MIAMI — Middle Eastern giant Emirates Airlines announced that it would be cancelling its order for 70 Airbus A350 aircraft early Wednesday. The order, which was split between 50 Airbus A350-900s and 20 Airbus A350-1000s, was placed in 2007 by Emirates, and recently re-evaluated as a  part of Emirates’ purchase of 50  additional Airbus A380 aircraft last year. The news affects Airbus current flagship aircraft development program, which has already undergone significant delays. Prior to the cancellation, Emirates represented roughly 8.5% of the A350’s backlog, which today stands at 742 aircraft.

The timing of the cancellation took the aviation world a bit by surprise. Although rumblings of a potential Emirates A350 cancellation began swirling at the ILA Berlin Airshow last month, the timing of the cancellation (i.e. how soon it was announced) was still a bit of a shock. Even Airbus’ John Leahy was taken aback, “I found out about it [Emirates’ cancellation] when I announced it publicly…did I know that Tim was reviewing his fleet plan? Yes.”

While the headline of a massive cancellation from a major Airbus customer doesn’t necessarily read very well, in practice the impact on Airbus will be minimal. Airbus was given what amounts to five years notice (the first delivery slots were for 2019),  giving it plenty of time to back-fill the lost sales. In fact given that Emirates was an early customer Airbus might  have offered Emirates a substantial discount for the 70-plane order. These discounts could be reversed, and the resulting replacement deliveries might actually improve Airbus’ margins in the longer run.

The A350 is still an excellently run aircraft program that remains on track to enter into service (EIS) this calendar year, with a healthy backlog and few discovered challenges not pre-empted thanks to the experience of the 787 and A380 programs before it. John Leahy insists that the reason for Emirates’ cancellation was not related to any “new performance data.” The A350 will be fine, and potentially win several orders at the upcoming Farnborough Air Show to help offset the cancellation.

But it is on the Emirates side that the fleet dynamics are a little more interesting. Emirates currently operates a fleet of 208 aircraft as follows:

Aircraft Number in Service Orders
Airbus A330-200 21 0
Airbus A340-300 4 0
Airbus A340-500 9 0
Airbus A380-800 48 92
Boeing 777-200LR 10 0
Boeing 777-300 12 0
Boeing 777-300ER 95 57
Boeing 777-8X 0 35
Boeing 777-9X 0 115

When Emirates first placed the order in 2007, it made a lot of sense in the carrier’s fleet plans at the time. The A350-900 offered a capacity up-gauge from the A330-200 with better economics than the Boeing 777-200ER and the A340-300, while the A350-1000 offered the chance of a 777-300ER replacement (the 777X wasn’t even a gleam in Jim McInerney’s eyes at the time). At that point, Emirates was still planning on operating a fleet with several different aircraft which meant that its disparate orders made sense. However, as Emirates has continued to scale with the Airbus A380 and Boeing 777-300ER, it has found that the mix of economics on these two aircraft is ideal for its route network, and thus opted to purchase the Boeing 777-8/9X at the Dubai Air Show last year (in a nod to the 777-300ER).

With the 777-9X on board, the A350-1000 order no longer makes any sense – the 777-9X offers superior operating economics versus the A350-1000 on a CASM basis, and Emirates can certainly fill the extra seats. With regards to the A350-900s, either they were deemed too close in capacity to the 777-8X, or they were simply deemed superfluous. In the latter case, Emirates would likely replace the order with even more Boeing 777-300ERs. Given that Boeing faces a massive production gap between classic 777s and the new 777X, a top-up Emirates order of 30-50 air frames would be an enormous and important boost.

There is another scenario at play here for Emirates, though it would be an unlikely one. Airbus is all but set to announce the launch of the Airbus A330neo, potentially at Farnborough. Perhaps Emirates cancelled this order and replaced it with an order for the A330neo, though we view this scenario as highly unlikely.

So for Emirates, the cancellation has a significant impact primarily on its future fleet strategy. For Airbus, the worst that can occur is that Boeing wins away an important Airbus order and closes its own production gap. Despite its headline-worthy status, the tangible impact of Emirates’ cancellation is the ultimately rather mundane.