Feb. 11, 2019, © Leeham News: Terminating the A380 program may be a blessing in disguise for Airbus, writes a US aerospace analyst.
At the same time, it could cause headaches for the supply chain.
Carter Copeland of Melius Research LLC makes a split decision on the future of the A380. There is speculation that retiring Airbus CEO Tom Enders might decide to end the program before he leaves office in April, clearing the decks for his successor, Guillaume Faury.
“The recent A380 news is…a blessing in disguise,” Copeland writes. “An Emirates A380 cancellation and likely shutdown of the A380 in the coming years should have a limited EBIT/cash flow impact, as many observers have already concluded. However, we think the indirect impacts on internal resources (sales, cost reduction, cross-subsidization) are still underestimated, as few appreciate the resources it takes to keep a dying aircraft program on life support. Furthermore, we strongly believe that an end to A380 production end would further rationalize the product portfolio in a way that is accretive to our margin-focused thesis longer-term.”
On the other hand, Copeland sees a negative impact for the supply chain.
“A380 production cessation is not a positive for everyone,” he writes. “It’s been awhile since we killed a major program outright, and usually the Street (and often industry) underestimates the impact on inventory de-stocking. Watch out for long-lead suppliers (ARNC) and distributors of longer-lead parts (WAIR), as this is where the surprises from violent inventory corrections have historically shown up.”
ARNC is the stock symbol for Arconic, a prime supplier of aluminum. WAIR is the symbol for Wesco Aircraft Holdings, a supply chain management company.