Troubled Air France-KLM, which issued its third profit warning in the last six months on Dec. 19, has deferred an order of ten 777-300ERs. Air France-KLM was planning to use the twin-engine 777-300ERs to replace older, less-fuel-efficient 747s over the next two years, but said that, due to lower oil prices, it would defer the order.
Air France did not indicate how long it would defer the order or whether it planned to convert the order to the next generation of the 777 program, currently referred to as the 777x.
A costly pilot’s strike and weak revenues on long-haul cargo service added to Air France-KLM’s problems this year. Additionally, the company did not benefit much from the falling fuel prices in the fourth quarter, due to the structure of its procurement contracts and its practice of fuel hedging.
Air France-KLM lowered its expected 2014 earnings before interest, taxes, depreciation and amortization by an additional €200 million.
The airline’s finance director said deliveries of the newer A350 and 787 aircraft, due to arrive in 2017, would not be affected.
Aviation analysts have speculated that the decision by Air France-KLM could be a harbinger of more 777 deferrals from other carriers in light of the falling price of fuel. Richard Aboulafia, an aerospace analyst with the Teal Group, told The Street that those carriers that choose to hold onto older aircraft may be able to wait until the new 777x is ready.
“Now anyone who needs to save cash will be tempted to follow Air France,” he said.
Boeing, however, said it will continue to pursue its goal to build 500 777s before it begins production on the 777x, which will be ready for delivery in 2020. So far Boeing has orders for 267 777s. The manufacturer said it is confident that orders for an additional 233 will be made, before the 777x rolls out. The current production rate of the 777 is 100 per year or 8.3 per month.