Airbus raises prices on weak dollar

Airbus raised its list prices for aircraft by an average of more than 5% because on the continuing weakness of the dollar vis-a-vis the Euro. Airbus prices its airplanes in dollars but much of its costs are in Euros. Every 10 cent decline in the dollar costs Airbus $1bn in EBIT profits. The price list is at the end of this column below the jump.

This article explains the details. But this isn’t the only problem Airbus has.

The cash drain by continuing production challenges of the A380 is unquantified be significant. Last year Airbus delivered just 10 A380s vs. an intended 21. This year Airbus projects delivery of 20 A380s vs an originally intended 45. Using an average sales price of $150m per copy (probably high, as the airplanes in question are launch-customer orders, and Business Week reported several years ago the prices were between $130m-$140m), Airbus will be short roughly $5.4bn in cash flow last year and this year just on this program. (Another caveat: pre-delivery payments typically amount to 30% so this has to be factored into the cash flow as well, and considering delays there is no way for an outsider to know how this flow affects the $5.4bn figure.)

Although the revenue is delayed, Airbus eventually will see it when the behemoths are finally delivered. Still, the net present value of the deferred revenue and the absence of the cash flow is harming the company.

Airbus has no choice but to continue with the A380; it has a backlog of about 180 airplanes and cannot feasibly cancel the program even if it wanted to, and officials still believe in the aircraft.

Clarification: A reader points out that a few weeks ago we questioned whether the time has come to terminate the A380 program, which is at odds with the statement above. The seemingly contradictory statements certainly failed to distinguish our thoughts, which are these:

Airbus has no choice but to continue the A380 program to fulfill current orders, with delivery now underway on a disastrous schedule. What should be reassessed is to whether to continue the program beyond the current orders. We believe the break-even on the A380 is well beyond the 425 units Airbus acknowledged two or so years ago. We also do not support the notion that the Very Large Aircraft market will support the Airbus projection of 1,400 sales over 20 years, noting it took Boeing 35 years to reach this milestone with the 747. With these and other factors, we question the wisdom of continuing the A380 program and diverting cash requirements from other, more prospectively popular programs.

The previous context, which was not repeated here, also included the observation that many suggested and wondered whether the Boeing 747-8 program should be or would be canceled prior to first deliveries (we said “No.”)

A mess with the A400M

The same can’t be said for the A400M. Airbus can cancel this program, though it would have to pay out an estimated 7bn Euros in refunds to its customer-governments. It is unclear how much more might have to be paid to suppliers should the program be canceled.

The fixed-price contract agreed to by Airbus and the government-customers when the program was launched is a crushing financial drain. Right now there is no cash flow at all to Airbus–it’s all cash outflow. This cash drain is $139m a month at current exchange rates, or $1.67bn a year, with no immediate end in sight.

Airbus and the governments remain at odds over resolving contract differences.

In a new report to be published this week by AirInsight, of which we are a part and co-authored, we conclude that the A400M program has the potential to harm Airbus’ competitive position vis-a-vis Boeing because of the cash drain. Airbus is faced with upgrading the A320 family, which is aging and–depending on the model–is marginally competitive with the Boeing 737 family. New competitors are on the horizon with far more fuel-efficient airplanes. Boeing is evaluating whether to re-engine the 737 or proceed with a replacement and what to do with the 777 to meet the forthcoming A350.

While we believe Boeing will choose to re-engine the 737, we conclude in our AirInsight report that Boeing could take the huge leap and elect to go for a replacement airplane, capitalizing on the financial limitations Airbus has because of the A400M. Boeing theoretically could also elect to replace the 777 rather than enhance it with a major make-over.

Given Boeing’s own financial strains brought on by the 787 and 747-8 programs, as well as the three year delay in proving the composite 787 technology and production line, deciding to go for new airplane programs instead of the safer and less-costly make-overs would be a huge gamble that makes any previous bet-the-company program pale by comparison.

But imagine the leap that Boeing could make over Airbus by taking this huge gamble. Airbus’ market share would be set back for easily a decade.

The only way Airbus could match a Boeing decision to replace the 737 now rather than do a re-engine would be to rely on the controversial launch aid that continues to poison the strategic effort to win an important tanker contract with the USAF. If Boeing launched a replacement 777 that could promise better operating and maintenance performance than the A350, how could Airbus respond without more launch aid?

The Airbus governments spent 40 years supporting Airbus and more recently the creation of EADS to become a world-class company. Airbus represents about 70% of the EADS revenue and how goes Airbus, so goes EADS. The recalcitrance of the governments to support the A400M program is mystifying. The very same governments that supported Airbus for 40 years have the chance to undo the progress and do more harm to the Airbus competitive position than anything the US Trade Representative or Boeing can do.

