Unexpected events – how’s your crisis planning?

Emirates plane orders have hit the skids...
thank you!

When I was growing up I used to have singing lessons once a week.

I really enjoyed them but I was also cursed with a terrible memory.  This meant that I’d often completely forget my music lessons were on and I wouldn't turn up.

Little did I realise at the time, but this really inconvenienced my music teacher.  She’d planned these lessons but, perhaps more significantly, she’d counted on the income they’d provide.

Being seven years old, I had little appreciation of cash flow and cash management, but a sudden cancellation is pretty much never convenient for anyone or any business of any size.

In fact, we got a pretty significant example of my singing lesson no show this week, only on a massively larger scale.

That’s because Emirates, the Middle Eastern airline, announced it had withdrawn its $16 billion order for 70 A350 Airbus jets.  According to current market valuations, the cost to Airbus will be around $21 billion – hardly small change.

This is Airbus’s biggest cancelled order yet and can’t exactly be welcome news to Airbus.

In fact, the flow on effects went far further than simply a lost $16 billion is potential revenue.  

Airbus stock immediately dipped by 3% and the company went into crisis management mode.

The company put out a statement saying, "It is not good news commercially but not bad news financially… There is certainly going to be no hole in production."

Clearly markets viewed this statement with a degree of scepticism given the plummeting share price.

Rolls Royce engines have hit some turbulence...
thank you again!

But the negative impacts didn’t stop there. Rolls Royce, the company that makes engines for A350 aircraft, said the cancellation would reduce its order book by over $4 billion and its shares dropped almost 3%.

Interestingly though, the cancelled order has had relatively little effect on Emirates, which managed to sell an effective message that they were merely ‘reviewing their fleet requirements’.

Analysts response to the cancellation were also measured, with RBC Capital analyst Robert Stallard commenting: “Looks like the A350 is too small for Emirates; its CEO has been on the record talking about additional A380 orders… and with the 150 777Xs also in Emirates’ fleet plan, the A350 looked like a bit of an outlier.”

In other words, Emirates was able to communicate to the market that this was not a backwards step.  Rather, it was part of a longer term strategic view to increase the overall size of its fleet.

Of course this is only part of the equation, it shows that effectively communicating to your stakeholders can have significant flow-on effects for your share price; both in good times and bad.

While no one can be prepared fully for the unexpected, it pays to cover your bases.  Are you prepared for sudden events and the need to communicate difficult information at a moment’s notice?

Because if you’re not, you may end up like my old singing teacher – significantly out of pocket.