Airbus A350

Airbus in Year-End Production Sprint to Meet Earnings Target

Oct. 26, 2016
Airbus plans to pull out the stops to ship almost as many A350 wide-body jets in the final quarter as it did between January and September.

Airbus Group SE (IW 1000/44) promised a year-end sprint to meet its 2016 earnings and delivery goals after a switch to new planes weighed on profit and output in the first nine months.

The European company plans to pull out the stops to ship almost as many A350 wide-body jets in the final quarter as it did between January and September, when a shortage of seats crimped deliveries. It will also step up production of its revamped A320neo narrow-body following delays linked to engine glitches.

Airbus said an overall target of more than 650 jetliner deliveries this year remains within reach and that it could ship as many as 670 planes. The manufacturer has ranks of complete A350s waiting to be fitted with seats and interiors at its base in Toulouse, France, while Pratt & Whitney has developed a fix for cooling issues that afflicted the turbines it supplies for the Neo.

“For the remaining months of the year we remain totally focused on deliveries to achieve our earnings and cash guidance,” Chief Executive Officer Tom Enders said in a statement. The company aims to match last year’s figures for both measures, something analysts had said it might struggle to do, even after third-quarter profit fell 21%.

Airbus needs to hand over 24 A350s in the current quarter in order to meet its target of 50 deliveries for the year, having shipped just 26 planes in the first nine months, when production was held up by a shortage of seats and lavatory cubicles from suppliers including Zodiac Aerospace SA. The holdup prompted a 385 million-euro second-quarter charge to cover customer compensation.

Meeting the goal is still a “a hell of job,” Chief Financial Officer Harald Wilhelm said on an analyst call, while adding that “the risk bucket” has been reduced.

The issues with Pratt’s geared turbofan engine or GTF meant only 24 A320neos were delivered in the first nine months, pushing Airbus to build more examples of its older, non-upgraded version. So-called A320 “classics” will now comprise 85% of deliveries this year rather than the planned 80%.

‘On Track’

Airbus said it has “firm commitments” to meet the agreed Neo schedule from both Pratt and the CFM International venture of General Electric Co. and Safran SA, which began shipments of an alternative engine for the plane in the third quarter, and that the jet is “well on track for on-time delivery to customers.”

All the same, United Technologies Corp.’s Pratt faces industrial ramp-up challenges which “put more pressure on the back-loading of the delivery profile,” according to Airbus. The U.S. engine maker cut its 2016 delivery target for the GTF by 25% to 150 units on Sept. 16.

Qatar Airways Ltd. refused to take early Pratt-powered A320neos because of the cooling issues, though Wilhelm said he expects the carrier to remain a customer for the plane, even though it placed an order for Boeing Co.’s rival 737 Max model earlier this month.

Earnings Hit

Airbus’s earnings before interest, tax and one-time items fell to 731 million euros (US$796 million) from 921 million euros in the third quarter as it spent more to address the delivery delays and suffered a drop in helicopter sales.

Shares of Airbus still rose as much as 2.2% after the company’s guidance reiteration, with the free cash target -- which now excludes customer financing as well as receipts from disposals -- having appeared especially vulnerable, according to analysts.

“Everyone expected them to lower the guidance on free cash flow given the spending for the A350, so the fact that they’ve maintained it, just adjusting for financing, is a good thing,” said Yan Derocles, at analyst at Oddo Securities.

Earnings at Airbus’s helicopter arm slumped 17% in the first nine months, hurt by a decrease in flying hours among operators as the lower price of crude prompts the oil and gas industry to rein in flights. The company said it’s still working on “transformation measures” for the unit, which it has said is likely to suffer job cuts.

Airbus said the A400M military transport program “remains challenging,” with customer negotiations on a revised delivery schedule yet to take place. The model has dogged the company for a decade, entering service five years late in 2013, killing four people in a crash in Spain last year and prompting a 1.03 billion-euro charge against faulty gearboxes in the second quarter.

CEO Enders is meanwhile simplifying the company’s management and is poised to announce a round of job cuts as it scales back A380 superjumbo output and responds to lower helicopter sales.

By Andrea Rothman

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