Airbus Group 2014, analysis after press conference

By Bjorn Fehrm

Munich 27 Feb. 2015: The team from Airbus Group that met the press in Munich today consisted of Tom Enders, Airbus Group Chief Executive Officer, Harald Wilhelm, Airbus Group Chief Financial Officer and Marwan Lahoud, Head of Airbus Group strategy and M&A.

It was a team in good spirits that met around 150 on-site journalists from mainly Europe, with both Tom Enders and Harald Wilhelm clearly at ease with the groups improving results and giving Marwan Lahoud compliments for his restructuring work in the groups remaining problem areas.

Before we go into the areas with work in progress, lets focus on why these gentlemen felt at ease with presenting the state of Airbus Group after its first year operating under the new name.

Civil airliners:

  • Commercial airplanes is the undisputed motor of the group generating 70% of  the 2014 turnover and 66% of the profits.
  • This division has its large challenges behind it with A350 delivered to first customer, A320neo flying and A380 on the way to break even during 2015.
  • The revenue and profit engine of this division, A320, is seeing continued very strong orders year after year and Airbus must now ramp production to 50 per month by Q1 2017 and as that does not bring down the backlog it is studying rates over 60 per month.
  • The A320 program is so successful that Airbus has agreed a lower royalty payback to UK government after they had been paid back in full of launch loan with a nice interest. It was reasonable for both “that we now pay an adapted royalty” said Wilhelm.
  • Key enabler for increases in A320 production is the supply chain. Wilhelm commented that for most of these companies the investment in A320 production tooling is paid off and a rate increase is pure cash in hand. He therefore foresee no problems getting the suppliers on the bandwagon for even higher rates.
  • A350 production ramp is a challenge but there were no further warnings of  provisions for ramp up costs, on top of the one announced last year.
  • A380 will finally be cash positive on a per unit basis during 2015, “definitely not on a program basis” said Tom Enders.  “That would be in our dreams but we are humble people, not dreamers” said Enders. He continued to say that A380neo will happen “if it is a good business case”, we will however continue to improve A380 regardless, as we do with all programs.
  • A330ceo is having problems filling the gap to A330neo. After announcing rate cuts to 9 at the Investor conference in December, now only two months later followed a cut to 6 per month. Clearly the A330neo move was badly needed and Airbus has low confidence in China picking up on A330R.

Airbus Helicopters

  • The helicopter business, normally a strong part for Airbus, is being hit by present hold on activities and investments in the Oil and Gas industry.
  • A clear positive according to Enders is that the Super Puma problems are solved and that new orders had started to flow for the type and the division has kept revenue and profits despite a weak market.
  • Airbus will present a new helicopter type, X4, at next weeks HAI Helicopter Expo in Orlando Florida.

Defence and Space

  • The highlight is here space which has many positive developments with orders and deliveries for satellites being healthy and positive developments on the launchers side.
  • Airbus and Safran Group has formed a Joint Venture, Airbus Safran Launchers, which will continue the production of Ariane 5 and develop Ariane 6 launchers. Military launchers will also be part of the JV. Airbus expects a € 800 million contribution from Safran during 2015 for their proportionally larger part in forming the 50/50 JV.

 

