* Original list price value of order was $16 bln
* Airbus and Rolls-Royce share prices fall
(Adds further quotes, closing shares)
By Cyril Altmeyer and Tim Hepher
TOULOUSE, June 11 Airbus suffered an
unexpected reversal for its newest aircraft on Wednesday when
Dubai's Emirates scrapped a $16 billion order for the A350,
hitting shares in the European planemaker and engine firm
The surprise decision by Airbus's largest customer to cancel
all 70 A350s on order comes months before the long-haul jet is
due to enter service and removes 9 percent of the order backlog
for a plane which took eight years and $15 billion to develop.
Airbus said it was not worried about replacing the lost
orders, with its top salesman saying some airlines had
immediately expressed interest in buying some of the Emirates
aircraft, the first of which was due to be delivered in 2019.
But shares fell as analysts told investors the move raised
questions over aircraft demand, whether for the A350 itself or
implying a more general wobble of confidence that could also
hurt Airbus's main rival, the U.S. planemaker Boeing.
Shares in Airbus closed down 3.1 percent at 52.21
euros and Rolls-Royce, the sole engine supplier for the
A350, fell 5.5 percent to 10.17 pounds.
Airbus acknowledged it was disappointed with losing the
A350's joint second-largest customer, but said it did not see
any financial impact and that flight tests were on track.
"It is not good news commmercially but not bad news
financially," Airbus sales chief John Leahy told reporters,
adding the rival Boeing 787 had suffered more cancellations.
"There is certainly going to be no hole in production,"
The A350 is Europe's first jetliner built mainly from
advanced new materials and was designed to compete with two
types of aircraft from Boeing - the lightweight mid-sized 787
Dreamliner and the larger but older 777 mini-jumbo.
Emirates was among the first buyers for the A350 when it
placed the order for 50 A350-900s and 20 A350-1000s in 2007.
The deal was worth around $16 billion according to 2007 list
prices, and would be worth close to $22 billion if placed now,
although launch customers typically negotiate large discounts.
Both Airbus and Emirates said the decision to cancel the
A350 resulted from a review of Emirates' fleet requirements. A
spokesman for the airline said the order had "lapsed".
The decision to scrap the order, which may be the industry's
largest single cancellation, demonstrates the leverage of Gulf
carriers over planemakers. In 2000, Emirates cancelled an order
for Airbus A340 aircraft.
Emirates Chief Executive Tim Clark has in the past
criticized Airbus over delays to the A350, and then again when
Airbus changed the design of the largest A350 model in 2011.
In 2012, Clark told Aviation Week the order was "in limbo".
The first A350 is still due to be delivered to Qatar Airways
in the fourth quarter of this year, Airbus said.
Emirates and Qatar Airways are part of a trio of Gulf
carriers, alongside Abu Dhabi's Etihad, that have secured large
fleets of wide-body jets to suppport the growth of new hubs.
Nick Cunningham of UK-based Agency Partners said the latest
move posed questions including whether Middle Eastern carriers
have over-expanded or are expecting lower growth than before.
Airbus and Boeing have dismissed warnings of a "bubble" in
aircraft orders, which have mostly defied the economic downturn.
"We do not see this cancellation as a significant change in
the outlook for commercial aircraft demand, but more about a
rationalization of fleet types at Emirates," said Bernstein
Research analyst Douglas Harned in a note. "Emirates growth
plans are based on a very long-term strategy."
Emirates placed a record provisional order in November for
150 of a revamped 350 to 406-seat version of the Boeing 777
called 777X, which Boeing plans to introduce from mid-2020.
At the same time, it increased its order for Airbus's even
larger 525-seat A380 superjumbo, consolidating its position as
the biggest customer for the world's largest passenger jet.
The combined moves leave the Gulf heavyweight splitting its
future growth requirements between competing suppliers, with
Boeing providing its twin-engined long-haul needs and Airbus
filling superjumbo capacity through total orders for 140 A380s.
However, the decision to cancel the A350 may also increase
pressure on Airbus to revamp its largest model, analysts said.
Emirates has been pushing for months for Airbus to upgrade
the A380 superjumbo with a more efficient engine, a solution
favoured by Rolls-Royce which is among the companies most
directly affected by the airline's decision on the A350.
Emirates had reserved deliveries more than a decade after it
placed the order, and Airbus may now be able to resell these at
better prices than those available for launch customers.
Still, the cancellation cast a shadow over an annual media
event designed partly to showcase its wide-body strategy.
Airbus said it continued to work on a proposal to update the
smaller A330 jet with new engines, but confirmed it may not be
ready to launch it at the Farnborough Airshow in July, the
industry's largest annual event. A decision on whether to revamp
the A380 will take more time.
Rolls-Royce, which could be involved in both projects, said
the Emirates A350 decision would result in a 2.6 billion-pound
($4.4 billion) hit to its order book.
(Additional reporting by James Regan in Paris, Victoria Bryan
in Frankfurt, Sarah Young in London and Nadia Saleem in Dubai;
Editing by Christopher Cushing and Greg Mahlich)