Future of A380 hangs on Emirates amid rumors of production cuts

It was reported on Thursday that Airbus is considering cutting A380 production. (Reuters)
Updated 15 December 2017
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Future of A380 hangs on Emirates amid rumors of production cuts

LONDON: The future of Airbus’ A380 depends to a large extent on Emirates, the Dubai carrier that is by far the aircraft maker’s largest customer, analysts told Arab News.
Airbus was upstaged at the recent Dubai Airshow when instead of an expected announcement that Emirates would order 36 of Airbus’ superjumbos, it disclosed an order with arch-rival Boeing for 40 787s at a list price of $15 billion. It is not clear when or if Emirates will order more A380s, the mainstay of its fleet.
The battle between the A380 and 787 has been going on for years with the former being bigger and able to carry more passengers, but the latter sleeker and more energy efficient. The two companies are also promoting two business models, with the A380 designed to fly to a hub such as Dubai for onward travel, while Boeing has bet on passengers preferring to fly “point-to-point.”
That said, the hub model could still be valid, but with smaller aircraft using it, Tim Coombs, managing director at Aviation Economics, told Arab News.
Reuters reported on Thursday that Airbus was considering cutting production to six or seven planes a year. But it had not made a final decision on the matter, a top executive told the news agency, amid growing question marks over the future of the double-decker jet.
The A380 has battled against sluggish sales for some time and has previously announced plans to lower output to 12 aircraft in 2018 and eight in 2019, compared with an annual peak of 30.
Coombs said: “Without the support of Emirates, the A380 program would be a bit of a disaster as Airbus has failed to sell the carrier, in any great number, to other airline networks.” He said Emirates and the A380 project were “inexorably linked.”
“It’s not healthy from Airbus’ point of view that they are so reliant on one carrier,” he added.
“But I think they have an order book for other aircraft to justify a cut in production of the A380.”
“Every other aircraft in their production line has probably got a seven-year backlog in orders from other carriers, but that’s not the case with the A380.”
Chris Tarry, an airlines analyst at CTAIRA said, “Airbus is clearly looking at what the future rate of delivery is going to be, and it would be logical and sensible to adjust your production to what you are going to sell.”
He added: “Clearly the A380 hasn’t sold as well as when the plan was put together all those years ago, the market has changed and the reality is that you can now move passengers on a new-generation, smaller aircraft as economically as on a larger one. The A380 was conceived maybe 30 years ago, but the markets move on.”
Airbus has faced pressure on other fronts this year, with engine delays on its popular A320neo single-aisle carrier, and having to cope with the impact of corruption investigations. Denis Ranque, chairman of Airbus, told the Financial Times on Thursday that senior management will have to change after a raft of investigations that have rocked Airbus to the core.
“There is no strict timeline,” Ranque said in an interview with the FT. “That enables us to make a staggered and reasonable approach to this. Some changes will be needed but it is far too early to say when, who and how.” 
Airbus was said to be currently strengthening its compliance procedures in the wake of allegations about its use of middlemen to win aircraft deals. It is facing probes in the UK, France, Germany and Austria.
 


Gulf companies challenged by debt and rising interest rates

Updated 22 April 2018
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Gulf companies challenged by debt and rising interest rates

  • Debt restructurings on the rise, but below crisis levels
  • Central Bank of the UAE has raised interest rates four times since last March

There has been an uptick in recent months in heavily-borrowed companies in the Gulf seeking to restructure their debts with lenders. Although the pressure on companies is not comparable to levels witnessed in the region following the 2008 global financial crisis, rising interest rates will eventually begin to have a greater impact, say experts.
Speaking exclusively to Arab news, Matthew Wilde, a partner at consultancy PwC in Dubai, said: “We do expect that interest rate increases will gradually start to impact companies over the next 12 months, but to date the impact of hedging and the runoff of older fixed rate deals has meant the impact is fairly muted so far.”
The Central Bank of the UAE has raised interest rates four times since the start of last year, in line with action taken by the US Federal Reserve. The Fed has signalled that it will raise interest rates at least twice more before the end of the year.
Wilde added that there had been a little more pressure on company balance sheets of late, although “this shouldn’t be overplayed”.
Nevertheless, just last week, Stanford Marine Group — majority owned by a fund managed by private equity firm Abraaj Group — was reported by the New York Times to be in talks with banks to restructure a $325 million Islamic loan. The newspaper cited a Reuters report that relied on “banking sources”.
The Dubai-based oil and gas services firm, which has struggled as a result of the downturn in the hydrocarbons market since 2014, has reportedly asked banks to consider extending the maturity of its debt and restructuring repayments, after it breached certain loan covenants.
A fund managed by Abraaj owns 51 percent of Stanford Marine, with the remaining stake held by Abu Dhabi-based investment firm Waha Capital. Abraaj declined to comment.

 

Dubai-based theme parks operator DXB Entertainments struck a deal last month with creditors to restructure 4.2 billion dirhams ($1.1 billion) of borrowings, with visitor numbers to attractions such as Legoland Dubai and Bollywood Parks Dubai struggling to meet visitor targets.
Earlier this month, Reuters reported that Sharjah-based Gulf General Investment Company was in talks with banks to restructure loan and credit facilities after defaulting on a payment linked to 2.1 billion dirhams of debt at the end of last year.
Dubai International Capital, according to a Bloomberg report from December, has restructured its debt for the second time, reaching an agreement with banks to roll over a loan of about $1 billion. At the height of the emirate’s boom years, DIC amassed assets worth about $13 billion, including the owner of London’s Madame Tussauds waxworks museum, as well as stakes in Sony and Daimler. The firm was later forced to sell most of these assets and reschedule $2.5 billion of debt after the global financial crisis.
Wilde told Arab News: “We have seen an increasing number of listed companies restructuring or planning to restructure their capital recently — including using tools such as capital reductions and raising capital by using quasi equity instruments such as perpetual bonds.”
This has happened across the region and PwC expected this to accelerate a little as companies “respond to legislative pressures and become more familiar with the options available to fix their problems,” said Wilde.
He added that the trend was being driven by oil prices remaining below historical highs, soft economic conditions, and continued caution in the UAE’s banking sector.
On the debt restructuring side, Wilde said there had been a “reasonably steady flow of cases of debts being restructured”.
However, the volume of firms seeking to renegotiate debt remains small compared to the level of restructurings witnessed in the aftermath of Dubai’s debt crisis.
Several big name firms in the emirate were caught out by the onset of the global financial crisis, which saw the emirate’s booming economy and real estate market go into reverse.
State-owned conglomerate Dubai World, whose companies included real-estate firm Nakheel and ports operator DP World, stunned global markets in November 2009 when it asked creditors for a six-month standstill on its obligations. Dubai World restructured around $25 billion of debt in 2011, followed by a $15 billion restructuring deal in 2015.
“We would not expect it to become (comparable to 2008-9) so barring some form of sharp external impetus such as global political instability or a protectionist trade war,” said Wilde.
Nor did he see the introduction of VAT as particularly driving this trend, but rather as just one more factor impacting some already strained sectors (e.g. some sub sectors of retail) “which were already pressured by other macro factors.”

FACTOID

Four

The number of interest rate rises in the UAE since March 2017.