Sean Gallup, Getty Images
An Airbus 320 under construction in a Hamburg plant.

Airbus Jumps Most in Nearly 10 Years After Pledge to Fix Planes

Feb. 15, 2018
Shares of the French jumped more than 10% after executives assured investors the company could top a strong 2017 that ended with a record order backlog and more jet deliveries than ever.

Airbus SE promised 20% earnings growth this year — pushing the stock up the most since 2008 — so long as it can iron out persistent manufacturing problems on two key aircraft programs. 

The European planemaker ended 2017 with a record order backlog and delivered more jets than ever before. The shares advanced as much as 10% after the Toulouse, France-based company assured investors Thursday it can top last year’s output and build 800 aircraft despite the engine issues that have slowed production of its top-selling A320neo short-haul jet.

Airbus’s struggles with the narrow-body model and the A400M military transport plane have at times overshadowed the benefits of a surge in commercial aircraft sales. CEO Tom Enders said in a statement that the company is working on measures to gain control over both problem programs.

“The A320neo ramp-up remains challenging and requires that the engine suppliers deliver in line with commitments,” Enders said, adding that the impact on deliveries of the latest turbine issues is under assessment.

A 1.3 billion-euro ($1.62 billion) charge against the A400M, which takes total cost-overruns on the program beyond 8 billion euros ($9.98 billion), is meant to draw a line under the losses. Airbus last week reached a deal with customer nations to help secure the turboprop program, though Enders told Bloomberg TV he can’t guarantee that there’ll be no more hits, saying: “You never can put your hand into the fire and say this is it once and for all.”

Earnings before interest, tax and one-time items increased 8% in 2017 to 4.25 billion euros ($5.30 billion), the planemaker said. Analysts had predicted a profit of 3.99 billion euros ($4.98 billion), the average of 13 estimates.

The shares advanced almost 11%. They were trading 10% higher at to 92.99 euros ($115.98) as of 12:11 p.m. in Paris.

Airbus’s A400M charge concerns revisions to the plane’s delivery schedule and capabilities, together with the retrofit of examples already delivered, the company said. At the same time, it has been blindsided by yet another flaw with Pratt & Whitney engines that power the A320neo.

‘Not Rocket Science’

The latest issue, which emerged last week, relates to a seal that Pratt replaced after an earlier version exhibited durability issues. Fixing the glitch is “not rocket science,” the CEO said in the TV interview, adding that the U.S. company appears to have identified the root cause and that deliveries of modified engines should start from April.

A320neos equipped with a rival power plant made by the CFM International alliance of General Electric Co. and France’s Safran SA are also behind schedule, due to less serious “maturity” concerns, the planemaker said. It will still look at raising build rates to 70 jets a month from the 60 planned.

“We’re expecting to deliver another record number of deliveries in 2018,” Enders said on a conference call. “Of course we need engines for these aircraft, but I am confident our partners will not let us down.”

Airbus appears to be gaining control over the A350 wide-body program, where initial handovers were held up by issues with seats and fittings. A $16 billion order for the A380 superjumbo from Dubai-based Emirates will meanwhile sustain production for years, it said. A deal with European governments to pare repayments of launch aid will also bolster the slow-selling jet, Enders said.

By Benjamin Katz

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Licensed content from Bloomberg, copyright 2016.

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