Defense programs are no subject to the rules of the World Trade Organization and the Airbus governments could write endless checks for the A400M (like the US government has for the V-22 Boeing-Bell Osprey over 20+ years, just to cite one example). This would free Airbus-generated cash to funnel into its core A3-Series programs, without the crabbing that accompanies launch aid.

If the Airbus governments fail to adequately support the A400M, Airbus has the choice to continue the program at a major cash drain, or to cancel the program at the cash cost of some 7bn Euros. Either way, this hands Boeing an easy victory. The question then is, Does Boeing take the safe route of doing make-overs for its 737 and 777, or does it truly roll the dice and proceed with new airplanes that will put Airbus at a competitive disadvantage for decades to come?

New prices

Here are the new prices for the A3-Series.

Prices are average, in millions

A318:  $62.5

A319:  $74.4

A320: $81.4

A321: 95.5

A330-200:  $191.4

A330-200F: $194.8

A330-300: $212.4

A340-300: $228.0

A340-500: $250.8

A340-600: $263.8

A350-800: $225.2

A350-900: $285.2

A350-1000: $285.2

A380: $346.3

8 Comments on “Airbus raises prices on weak dollar

  1. I like their average price list as A346’s can be purchased for <$100 million and A380's are available on the market for about $210 million.

    Seems Airbus is in a bit of a bind.

  2. “Airbus and the governments remain at odds over resolving contract differences.”

    A significant number of german politicians and
    the EU administration people seem to have
    more of a transatlantic than european set of interest.
    See forex the SWIFT agreement that repurposes
    a GWOT agenda for easy industrial espionage.
    Pushed by EU administration, opposed by the EU parliament.

    Mrs. Merkel would have been happy to follow
    Bush43 into any war the US deemed opportune.
    Fortunately voters would pull her rug instantly.
    The same pressure inhibits her in cooling down
    contacts to Russia.

    This does not prevent those persons from doing
    a “good thing” (TM) or two on occasion.

  3. I don’t see Boeing in any hurry to replace the 737. They have a huge backlog for the existing model and can produce it efficiently. Why take the chance of a new program when your current program is a huge cash cow?

    The C919 isn’t going to be a threat outside of China if reaction to the ARJ700 is any guide. Really, you’re talking about the pressure CSeries might put on the Airbus/Boeing duopoly, and so far the market reaction to the 130-seat model has been lackluster.

  4. Like leaving a party, going forward
    towards a new design is preferably
    done at the nicest moment 😉

  5. Boeing crushing Airbus by going for a 737 replacement?

    We need to consider the four replacement scenarios:

    1. Neither the A320 nor the 737. Neutral. Boeing saves development cash but because Airbus isn’t replacing either it isn’t put at a competitive advantage.

    2. Both the A320 and the 737. Competitively neutral but fiscally negative because they won’t sell any more planes. Boeing pays development cash to remain in basically the same competitive position

    3. Only the A320 is replaced. From what you say, this isn’t going to happen and if it did, Boeing would follow quickly with its replacement leading to the number 2 scenario.

    4. Only the 737 is replaced. This assumes Airbus don’t have the resources to do their own replacement. Advantageous competitively, and possibly fiscally as well if they sell a lot more planes.

    Unless Airbus do replace the A320, in which case it goes to number 2 scenario – competitively neutral and fiscally negative.

    Putting this together, it would be quite risky for Boeing to make a dash for dominance by replacing the 737 earlier than they need to.

    • Well, Boeing did a dash for dominace which
      on paper and marketingwise worked perfectly.

      They dominated the meme of next gen airframe
      feature and promises completely.

      But they have yet to prove that all these features
      work as advertised. It has been a costly adventure
      up to now that is still ongoing.

      My guess is the market may have taken this as a
      healthy innoculation against contracting the
      “overpromising flu”.

      Boeing thus has played this special card allready,
      and the game is ongoing _and_ undecided.

    • Uwe, the difference with the 787 was that that Boeing desperately needed a new mid size twinjet

      Any replacement narrow body will cannibalize sales that would otherwise go to the 737. It’s only worth doing early if Boeing can also switch A320 sales.

  6. “The very same governments that supported Airbus for 40 years have the chance to undo the progress and do more harm to the Airbus competitive position than anything the US Trade Representative or Boeing can do.”

    The European governments that have supported Airbus for 40 years are broke (just like the USA) and are not in a postion to open the piggy bank for another round of subsidies. Maybe, it is time for them to let Airbus fly on its own.

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