Future of Dubai jet order is uncertain

DUBAI—The future of a $29 billion jetliner order that state-controlled Dubai Aerospace Enterprise placed with Airbus and Boeing Co. is uncertain amid the aircraft-leasing company’s growing financial concerns, people familiar with the matter said.

The company has an outstanding three-year-old order for 200 aircraft evenly divided between Airbus and Boeing. But it is looking at potentially deferring or canceling the purchases, these people said.

Alternatively, the company’s owners in the Dubai government may seek to shift the contracts to state-controlled Emirates Airline and flyDubai, the people said.

“It’s all part of sorting out Dubai Inc.,” said one of the people familiar with the situation. Dubai, part of the United Arab Emirates, is grappling with the impact of the global financial crisis, which left many of the emirate’s state-owned companies struggling to repay debt.

An Airbus spokesman said the European jet maker doesn’t comment on contracts with customers, but that its order and delivery tables showed no cancellations.

A Boeing spokesman said the company doesn’t comment on its customers.

Officials from Dubai Aerospace, also known as DAE, declined to comment.

An Emirates Airline spokesman said its aircraft orders “are based purely on our future strategic requirements” and its officials “do not comment on rumors.” A spokeswoman for flyDubai said the airline has “no current need to add to our existing order.”

In 2007, DAE’s leasing arm, DAE Capital, placed an order for 200 Airbus and Boeing jets that it aimed to rent out to airlines. The planes were valued at $28.7 billion at list prices, though big customers typically negotiate large discounts. Ten of the planes have been delivered.

At the time, DAE’s then chief executive, Bob Johnson, said the order had made DAE into an aircraft-leasing and finance provider that would “make the world sit up and take note.”

Today, DAE is having trouble making the installment payments that jetliner makers require of buyers as orders are produced, people familiar with the matter said.

DAE’s troubles were reported by AirFinance Journal last week., which cited two senior executives close to the talks as saying that DAE will restructure its 200 aircraft orders with Airbus and Boeing through a deal with Emirates and flyDubai.

Two of DAE’s major shareholders are also struggling financially. Istithmar World, which holds a nearly 17% stake in the firm, is a subsidiary of Dubai World, the government-owned conglomerate that is attempting to restructure $23.5 billion of outstanding debt with creditors.

Dubai International Capital, meanwhile, which also holds a 17% stake in the company, is also restructuring after asking lenders for a three-month extension on some of its debts.

These payments can total tens of millions of dollars per plane, and neither Airbus nor Boeing will start assembling an ordered plane if a customer is unable to pay.

Airbus is a unit of European Aeronautic Defence & Space Co.

Dubai is now focusing on the tiny emirate’s core businesses, such as aviation and cargo, as a catalyst for its revival.

Unlike other government-owned companies in the emirate—including Dubai World and Dubai Holding—Emirates Airline is highly profitable, posting a fivefold rise in full-year net profit earlier this year.

“DAE has clearly overcommitted itself to a raft of airplane orders that it now possibly cannot keep,” said Saj Ahmad, chief analyst of U.K.-based consultants FBE Aerospace.

While Emirates has been able to withstand and even benefit from one of the toughest times for the aviation industry, DAE, which has 43 aircraft on its books, according to its website, has struggled.

It entered the leasing scene during what was the peak of an air-travel boom, spurred by surging demand for flights to and from China, India and other fast-growing nations.