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Airlines reel at A380 delay

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LONDON, England (CNN) -- The extent of the delays to the A380 were announced on Tuesday leaving the airline industry reeling.

Airbus' parent company EADS said in a statement that the first plane will now not be delivered to Singapore Airlines until October 2007, leaving it two years behind schedule because of wiring problems.

"We are assessing the impact that the delays will have on forward capacity growth, and assessing options to mitigate the situation," Singapore Airlines said in a statement.

The carrier added that the Toulouse, France-based aircraft maker would compensate Singapore Airlines for the delay, but said the terms of the compensation were confidential.

Compensation packages will also have to be paid to the 14 other airlines that between them have 143 passenger A380s on order.

Singapore Airlines has 10 A380s on firm order and options for a further nine, while Qantas has ordered 12 planes and Lufthansa 15. Dubai-based Emirates is the A380's largest customer, with 45 aircraft on order worth over US$13 billion at list prices.

After the initial delivery to Singapore Airlines, Airbus announced that thirteen more will be delivered in 2008 and 25 in 2009. The industrial ramp-up will be completed in 2010, when 45 A380s are going to be delivered.

The news of the delays has prompted a number of airlines to review their orders and cancellations have not been ruled out.

Emirates has been advised by Airbus of a further 10 months delay to its A380 program, which means their 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, president of Emirates.

"How are we going to mount the capacity in the short-term? What does it mean in the long-term? Where do we go from here? It's all part of the review," Qantas executive general manager John Borghetti told Reuters.

Qantas did not rule out canceling the A380 order.

"I'm not going to speculate on that. That's just between us and Airbus," Borghetti said.

JP Morgan analyst Matt Crowe said while Qantas might consider scrapping the superjumbo order, it was unlikely to do so.

"From what they said today, I think they're still committed to these planes. They're very desirable for Qantas's needs."

Echoing the view of other airlines, Virgin Atlantic, which ordered six planes, has scheduled a board meeting for October 12 when the company will decide what to do next.

Lufthansa has been the only airline to continue to support is contract for the superjumbo and ruled out ditching the airliner from its fleet.

"We're still convinced that the A380 is a success story and the A380 is a growth aircraft," said Stefani Stotz of Lufthansa.

"We want to grow as an airline, we still believe this is the aircraft we need, especially when capacities and traffic rights are limited."

Lufthansa now expect delivery to be between May and September 2009.

The compensation packages have compounded the financial woes of Airbus. With penalties mounting, however, Airbus said that "four or five" of its contracts with airlines were heading for a loss.

Qantas declined to comment on whether the airline would claim further damages from Airbus on top of the A$104 million ($77 million) it already expects to receive.

The spiraling costs of the A380s delayed development have also eaten into the cash Airbus needs to prop up other projects such as the A350. In response the company has announced a restructuring plan that aims to increase productivity by 20 percent in two years and lead to annual cost savings of €2 billion from 2010.

Airbus said it had underestimated the amount of work needed to fix the A380 production problems.

"With the right tools, the right people, the right training and the right oversight and management being put in place, the issue is now addressed at its root, although it will take time until these measures bear fruit."

Reuters contributed to this report.

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