Airbus Is Getting Tough On Airline Customer Contract Obligations

Buoyed by its market dominance, European planemaker Airbus is cutting many of its airline customers little slack regarding contractual obligations. Despite the travel downturn and many airlines fighting to stay airborne, Airbus is asking several of its airline customers to pay, on time, per the contract.

Airbus is getting tough, enforcing contracts with many of its customers. Photo: Airbus

Airbus going through contracts line by line, plane by plane

A report by Benjamin Katz in The Wall Street Journal this week suggests Airbus is taking a tough approach with contracts. The report cites Airbus CEO Guillaume Faury saying Airbus has been going through contracts “plane by plane, airline by airline, customer by customer, to see what the backlog was, and what their contract with Airbus was.”

Historically, Airbus and Boeing have tried to accommodate airline customers facing temporary financial distress. The theory is if Airbus cuts a deal now, the struggling airline may come back with another order in a few years when business is better. However, since March 2020, most airlines have faced high levels of financial distress.

But bounding ahead of its North American rival, Airbus is enjoying a strong market position, especially when it comes to single-aisle planes. Capitalizing on that strength, Airbus isn’t cutting many of its customers the slack they’ve come to expect.

Airbus CEO Guillaume Faury. Photo: Airbus

Lufthansa & IAG deferral requests knocked back by Airbus

According to The Wall Street Journal report, Lufthansa CEO Carsten Spohr had a video call with Guillaume Faury last year. Lufthansa owed billions for aircraft ordered before the travel downturn. Carsten Spohr asked Guillaume Faury to defer delivery (and payment) of 21 planes. At the time, Lufthansa was burning through millions of dollars a day. Guillaume Faury declined to do a deal. Lufthansa took most of the ordered planes and ponied up the cash – as per the contract.

IAG boss Willie Walsh also asked Airbus to defer aircraft deliveries to British Airways. Again, Airbus declined to assist. At the time, Walsh noted the new hardline approach from Airbus.

However, this does not seem this is a blanket approach from Airbus. The aircraft manufacturer seems to be sizing up its customers and picking who can afford to abide by contracts and who cannot. The boss of distressed low-cost carrier AirAsia recently praised Airbus for working well with the airline since the travel downturn began.

“I will not forget the guys who have treated us great,” said AirAsia CEO Tony Fernandes at a CAPA Live event this week.

AirAsia CEO Tony Fernandes has nothing but praise for Airbus. Photo: AirAsia

Airbus says it tries to work with its customers

For his part, Guillaume Faury says he tries to work with customers while not being taken for the proverbial patsy.

“We have tried with each and every customer, and they were all in different situations, to reach out to them, to sit down, to understand what were their main drivers and their main priorities, and try to explain as good as we could our own constraints,” he said.

Propped up by government assistance, it may be the Airbus CEO’s view that airlines like British Airways and Lufthansa can afford to meet their contractual obligations. In 2020, Lufthansa received a €9 billion bailout from state lender KfW. Unlike Lufthansa, AirAsia has received next to no government assistance.

In the battle between the Airbus A320 and the Boeing 737, Airbus has the upper hand. That gives it considerable negotiating power when dealing with airline customers. On the other hand, Boeing has to offer far more flexibility when it comes to deferrals and cancelations. So far this year, Airbus has delivered almost twice as many planes as its North American competitor.

No one is underestimating Boeing. When Boeing gets its act together, it will once again be a formidable competitor. But in the meantime, they are making it easy for Airbus to fly high and play hardball with many of their customers.

Should Airbus play hardball with its airline customers or should it cut them some slack? Post a comment and let us know

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