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Airbus Masks Production Shortfall with Help from Bombardier

Oct. 31, 2018
Production issues with A320neo narrow-body, A330neo pile up.

Airbus SE acknowledged it must now rely on a Bombardier Inc. jet acquired this year to meet its delivery target of 800 planes in 2018.

It’s the first time the planemaker has factored the impact of the purchase into plans to meet its forecast, after previously saying it wouldn’t need the A220s to do so. On Wednesday, the company said it would count 18 of the narrow-body jets, formerly called the C Series, in this year’s total.

The shift, announced with third-quarter results, highlights a production struggle that’s vexed Airbus all year, starting with an engine-related halt in production of its best-selling A320neo narrow-body. Now interiors and other issues are slowing output, so fewer will be handed over. Airbus on Wednesday also confirmed a Bloomberg report that delays from supplier Rolls-Royce Holdings Plc will lower deliveries of its A330neo wide-body.

While the A320 rampup is ongoing, earlier disruptions as well as some internal industrial challenges make the full-year 2018 target “a greater stretch,” Airbus said in a statement. “A lot remains to be done before the end of the year to fulfill commitments.”

Airbus rose 1% to 94.81 euros as of 10:10 a.m. in Paris.

Despite the challenges, third-quarter profit more than doubled, as higher deliveries of its A350 wide-bodies swelled cash and outweighed the production stumbles. Costs on the program are coming down as output accelerates, helping to make the plane the cash driver Airbus has needed.

The results “appear to be at worst robust,” Sandy Morris, an analyst with Jefferies Group in London, said in a note. “Ultimately, we believe that says more than any increased caution about whether or not 2018 Airbus deliveries reach 800 and positions Airbus for the long-term.”

Rolls-Royce said last week that it’s running into production hurdles for the Trent 7000 turbines that power the A330neo, a re-engined version of its A330 wide-body. The supplier had promised to deliver 30 power plants by the end of October, so Airbus could hand over 15 planes to customers by the end of the year. But in a memo to staff the British engineering firm said it would fall “far short” of the goal.

“We are frustrated,” Airbus Chief Financial Officer Harald Wilhelm said on a conference call. “We have taken the plan down for the A330neo quite substantially.”

On the A320neo, Airbus said the introduction of automation equipment in its factories hasn’t gone as smoothly as expected. Additionally, the long-range A321LR version requires a high degree of specialized work on the cabin. Finally, the engine delays earlier in the year put stress on its production system, and the company has had to juggle to keep up.

“What is normally a pretty smooth operation came under fire from re-planning of engines and aircraft,” Wilhelm said.

Airbus has separately been struggling to pin down orders for two large aircraft, the standard version of the A330 and the company’s embattled A380 double-decker. Emirates, by far the model’s biggest customer, has been hesitant to make firm its commitment on an order announced earlier this year. The matter could hurt cash flow if not resolved by year-end.

Other Highlights

Earnings before interest, tax and one-time items climbed to 1.58 billion euros (US$1.8 billion), beating the 1.4 billion-euro forecast of analysts. The company delivered 52 more jets than a year earlier and got a boost from a stronger dollar, in which planes are priced.

Contract discussions on the A400M military transport are progressing slower than planned. That suggests government customers are holding out for better terms.

Airbus maintained its forecast for 2018 EBIT at about 5 billion euros. It said the A220 program will be less of a drag on profit than expected, though it expects free cash flow this year, including the A220, to be lower than 2017’s 2.95 billion euros. Enhanced controls that in the wake of corruption investigations may lead to legal action from consultants and other third parties. Click here to see the Airbus statement

By Benjamin Katz

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