Airbus says no room for more talks in cancelled Japan jet deal

Wow! It's not often that a manufacturer completely humiliates a customer by slamming the door in their face like this, but anyone who has ever negotiated with a Japanese company knows how infuriating it can be. I imagine Skymark must have been an incredibly annoying waste of time. 6 brand new A380s?! Sounds a bit optimistic for an airline most people have never ever flown on. I really want to know the details of this story from Airbus.

I did a bit more reading on this. Apparently Skymark was quite serious about this but they just couldn't afford the A380s, (2 of which had been partially been configured for them). However, the cancelation fee for Skymark would have been very high. It's a bit unclear but it seems that by unilaterally cancelling the contract themselves, Airbus might be letting Skymark off the hook for most of the cancellation fee... but it's not official or clear. It seems like Airbus might actually be participating in an elaborate face-saving performance with Skymark rather than being extremely rude.

http://centreforaviation.com/analysis/skymark-airlines-a380-orders-are-in-serious-doubt-as-airbus-recommends-an-umbrella-solution-179903

Just a business decision, nothing more, nothing less.

It always gets to a certain point of "no pay, no play baby". This is probably one of those times. Quietly confident that Airbus exec's have better judgement than JT posters on this one.

Dealing with a Japanese company is like doing a dance with a partner that doesn't want to dance but won't tell you so. So, you stand there not really making too much eye contact whilst wasting your time because they won't say no while they won't say why.

In other words, it's a roundabout way of never saying no while you mean it but never letting them know. Pretty insane way to do business but it seems to be the status quo way of business in Japan. Old traditional (bad) habits never seem to change. Perhaps one day it will change in Japan but not before the damage is well beyond repair. Airbus needs all the sales they can get in Japan so Skymark must have really done a number on them to have Airbus say 'ENOUGH' and walk away from the deal.

@the Resident: No contribution to the topic? Re-read what I quoted from the article, then my "Thanks a lot, Abe" will make sense. Abe wanted to devalue the yen, no?

Skymark must not have been listening when Kuroda said he would Quantitatively Ease Japan to a 2% "inflation" target.

This was "Abenomics-speak" for "Folks, fasten your seatbelt and stick your head between your knees!" "The yen will go into a freefall and prices for airplanes and stuff like that will sky-rocket!"

I guess Skymark's parent H.I.S. forgot to book FOREX reserves the way Toyota did to ride this out at 92 yen for the dollar. At current exchange rates, who can afford an Airbus 380 anymore?

Oh, and @Michael Net Work, China is still "a nut" - or, as you say, a tree that produces more Nuts!

Skymark is a decent airline. It's quite popular on certain routes, they just don't have the network that the bigger guys do.

I can't judge the situation but it doesn't surprise me to hear about the fairly sudden and drastic weakening of the yen messing a deal like this up. Similar breakdowns are probably becoming more common as importing costs have increased.

"Skymark, which reports its latest financial results later on Thursday, had on Tuesday acknowledged that the deal was in trouble as a sharp decline in the yen since late 2012 jacked up the cost of purchasing the jets"

Thanks a lot, Abe.

The airline posted a net loss of 1.85 billion yen ($18 million) in its last fiscal year, after seeing profits drop by more than half in the prior year.

Financial troubles might force Skymark out of business shortly and that could be the reason why Airbus has "firmly" cancelled the order.

There is a contracting term called "anticipatory default" specifically for situations like this. It allows the contractor to terminate (and collect damages) when it becomes aparant that the client does not have the funds to make payments. It would be unreasonable to keep fabricating and accruing costs for customized equipment if there is no chance of getting compensation.

It's pointess talking about ego. A company like airbus is not driven by ego or face saving. There are millions at stake and It would have been a pure business decision, considering not just the order in question but future orders from other carriers. I think we can rest assured that Airbus management thought this through and are not actiung emotionally.

Serrano is right. The much quoted "abenomics" has boosted a few Japanese exports - short term - and now we are seeing the other side of the coin. Japan doesn't make big commercial airplanes and has to use the weakened yen to buy them - this is the result. If Skymark go under the government won't care as others will pick up the trade and taxes will still come in. But the Skymark employees might change their voting pattern. Abe is also moving to kick-start the nuclear power stations again, including those built right on top of fault lines (which are suddenly declared 'safe') because the weakened yen can't buy in as much fuel from overseas and Japan has none of its own. There's Abenomics for you - you can't have it both ways. The rest of world doubted the sense of it at the time of all the smug smiles and swaggering.

The days of Gung Ho are over Japan. China is the mighty oak that was once a nut. The party is over Japan.

Europe will start doing sanctions not only in Russia. Time to choose Boing :)

The large wide-body aircraft models are for specific purposes - either you need extended range for long-haul flights, or you need the extra seats for a very popular shorter route. The twin-engine 777 has been replacing the quad-engined 747 in both categories simply because it can do the job with half the fuel costs.

I'm not sure what the appeal of the quad-engined A380 is for a domestic carrier.

