Airbus postpones Emirates’ A380s again
With Airbus facing well-documented difficulties in delivering its A380 passenger aircraft, Emirates Airline has reached a deal with Boeing to meet its aggressive expansion plans for its cargo business. The move comes at a time when Abu Dhabi’s Etihad Airlines has been actively adding new planes to its fleet and continues to expand service to an increasing network of international destinations.
On October 8, Emirates, the Dubai-based national carrier, signed a contract for 10 Boeing 747-8Fs, the manufacturer’s new freight series. Also included in the agreement was the option of buying ten more aircraft in the future, bringing the combined value of the deal to Dh20.54 billion ($5.6 billion).
Emirates and Boeing flying high
Emirates and Boeing signed a purchase agreement for the 747-8Fs back in July at the Farnborough Air Show, as part of the Dubai-based airline’s desire to expand its cargo tons as rapidly as its passenger numbers.
“Developing this side of our business is elemental to Emirates maintaining a leading position amongst the world’s airlines,” said Sheikh Ahmad bin Saeed al-Maktoum, the chairman of Emirates Group and president of Dubai Civil Aviation Authority.
Boeing brought its 747-8F to the market in late 2005, billing it as a lower-cost, quieter and environmentally-conscious option for air cargo. With a capacity of 140 tons, it has 16% more capacity than the Boeing 747-400F. The 747 F series is already the market leader with over 50% share in global air cargo.
With the 747-8Fs, Emirates SkyCargo, in charge of airfreight for the airline, will add to a swelling order log for Boeing.
The deal with Emirates comes only a week after Boeing archrival Airbus announced it will again delay the delivery of its A380 Superjumbo series.
On October 3, Airbus told Emirates they would have to wait an additional 10 months from the previous delivery date before starting to receive the first of its A380s. It is the third announced delay for the Superjumbo, which already has 159 orders for the 555-seat aircraft on the books.
Expecting more than 40 of those aircraft, Emirates is showing its frustration.
“Emirates has been advised by Airbus of a further 10 months delay to its A380 program, which means that our first aircraft will now arrive in August 2008. This is a very serious issue for Emirates and the company is now reviewing all its options,” said Tim Clark, the president of Emirates Airline, in a company press release.
‘This is going to cause a huge problem’
Emirates’ senior vice-president for corporate communications, Mike Simon, told local Emirati news, “On top of the previous delays, the new 10-month delay is going to cause a huge problem for us.”
The airline, which currently flies to 85 global destinations with 98 jets, hinges its expansion timetables on when its airplane orders will be delivered. With more than 100 wide-body jets ordered and awaiting delivery, Emirates has plans to significantly increase the frequency of its flights to its existing network, along with opening new cities.
As Maurice Flanagan, vice-chairman and group president of Emirates, said, “We don’t buy a single aircraft without knowing in advance where it is going to go to, and knowing that it will be profitable on those routes—including those 45 A380s.”
The A380s are especially vital for expansion into the Americas—markets that, so far, have received limited attention. Currently, Emirates only flies to New York, but has done feasibility studies to start service to Houston, Los Angeles and San Francisco. Meanwhile, the airline is in talks with Argentina and Brazil to begin their first flights to South America.
Also important will be the further penetration in Australia, by increasing the frequency of daily flights to Sydney, Melbourne, Brisbane and Perth to three.
Much of the profitability of these long-haul routes depends on the operation of the A380s, which will significantly drop the operating cost per seat.
The effects of the delay could also hit closer to home. Besides opening flights to distant cities, the A380s were important to plans at Dubai International Airport, which is undergoing a $4.1 billion expansion. Some of the new boarding gates were exclusively tailored to service the A380s.
But in the face of continuing delays, the Boeing 747-8, the passenger version of the 747-8F, seems to be the only viable alternative for airlines that are looking for the largest planes. It is smaller—450 seats to 555—and even if the orders were placed now, 747-8s would still take longer to build and deliver than the delayed A380s.
While expressing disappointment with Airbus, the airline has not made any indication that it plans to cancel its order.
Direct compensation is also an option. Reports recently surfaced in the foreign press saying that Emirates had demanded $281.3 million (Dh1.03 billion) from Airbus, although Emirates officials have since denied the claim.
Meanwhile, the expansion of Abu Dhabi’s aviation industry is having a direct impact on the numbers of visitors to the emirate and hotel occupancy rates.
Kevin Brett, general manager of the Hilton Abu Dhabi, said recently that the airline’s expansion has spurred tourism in the emirate. He said, “In 2004, the occupancy at the Hilton Abu Dhabi finished the year at 56%, whereas in 2005 we finished at above 85%. This huge jump in occupancy was largely underpinned by the emergence and growth of Etihad airlines, bringing large numbers of tourists to the emirate.”
The airline’s fleet will see the addition of an A330 next month, followed by the arrival of an A340-500 long-range aircraft. These purchases will bring the total size of the fleet to 24 aircraft with 10 more on the way in 2007. All this as Etihad is also continuing its geographic expansion, adding two new destinations over the next two months, bringing the total to 36.
Etihad’s growth coincides with plans for Abu Dhabi Airport’s infrastructure expansion.
The airport has already been supplemented by a second terminal, which has brought its handling capacity to 2 million passengers a year. This was opened at a cost of Dh21 billion ($6.8 billion) in August 2005. However, Etihad’s rapid expansion means that the volume of traffic and trade is already opening up a need for even further expansion.
The government has created a new operating company, Abu Dhabi Airports Company (ADAC), with the authority to oversee the development of the airport through a number of outsourcing initiatives. The company, set up under presidential decree in March, will be empowered to operate, manage and maintain airports in the emirate. This marks a departure from the old structure, under which the department of civil aviation was responsible for the regulation, operation and development of all aviation matters. Regulation at the local level will now be dealt with by the department of transport, as ADAC has now assumed formal control of the operation and development of the airport.
Growing Etihad
Khalifa al-Mazroui, the chairman and managing director of ADAC, recently told emirati media that one of the purposes of the company was to facilitate the growth of Etihad rather than cap its expansion. As a result, the interim solution of providing a new terminal for the dedicated use of Etihad was established. The interim terminal and the development of a new runway will increase the capacity of the airport to five million travelers by the end of 2007.
The boeing 747-8 is the only viable
alternative for airlines looking
for the largest plans
Meanwhile, some observers are concerned that expansion may outpace demand.
The development of Etihad and the new airport are a reflection of and a stimulus for Abu Dhabi’s economic growth and diversification ambitions. The airport will aim to serve this growth; however, it is also a reflection of the expansion of the industry at a regional level, which is leading to greater competition that may lead to over capacity. For example, with the establishment of a new airport at Jebel Ali, which will eventually have an annual handling capacity of 120 million passengers and 12 million tons of cargo, the UAE will have three major airports.
However, Gordon Dixon, the CEO of Oasis Leasing, a substantial player in the aircraft leasing industry, believes that this dramatic increase in the airport’s capacity would be sustainable.
He also pointed to even more opportunity in the sector.
Dixon alluded to low-cost air travel as an area of potential growth, saying, “The growth of low-cost carriers will be huge. The market is very under-served, the demand is there and the histories of low-cost carriers show that they create demand. The biggest factor, however, is the expatriate community, who would be able to return home to see their families on a more regular basis.”
These infrastructure developments will also be completed in time for the arrival of the A380 airbus, the biggest passenger aircraft in the world. In addition, ADAC will also be looking to develop a free zone at the airport within the next twelve months.
