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Wednesday, November 8, 2006 - Page updated at 12:00 AM

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Airbus blow: FedEx pulls A380 order, to buy 777s

The Associated Press

PARIS — Boeing scored a victory in the airliner wars Tuesday when FedEx became the first customer to cancel an order for Airbus' much-delayed A380 jumbo jets and said it will instead buy Boeing 777s.

FedEx, the world's largest express-package transportation company, cited production delays for its decision to retract an order for 10 of the new double-decker A380s. Instead it ordered 15 Boeing 777 freighters, with a list price of $3.5 billion, and took options on an additional 15.

The A380 cancellations leave just 15 superjumbo freighter orders on the Airbus books — from United Parcel Service (UPS) and leasing giant International Lease Finance Corp. (ILFC) — and a further 142 orders for the plane's passenger version.

FedEx Chairman and CEO Fred Smith said, "The availability and delivery timing of this aircraft, coupled with its attractive payload range and economics, make this choice the best decision for FedEx."

As Airbus' largest freighter customer, FedEx was intimately involved with the development of the A380 from the early stages of the program, said Ned Laird, managing director of Seattle-based Air Cargo Management Group (ACMG).

Its decision to switch to the 777 could bring Boeing further orders when FedEx needs to replace its large fleet of older A300 freighters.

"They are shutting the door on Airbus," said Doug McVitie, an industry analyst based in France and a former Airbus salesman who is critical of Airbus management.

Airbus' future in the air-cargo business now hangs on whether UPS follows its rival FedEx and cancels its A380 order, said Laird, a former Boeing executive and now a well-regarded air-freight industry analyst.

FedEx and UPS had discussed a joint maintenance facility in Shannon, Ireland, dedicated to servicing their A380s. With that option gone, UPS would have to shoulder its maintenance costs on the superjumbos.

UPS already flies Boeing 747 freighters and could potentially order either the new 747-8 or 777 freighters, Laird said.

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On the other hand, UPS might face penalties in canceling its A380s, since it signed the Airbus order to replace an earlier order for 32 A300s, Laird said. But if UPS did cancel, ILFC would almost certainly convert its A380 freighter order to some other jets and that would leave the A380 freighter program with no orders.

And since Airbus has put off launching its other wide-body freighter prospect — an A330 freighter was expected to be launched last month but is on hold until the company finds a way through its current crisis — "that would put Airbus out of the freighter business," Laird said.

The 20-year market forecast by ACMG projects a need for more than 500 new wide-body production freighters — a lot of business to leave on the table for Boeing.

Boeing's stock rose more than 5 percent on the news of FedEx's switch — its biggest one-day jump since June 14, when an earlier announcement of A380 delays sent its shares up 6.5 percent.

Shares of Airbus parent European Aeronautic Defense & Space Co. (EADS) ended down 3 percent in Paris. Airbus regrets the decision by FedEx, company spokeswoman Barbara Kracht said, "but we understand their need to urgently address their capacity growth."

The European plane maker recently doubled the production delay for the A380 jet to two years. To streamline production, Airbus announced Monday that it will slash the number of suppliers it uses from 3,000 to 500.

Emirates, which has ordered 45 of the A380s and is the program's largest customer, said last month it would send a team of technicians to France to assess the accuracy of promised delivery dates for the A380.

Boeing said delivery of its aircraft to FedEx Express will begin in 2009. Spokesman Bob Saling declined to say how far out it has booked orders for the 777, saying only that it had some positions available in 2009 that it was able to make available to FedEx.

FedEx spokesman Maury Lane said the Boeing 777s will carry slightly smaller payloads that Airbus A380s. FedEx expects to get four of the 777s in 2009, eight in 2010 and the rest the following year.

Boeing launched the cargo version of the long-range, twin-engine 777 in mid-2005, after winning an order from Air France.

It will assemble the freighter version of the 777 on the same production line, in Everett, as the passenger version of the airplane.

The crisis with the A380 also appears to be having an impact on Airbus' ability to launch its A350 plane against the 787.

McVitie said that a decision on whether to launch the A350, rumored for this week, has been pushed out indefinitely in the face of disagreements within Airbus on how to finance that airplane, where to build it and how much of it should be made from plastic.

"They're trying to keep the A380 program from collapsing. It's 'all hands on deck,' " said ACMG's Laird. Until that's done, no other decisions can be made. "Airbus is in paralysis," he said.

Seattle Times aerospace reporter Dominic Gates contributed

to this report.

Copyright © 2006 The Seattle Times Company

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