Haunted by old pledges, Airbus aims to boost A340 value

Thu Dec 5, 2013 3:49pm EST
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PARIS (Reuters) - Airbus and its engine makers have acted to try to shore up the value of second-hand A340 aircraft as the European planemaker tries to reduce its financial exposure to depressed market prices of an aircraft that it no longer produces.

Airbus has told bankers, airlines and other owners of the aircraft that it is working on plans to increase the maximum capacity by 8 percent to 475 seats in a bid to make it more attractive to airlines looking to replace Boeing 747-400s.

Britain's Rolls-Royce (RR.L: Quote) is also fine-tuning engine service contracts so that airlines can maintain the A340's four engines for a similar cost to servicing the two larger General Electric (GE.N: Quote) engines on the rival Boeing 777, Airbus said.

The move comes after parent EADS said in its 2012 annual report that Airbus was "currently engaged in taking mitigation action to reduce the impact of asset value guarantees falling due in the coming years relating to A340s in particular".

Airbus stopped making the A340 in 2011 after improvements in engine technology caused airlines to switch to two-engined models such as the Boeing 777 and, in future, the A350.

But it has been left with a financial exposure to the aircraft after issuing guarantees underpinning its resale price when striking deals to sell it during a period of weak demand.

Additionally, it faces potential losses on deals to buy back old A340s as it sells new aircraft of other types, people familiar with the matter said.

"We share a motivation with the finance community to keep the A340 in service for a good while," said Andreas Hermann, Vice President Freighters and A340 Asset Management at Airbus.

As of December 31, 2012, EADS had 1.046 billion euros ($1.43 billion) of asset value guarantees outstanding, excluding 333 million euros where the risk of execution was considered to be remote.   Continued...

An Airbus A340-300 takes part in a flying display during the 48th Paris Air Show at the Le Bourget airport near Paris, June 17, 2009. REUTERS/Benoit Tessier