'Airbus could cope with 1,000 order cancellations'

Airbus SAS could cope with losing as many as 1,000 jetliner contracts without suffering unduly because of its “formidable” order book, Chief Executive Officer Tom Enders said.

Airbus is able to withstand its backlog of 3,500 contracts shrinking somewhat, Enders told journalists in Paris on Saturday. If the order book kept growing customers would have to wait seven or eight years between contracts and deliveries, something that might deter carriers from buying, he said.

“So 3,500 orders make it 3,000, 2,500, whatever number you might take this is still five years of maximum production,” Enders said in a briefing given ahead of the Paris Air Show, which begins on Monday.

Cancellations to date have left Airbus with a client base for this year and next that is “clearly of a higher quality than a year before,” Enders said, repeating chief salesman John Leahy’s comment that “the weak sisters have left the backlog.” As struggling airlines scrap or defer orders, the planemaker is seeking “stronger” customers to accept the vacant production slots and keep its assembly lines running smoothly, he said.

Airbus’s planning at the moment amounts to “crisis management,” Enders said, the key consideration being to avoid building “whitetails,” or planes that have to be stored without an airline logo after buyers can’t pay for them.

The world’s biggest planemaker had won 11 net orders through May after selling 32 planes and suffering 21 cancellations. Boeing Co, the No 2, collected zero orders in the first five months as 65 purchases were wiped out by an equal number of cancellations. Both subtract cancellations of planes ordered in prior years from the current year’s order intake.

One way that Airbus, a unit of European Aeronautic, Defence & Space Co, can retain orders is by helping airlines to finance purchases. The company expects to provide ¤1 billion of loans this year and will increase that in 2010 and 2011 if necessary, Enders said, adding that banks are still reticent about providing money to carriers.

“We’re not a bank, not a charity organisation, so we have to use funds dedicated to customer finance on a very select basis and pick out those most important to us, pick out the winners,” he said. “We have some leeway here.”

Deliveries in 2011 are likely to fall 15 per cent to 25 per cent short of the number envisaged in an earlier plan as the recession takes its toll, the CEO said.

Enders didn’t rule out further production cuts and said that Toulouse, France-based Airbus has “various, sophisticated scenarios.” The company in February decided to cut production of single-aisle planes to 34 a month from 36, scrapping plans to jump to 40. It froze widebody output at 8.5 aircraft instead of increasing it to 10.

A target of 300 new orders this year is also looking increasingly doubtful, he said, while adding that Airbus won’t slash prices to bring in business.

“The priority is to not sacrifice margins,” he said. Airbus’s earnings in recent years were hurt by poor margins on planes that were contracted for before Enders became CEO. Margins are improving on more recent orders, he said, without giving numbers.

The CEO said that only the 525-seat A380 superjumbo has so far been immune to outright cancellations, other than for a freighter version, which has been shelved.

“I think it’s quite a miracle after what the programme has done,” he said. A380 deliveries have been running more than two years behind schedule after difficulties.

Airbus parent EADS is based in Paris and Munich.