Airbus faces tricky hurdles over stalled A380 Emirates deal

Above, Emirates’ 100th Airbus A380 aircraft on display during the Dubai Airshow on November 12. (AFP)
Updated 19 November 2017
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Airbus faces tricky hurdles over stalled A380 Emirates deal

DUBAI: A preliminary deal to sell 36 A380s to Emirates blew up in an Airbus hospitality chalet moments before the Gulf carrier was expected to shower $30 billion (SR112.5 billion) on the planemaker and its US rival Boeing at the start of last week’s Dubai Airshow.
Two top Emirates officials broke the news to Airbus CEO Tom Enders and his sales chief John Leahy that the widely expected $16 billion deal would not be signed that day, leaving uncertainty over the future of the world’s largest jetliner.
The halt came so swiftly that Airbus PR executives who were already in place for a double-signing ceremony a hundred yards away found themselves awkwardly among the audience as Boeing walked away with the sole Emirates order, worth $15 billion.
The unusual stumble in slick air show choreography highlights problems over timing and trust that may even now complicate a deal between Airbus and Emirates, people aware of the matter said.
One of the closest and most successful relations in aviation is looking bruised and throws up new complications for Airbus just as it struggles to maintain business as usual at a time when it faces British and French compliance probes.
A day after Airbus’s hopes were dashed, airline president Tim Clark publicly delivered a message from Dubai’s government saying it wanted a guarantee from Airbus that it would keep producing the A380 for 10 years, before the state-owned carrier would agree to placing a new order.
Enders emailed Clark calling the ultimatum, first reported by Reuters, unhelpful, two people aware of the matter said.
Airbus and Emirates declined comment.
“There is a worrying breakdown of the relationship between Airbus and Emirates,” said a person familiar with close to the talks.
“Airbus was confident of getting a deal,” a Gulf source added. “But Dubai does not want to be taken for granted.”
Air show delegates said Emirates and Airbus must now resolve problems of visibility if a deal is to be done.
Many in the industry say Airbus appears directionless as Leahy is due to retire in January, the guardian of the Emirates relationship, Habib Fekih, did so earlier this year and doubts grow over whether Enders will secure a new CEO mandate in 2019. Meanwhile the probes have badly clogged Airbus decision-making.
On the Emirates side, top executive Clark — although full of energy at 67 and dismissing talk of retirement — is likely to hand over the baton at some stage, and it is uncertain how committed other managers are to the A380 flagship.
“Nobody knows who is going to be in charge of the other side later, which doesn’t help,” said a person familiar with the matter.
The Airbus board will however have to think hard before giving Dubai the guarantee it wants, which would go beyond the scope of a normal contract for specific planes.
“It’s not something any company can easily do, especially on something dragging down the bottom line,” the same person said.
For Emirates, the problem runs deeper than simply buying an aircraft from Airbus.
Airlines deal directly with numerous suppliers, from landing gears to tires and entertainment systems. Each takes its cue from the planemaker as conductor of a large orchestra.
“If you’re the only customer your fear is the manufacturer will lose interest and that becomes a signal to suppliers to make support a lower priority,” a person close to the matter said. “Then you end up unsure who is supporting what.”
The biggest question mark hangs over the massive engines.
In 2015, Britain’s Rolls-Royce won its largest-ever order, worth $9 billion, to displace US consortium Engine Alliance to power a batch of 50 four-engined A380s for Emirates.
But to win the deal it gave ambitious fuel-consumption targets and Emirates signalled last week the cards could be shuffled again for the potential new order. “If we ordered more, we might contemplate talking to both sides,” Clark said.
But Engine Alliance output ends in 2018. Keeping its assembly lines warm would require a fresh commitment from its parents General Electric and Pratt & Whitney.
“That’s a pretty big ask right now. It all comes down to money,” a person close to the consortium said.
GE is involved in a major rethink of strategy and wants to be more selective about investments, while Pratt & Whitney is absorbed with fixing delays on smaller engines.
Keeping engine makers on board is all the more challenging because of the lack of an A380 second-hand market.
Engine makers make money on spares and services over the working life of an engine which is usually 20-25 years.
But in another accident of timing, the first A380 to carry passengers, in 2007, was being mothballed in France just as Airbus was trying to cling on to an Emirates deal at last week’s show, after just 10 years in service with Singapore Airlines.
That sets a worrying precedent for suppliers of Emirates, which usually operates planes for 12 years and around 20 of whose A380s may exit the fleet to make way for new purchases.
Faced with the possibility that any new A380 engines may have only half their budgeted life, engine makers may charge more for them up-front or more in hourly service contracts.
Still, Emirates believes an Airbus guarantee over the life of the program could break the logjam and generate new orders.
“I would think a revitalization of the line would bring the big players together and say what can we all do to make this work ... including propulsion,” Clark said.
Pride may yet work in favor of a deal over the A380, which is Airbus’s only path into business with Emirates for the time being after the airline placed new orders with Boeing.
“This (Airbus) management took the decision to launch the A380 so killing it now would make them look foolish,” a senior air show delegate said.
“They have got to be able to say that when they left, the A380 was still being built.”


