What's going on?
The game of chicken between plane builder Airbus and Emirates ended on Thursday as the Dubai-based airline coughed up billions of dollars for up to 36 more A380 superjumbo jets – rescuing production of the world’s largest commercial aircraft (tweet this) from a premature grounding.
What does this mean?
Eyebrows were raised at the recent Dubai Air Show jamboree when an expected new order from Emirates for more A380s failed to materialize. Emirates has been by far the biggest buyer of the A380 since it first rolled off the production line a little over a decade ago. Other airlines have typically gone for Boeing’s smaller and (usually) more fuel-efficient Dreamliner and 777 models.
Airbus said that, without another big order from Emirates, it would be forced to stop producing the signature aircraft. With that threat hanging over proceedings, a deal was struck whereby Emirates reduced the number of planes it guaranteed it would buy, while also agreeing to take delivery of its orders sooner than originally planned (which helps Airbus shift stock coming off the production line in the next few years). The result: the A380 program is set to cruise along for at least another decade.
Why should I care?
The bigger picture: Bigger isn’t always better.
Boeing, Airbus’ chief rival, argues that the future belongs to its 777 and Dreamliner models, which offer more flexibility (not least in the routes they suit flying) – and airlines appear to agree. Similar conclusions are being drawn in many industries: whether it’s small yet disruptive startups, conglomerates “shrinking to grow” or airlines wanting more nimble planes, corporate strategy has increasingly prioritized flexibility over the past decade.
For markets: Airbus’ stock price got a brief lift.
Relieved investors initially sent Airbus’ stock up 3% following the announcement, although it finished the day up less than 1%. While ending the A380 program would have been “emotionally expensive” for Airbus (like any breakup), it wouldn’t have caused major financial damage.