Aircraft engine maker Rolls-Royce (RR.) is under pressure - down 1.5% to £10.60 - as Emirates cancels an order for 70 of Airbus' (AIR:FP) A350 aircraft.
The £19.9 billion cap has a large footprint in the A350 through its Trent XWB engines and today's announcement sees the order book reduce by around 3.5% or £2.6 billion. The company says it is confident that the delivery slots - starting around the end of the decade - will be taken up by other airlines and notes demand for the A350 remains strong with more than 700 aircraft and 1400 Trent XWB engines already sold. The company also reiterates its close working relationship with Emirates and its continued support for 38 Rolls-Royce powered wide body aircraft currently in service.
The order for 70 A350 aircraft was confirmed in 2007 as part of a larger $8.4 billion announcement relating to a total of 120 Aircraft, all with TotalCare services (Rolls' long-term maintenance agreements). However the options for the additional 50 craft, and the accompanying TotalCare contracts, were not recognised in the order book.
Analyst Sash Tusa from research house Edison says: 'The move puts increasing pressure on Rolls to win new engine positions, with a commensurate impact in launch costs and research and development (R&D). We think that this makes the A330NEO and A380 're-engining' as important for Rolls' longer term pipeline to sustain its current pace of growth.'
Cantor Fitzgerald retains its buy take on both Airbus and Rolls-Royce and its respective price targets of €62 and £14.40. Analyst Andy Chambers comments: 'The cancellation by Emirates of its A350XWB order for 70 aircraft is a blow for Airbus and Rolls-Royce as it represents 8% of the programme backlog of 812 aircraft at the end of May. Both share prices are likely to react negatively today to this news although we believe the prospects and forecasts remain intact, with the first Emirates A350 delivery not due until 2019.'