Well I am not part of the Airline industry and thought the 394 seats was a misprint. Since it was not and it was to used for international routes makes sense. So change the numbers to 305000 pounds of fuel NRT to JFK and 245000 pounds of fuel for the 747-400. Please note am not including reserve fuel nor alternate fuel. The final line is their premium seats would of been expensive. All of the other airlines pack them in like sardines except for the few first class and business class sections.

Lost in Nagoya the airline has already paid 26.5 billion yen and Airbus wants another 70 billion yen in cancellation fees (reported by HNK). Airbus could of given them a loan and reduced the number to two. If Airbus follows through with legal action they will regret it! They will have 2 "whitetails" and the ill will of the airlines in Japan and more. Remember I was in the SDF and all of the equipment was American or based on American design.

When I first heard of the deal my first thought was that Skymark was outreaching itself. An LCC which flies smaller jets on domestic routes suddenly placing orders for 6 big ones looks more like a publicity stunt than anything serious.

I do agree with posters here, that what Airbus did might be a face saving measure for Skymark which might save them some money.

I have flown Skymark many times and was surprised how well they have fitted the LCC model into the Japanese market. No frills, no expectations.

It is completely dimwitted of Airbus. There is no business sense getting rid of a potential customer in a market that is dominated by Boeing. It only makes sense to cut them some slack and think long term because I'm sure Skymark's intentions are not malicious. They are also businessmen and should be able to understand the situation. Sounds like some people at Airbus have very big egos that got a big boost by kicking Skymark in the rear.

gokai -- completely disagree. The egos were at Skymark because they thought they could bully Airbus into accepting terrible terms because Airbus did not want to cancel the order and take the potential PR hit. Very typical Japanese negotiating strategy actually. Including mis-reresenting the status of the negotiations. Glad Airbus had the strngth to call them out.

Wise move from Airbus. There is loads of second hand 747's Skymark could have hired, instead they want to buy 6 new A380's? What kind of idiot makes that choice? Someone biting more than they can chew.

I bet Boeing can do D checks on a 747-400 for a lot less than a new 380. Extra fuel costs will be less than the extra cost of a new aircraft. Airbus panicked and has caused Skymart to lose face in the business world. That is the worse thing you can do to a Japanese person. They could of risked the money or even helped them with generous terms. However they have turned a client into a foe. I bet they will never buy Airbus and ANA and JAL will buy only Boeing only. As for Japanese business methods, ah they are Japanese not Europeans. You have to know when yes means no.

@YuriOtani: Your comments/analysis do not warrant a reply. Your knowledge of the industry is clearly a big donut.

Possibly related to the global pilot shortage. No sense buying extra planes with no-one to fly them.

Jetstar is okay, although they nickel and dime you with reservations and luggage fees. On my last flight, the surcharge for having two bags was almost as much as the airfare (8000 yen airfare o/w to Tokyo). These LCC's walk a pretty thin financial, line so I can see how enyasu would bollix things up for them.

The other downside of LCCs is that they're last priority when things get backed up up by weather, which is a problem if you have an international connection.

@Cortes -

There are no 'second-hand' 747's out there economical to fly, why do you think most airlines are retiring their fleet. Even Delta have 4 more going to the graveyard in the desert by year end. A380 does a lot more with the fuel..... Airbus will have no problem selling these at discount to Emirates or Qatar. SQ are still waiting on a few too.

@Serrano: haha. what a surprise from you! An attack on the Government with no contribution to the topic!

@tideofiron...Nobody is buying A380's,Airbus can't sell them...And you can have China...it will never be Japan..

wipeout, Face is important in Japan. Japanese have killed themselves after losing face. They should of delivered the 2 built aircraft and taken their chances. Now they have 2 planes sitting on the ground collecting dust. While an airline is not a person it is run by people. I did some math and the 380 burns more fuel than a 747. On a trip from Haneda to Naha it burns 63,000 lbs of fuel. A 747-400 burns 50,500 pounds of fuel. You can put 800 people on a 380 or 580 in a 747-400. It would be hard to fill 800 seats and the short flight times of Japan domestic flying means more seats not less. Also a new 380 costs 414,000,000 American dollars. You can buy a 747-400 rebuilt to zero hours for 100,000,000 American dollars. Paint it in kawaii colors and Japanese public will be just as happy on the 747. I do not think Airbus will ever recover the development costs and airlines that buy them get "white elephants". The difference in costs is $76.82 vs $70 per passenger. Also this price is only if they are full and it is easier to sell 580 vs 800 tickets.

@YuriOtani: It is business. Why would Airbus deliver two aircrafts that have not the prospect of being paid? For friendship, because Japanese can't lose face?? Call it a joke. And your analysis is totally wrong, do some research.

It is completely dimwitted of Airbus. There is no business sense getting rid of a potential customer in a market that is dominated by Boeing. It only makes sense to cut them some slack and think long term because I'm sure Skymark's intentions are not malicious. They are also businessmen and should be able to understand the situation. Sounds like some people at Airbus have very big egos that got a big boost by kicking Skymark in the rear.

Have flown on it from Haneda to Naha and it was a airline. It got me on time and in comfort. I am surprised Airbus canceled the order. If Skymark can get the funding perhaps they will buy the 747-800. Again Airbus is trying so hard to get in the Japan market and now this action.