Will Etihad Airways Problems Hit Boeing And Airbus Revenue?
Job cuts of between 1000 and 3000 of Etihad’s
approximately 20,000 employees have been announced, including both cabin
crew and ground staff. At the same time, Etihad has been cutting what
it calls ‘marginal’ routes and retiring some aircraft without replacing
them. Although Etihad’s ten A380s are popular on long-haul routes, the
A380’s high fuel consumption and cost of operation may make them
vulnerable as well, particularly as the airline has been operating at a
load factor of just 78.5 percent. The world average is 81.5%.
Etihad
CEO Douglas says the airline will focus on serving its home turf of Abu
Dhabi, rather than on carrying passengers from continent to continent
like bigger rival Emirates. These flights to various countries through
Dubai Airport (its 88 million passenger count in 2017 was the largest in
the world) and Abu Dhabi has resulted in the ire of US carriers, who
say the Gulf airlines have been heavily subsidized by their governments.
In 2015, Forbes.com reported that Etihad’s paper profit of $103 million
did not reflect almost $1.7 billion in cash and interest-free loans
received from the government of Abu Dhabi.
Etihad’s troubles may
create a ripple effect on the aircraft manufacturer duopoly of Airbus
and Boeing. Etihad CEO Douglas said that the company is in negotiations
with Airbus and Boeing to potentially cancel dozens of wide-body
aircraft orders after deciding that doubling the size of Etihad’s fleet
no longer makes sense.
In addition to the 110 aircraft it
already operates, Etihad has another 98 orders with Airbus and 77 with
Boeing. These include Boeing 777 and 787 long-range craft and Airbus’
competitive A350-900 and A350-1000.
Reuters recently reported that Etihad "believes it no longer needs all 25 777X jets…and may be willing to incur penalties for cancellations rather than be saddled with future recurring losses stemming from overcapacity.” With the 777X bearing a $426 million list price, the cancellation could mean a $10 billion revenue haircut for Boeing.
Airbus may not escape unscathed either; Etihad also has some 40 Airbus A350-900 ($317.4 million each) and 22 A350-1000($366 million each) aircraft on order, none of which it has yet received.
Etihad’s biggest rival, Emirates, might ultimately prove its best friend. Despite what Emirates Group chief executive Sheikh Ahmed bin Saeed Al Maktoum described as "rising oil prices which drove our costs up and downward pressure on margins from relentless competition," Emirates claimed $1 billion in profits with revenue of a record $27.2 billion. Although a full merger may not yet be in the cards, Etihad and Emirates are already cooperating in security. Now, Etihad is letting its pilots take jobs with Emirates and retain their Etihad seniority.
Such cozy arrangements may help eventually help Etihad return to profitability in the long term. But will Etihad’s consolidation and cutbacks create a different story for Airbus and Boeing investors?
Will Etihad Airways Problems Hit Boeing And Airbus Revenue?
Etihad Airlines, one of the largest carriers in the Gulf region, has lost $3.4 billion in the last two years. And among the casualties of the airline's inevitable retrenchment may well be the bottom lines of both Boeing and Airbus, as the airlin