At Jordan border, Damascus seeks to revive trade

Updated 7 min 18 sec ago
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At Jordan border, Damascus seeks to revive trade

  • The government of President Bashar Assad took back control of the Nassib border post in July
  • By reopening a key land crossing with Jordan this month, the Syrian regime is inching toward a return to trade with the wider region

BEIRUT: By reopening a key land crossing with Jordan this month, the Syrian regime is inching toward a return to trade with the wider region as it looks to boost its war-ravaged economy.
The government of President Bashar Assad took back control of the Nassib border post in July from rebels as part of a military offensive that reclaimed swathes of the south of the country.
Syria’s international trade has plummeted during the seven-year civil war, and its foreign reserves have been almost depleted.
The reopening of Nassib after a three-year hiatus, on Oct. 15, is a political victory for the Damascus regime, said Sam Heller of the International Crisis Group.
It is “a step toward reintegrating with Syria’s surroundings economically and recapturing the country’s traditional role as a conduit for regional trade,” he said.
The Nassib crossing reopens a direct land route between Syria and Jordan, but also a passage via its southern neighbor to Iraq to the east, and the Gulf to the south.
“For the Syrian government, reopening Nassib is a step toward normalization with Jordan and the broader region, and a blow to US-led attempts to isolate Damascus,” Heller said.
International pressure and numerous rounds of peace talks have failed to stem the fighting in Syria, and seven years in the regime has gained the military upper hand in the conflict.
Assad’s forces now control nearly two-thirds of the country, after a series of Russia-backed offensives against rebels.

 

Syria faces a mammoth task to revive its battered economy.
The country’s exports plummeted by more than 90 percent in the first four years of the conflict alone, from $7.9 billion to $631 million, according to a World Bank report last year.
The Syria Report, an economic weekly, said Nassib’s reopening would reconnect Syria with an “important market” in the Gulf.
But, it warned, “it is unlikely Syrian exports will recover anywhere close to the 2011 levels in the short and medium terms because the country’s production capacity has been largely destroyed.”
For now, at least, Nassib’s reopening is good news for Syrian tradesmen forced into costlier, lengthier maritime shipping since 2015.
Among them, Syrian businessman Farouk Joud was looking forward to being able to finally import goods from Jordan and the UAE via land.
Before 2015, “it would take a maximum of three days for us to receive goods, but via the sea it takes a whole month,” he told AFP.
Importing goods until recently has involved a circuitous maritime route from the Jordanian port of Aqaba via the Suez Canal, and up to a regime-held port in the northwest of the country.
“It costs twice as much as land transport via Nassib,” Joud said.
Syrian parliament member Hadi Sharaf was equally enthusiastic about fresh opportunities for Syrian exports.
“Exporting (fruit and) vegetables will have a positive economic impact, especially for much-demanded citrus fruit to Iraq,” he told AFP.
Before Syria’s war broke out in 2011, neighboring Iraq was the first destination of Syria’s non-oil exports.
The parliamentarian also hoped the revived trade route on Syria’s southern border would swell state coffers with much-needed dollars.
Before the conflict, the Nassib crossing raked in $2 million in customs fees, Sharaf said.
Last month, Syria’s Prime Minister Imad Khamis said fees at Nassib for a four-ton truck had been increased from $10 to $62.
Syria’s foreign reserves have been almost depleted due to the drop in oil exports, loss of tourism revenues and sanctions, the World Bank said.
And the local currency has lost around 90 percent of its value since the start of the war.
Lebanese businessmen are also delighted, as they can now reach other countries in the region by sending lorries through Syria and its southern border crossing.
Lebanon’s farmers “used to export more than 70 percent of their produce to Arab countries via this strategic crossing,” said Bechara Al-Asmar, head of Lebanon’s labor union.
Despite recent victories, Damascus still controls only half of the 19 crossings along Syria’s lengthy borders with Lebanon, Jordan, Iraq and Turkey.
Damascus and Baghdad have said the Albukamal crossing with Iraq in eastern Syria will open soon, but did not give a specific date.
Beyond trade, there is even hope that the Nassib crossing reopening might bring some tourists back to Syria.
A Jordanian travel agency recently posted on Facebook that it was organizing daily trips to the Syrian capital by “safe and air-conditioned” bus from Monday.
“Who among us doesn’t miss the good old days in Syria?” it said.

FACTOID

BACKGROUND

Syria’s foreign reserves have been almost depleted owing to the drop in oil exports, loss of tourism revenues and sanctions, while the local currency has lost around 90 percent of its value since the start of the war in 2011.