Why Emirates' cancelled Airbus order will cost Rolls-Royce 2.6 billion pounds

It's not just Airbus that will lose out from Emirates' decision to cancel a $16bn order for A350 aircraft. British firms will lose out too.

by Emma Haslett
Last Updated: 11 Jun 2014

Unfortunate goings-on at Airbus HQ this morning, after Dubai-based airline Emirates cancelled a $16bn order for 70 A350 aircraft - the manufacturer’s biggest-ever cancellation.

It means Rolls-Royce - which makes the planes’ engines - will lose 3.5% of its order book, equivalent to £2.6bn. Not great for a company which earlier this year warned shareholders that sharp cuts in defence spending by the US and European governments would ‘prevent’ growth in profits this year.

To be fair, France-based Airbus took most of the blow: its share price was down 3.82% in mid-morning trading. The problem is, no one’s completely clear on why this has happened: Emirates said it was simply ‘reviewing our fleet requirements’ and that ‘the contract we signed in 2007… has lapsed’. For its part, Airbus added that there had been ‘ongoing discussions’ and that the airline ‘recently reiterated its confidence in Airbus products’.

It probably doesn’t help that back in November, Emirates signed a contract for 150 Boeing 777X aircraft. Like the A350, they’re wide-bodied planes, but larger - which suggests the airline wants to focus on growing passenger numbers on long-haul routes. The good news is that around the same time as it bought the 777s, Emirates also placed an order for 50 Airbus A380 ‘superjumbos’.

RBC Capital Markets analyst Rob Stallard told the FT that Airbus’ CEO has been ‘on the record talking about additional A380 orders’, and added that the A350 ‘is a bit of an outlier’.

‘Although a cancellation by a blue-chip airline is hardly a positive, when put in perspective… it’s not the end of the world,’ he added. Good point - but try telling that to Rolls-Royce shareholders...

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