($26.26) in Paris.
The surge in Boeing's share price marks a stark turnaround from the spring of 2003, when Boeing shares hovered in the mid-20s amid concerns that Airbus was seeing more success winning commercial airplane customers. Boeing also was battered by a defense contracting scandal and the ouster of former CEOs Phil Condit and Harry Stonecipher, who himself had been brought back from retirement in 2003 to erase the taint from a string of defense scandals.
But now Airbus is seeing its share of hard times. Chris Lozier, an associate director at Morningstar, said the jump in Boeing's stock price Tuesday was indicative of the troubles the A380 program faces, and the relative strength of Boeing's commercial jet operations.
"Overall, the commercial part of Boeing's business, it still looks great from an investor point of view," Lozier said.
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AP Business Writers Allison Linn in Seattle, Woody Baird in Memphis and Harry Weber in Atlanta contributed to this report.
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