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March 2 (Bloomberg) -- United Parcel Service Inc., the last remaining customer for the troubled Airbus SAS A380 freighter, said it will scrap its $2.8 billion order for 10 of the superjumbo jets later this year.
UPS concluded that Airbus couldn't meet a new delivery schedule after the planemaker's surprise decision yesterday to indefinitely delay the A380 cargo model and focus on the passenger version, UPS spokesman Mark Giuffre said today.
UPS, the world's largest package shipper, now must decide how soon it needs new jets as global trade expands and space tightens on aircraft production lines. Atlanta-based UPS wants more cargo on each plane into China and other Asian countries where flights are limited.
``It's a rational business decision on both parties' part,'' said Jim Corridore, a Standard & Poor's analyst in New York. ``Airbus makes a lot more money from its passenger planes than its freighters. They need to fix that business. UPS needs to find a partner that's going to work with them.''
UPS, the biggest cargo-plane customer for Airbus rival Boeing Co., may announce an order for 15 Boeing 777s and 15 747- 800s in four to six weeks, said Ned Laird, managing director of Seattle-based consulting firm Air Cargo Management Group.
``They have been talking about a potential replacement for the A380 with Boeing for the last year,'' Laird said. Deliveries would begin in the last half of 2010, he said.
UPS declined to discuss any plans for buying new planes. It now flies Boeing MD-11s and 747s to China and is adding more of both aircraft types to its fleet this year and next. The A380 is the world's largest commercial jet.
Airbus Response
``Airbus is disappointed that UPS intends to cancel the A380 freighter order,'' said Justin Dubon, an Airbus spokesman in Toulouse, France. ``We respect the airline's decision, and this is consistent with the agreement we reached last week.''
Airbus, the world's biggest maker of commercial aircraft, was at least two years behind schedule in deliveries of the A380 freighter, prompting other customers to void their orders or switch to the passenger version.
Shares of UPS fell 67 cents to $69.45 at 2:28 p.m. in New York Stock Exchange composite trading, while Boeing shares dropped 35 cents to $87.50. Shares of Airbus parent European Aeronautic Defence and Space Co. declined 99 cents, or 4 percent, to 23.63 euros in Paris.
UPS will give Airbus a formal cancellation letter later this year, on the first date allowed under the agreement reached by the companies last week, Giuffre said in an interview. He declined to provide the date.
Stanching Losses
Airbus's decision yesterday to delay the freighter was intended to help stanch losses that may reach 4.8 billion euros ($6.3 billion) by 2010. Airbus plans to cut 10,000 jobs over four years and sell or find partners for six factories due to A380-related costs.
The company estimated on Feb. 7 that the entire A380 program had cost $19 billion, including development funding and late-delivery penalties. Airbus reaffirmed its intention to stick with the jet last week when it announced the new UPS delivery schedule, and the company's decision yesterday to delay the freighter caught UPS by surprise, Giuffre said.
``It's actually good for Airbus, as it means one less distraction,'' said Doug McVitie, managing director of Arran Aerospace, a Dinan, France-based consulting firm. ``Not having to work on the freighter for now allows them to focus all their attention on existing customers for the passenger version.''
No airlines have canceled orders for the passenger model, although Virgin Atlantic Airways Ltd. has deferred its six-plane order and others want compensation from Airbus for delays.
Airbus now has 156 orders for the passenger version of the A380, spread among 14 customers.
UPS's Growth
UPS is adding 15 MD-11s and 10 747-400s to its fleet this year and next, spokesman Norman Black said. Last month, the company ordered 27 Boeing 767-300ER freighters valued at as much as $3.89 billion. UPS said those planes will be used for shorter routes and weren't intended to replace the A380s.
UPS was left as the sole customer for the freighter after FedEx Corp. dropped its 10-aircraft order in November, and International Lease Finance Corp., the world's largest plane lessor, switched its order for five freighters to passenger versions of the A380 a month later.
Other Options
FedEx, the largest cargo airline, ordered 15 Boeing 777 freighters with a list value of as much as $3.6 billion to replace the A380s. It was the biggest order ever for the twin- engine Boeing jets, which will be delivered beginning in 2009.
UPS had planned to decide the future of its A380 order after analyzing the revised delivery schedule proposed by Airbus last week, Giuffre said in an interview. Airbus pushed deliveries to 2012 through 2013 from the original 2009 to 2012 schedule.
The order had been in question since October, when Airbus first told UPS its initial delivery would be moved from the later part of 2009 to May 2010.
``Investors will be happy that the worry about this issue is now over,'' said S&P's Corridore, who has a ``buy'' rating on UPS shares. ``To the extent this worry was hanging over the stock, it's gone now.''
To contact the reporter on this story: Mary Schlangenstein in Dallas at
[email protected]
Last Updated: March 2, 2007 14:31 EST