Problem areas with still work in progress

  • The problem area of the group is Defense. Enders et al are probably happy that the BAE merger did not happen as this would have increased the groups reliance on troublesome state budgets for its defense business.
  • After at least 10 years of trying, the Eurofighter consortium has finally got a contract for an AESA radar upgrade of the Typhoon. This is at least 5 years to late and will now not materially change the meager sales of this fighter hot rod with weak radar and limited all round capability.
  • There are still no signs of getting a Europe to agree on a sensible UAV program let alone any 5th generation follow up to Eurofighter according to Enders.
  • The A400M program is suffering the sicknesses of A380 and Boeing 787. Traveled work is a plenty at the Sevilla FAL especially from the Bremen fuselage Pre-FAL. There is substantial development and testing work still to be done and the industrial ramp up is problematic.
  • Airbus is putting its best people on the problems with civil airliners test chief Fernando Alonso taking the rudder of the program and Airbus head of Operations Pilar Albiac-Murillo taking over the industrial side.
  • Marwan Lahoud said there are over 100 investors knocking on Airbus doors to snap up the area of defense that will no longer be retained under the motto “we will get out of all activities where we can not be a dominant player in the market”.
  • One can therefore expect further disvestments and restructuring moves in the defense area during 2015 declared Lahoud and Enders.
  • Adding to that, the remaining shares in Dassault shall be sold during 2015 “dependent on market conditions” according to Lahoud.
  • Overall Airbus Group forecast steady increases in all business KPI’s; revenue, profit, free cash flow, earnings per share and investor dividend.

32 Comments on “Airbus Group 2014, analysis after press conference

  1. Rather than cut the A320 return to the EU, they should take that money and pay back the other programs that have not done so (A380 and A350 for sure and I have yet to see hard figures for any of it!)

    A330 may be paying royalty but how much and does it cover the A330/310/330 project cost sunk into in pure cash let alone ROI on that money lent for free?

    And its a Luke warm support for the A380, more like yea we are stuck with it and we think we need to do something with it but……

    And no I don’t think Boeing is returning a dime these days so not directed at Airbus, all companies should get out of the pig trough.

    • Rather than cut the A320 return to the EU, they should take that money and pay back the other programs that have not done so (A380 and A350 for sure and I have yet to see hard figures for any of it!)

      Airbus renegotiated A320 royalties with the UK, not “the EU”, which didn’t actually give Airbus any launch aid anyway. Similar to how Boeing’s tax breaks weren’t given by the USA, but by Washington state, South Carolina and so on.

      That misunderstanding on your side demonstrates quite nicely how much you seem to (want to) understand the launch aid Airbus received, what programs it received this for, as well as the payback and royalty terms attached. To not even mention the sums Airbus has indeed paid back (plus interest, plus royalties on each frame) on those two programmes that received reimbursable launch aid and have reached production maturity (namely A320 and A330/A340).

      Please do some reading on the subject and you can answer most of your (supposedly) rhetorical questions yourself, including those about the A330 and A350XWB. Possibly even the one about the A380.
      Links to the various documents explaining RLA have been posted here in the comments section a few times already, often in discussions you were a part of, so it should be easy enough to find some reading material.

      • I have yet to see in a document that has been vetted by someone not with a vested interest of who loaned what and how much has been repaid let alone if the mumbo jumbo accounting deals with interest free loans for specified period.

        We do not know what the terms of A380 production are before that becomes so called reimbursable. Ergo, I will convict based on the weave and dodge I see.

        RLA is a spinny thingy as far as I am concerned. You can call it what you want, its still a pig.

        And no it was not EU but might as well be as I recall France, the UK and Germany are the EU with a lot of hanger ons.

        Said group advanced the big bucks and individual countries did what the US states are doing now in advancing their own individual factory funds and backing.

        If we could get real accounting, you would find the A300/310/340 returned nothing and the only big success A330 has not repaid itself let alone the other 3.

        When Airbus opens up the books then I will believe it. Otherwise they are playing a shell game.

        As I recall a 900 million rotrating fund from the Marshal plan was used by Germany.

  2. A330 cut to 6 a month so Boeing may be winning the transition battle (777 vs the A330)

    No A330R sold in China (why would you buy one of those when you can get a used on cheap and just run low fuel quantities for the stage length?)

    And Hazy comments on the A321 look to be spot on, can’t do a full 757 mission but picks off another chunk and the A321LR allows full pax density (wonderful) for the US and others 3000 mile stage lengths.

    http://www.flightglobal.com/news/articles/alc-sees-757-being-replaced-rather-than-re-engined-409553/

    • Thanks for the link. The argument presented in the link has been what I mentioned this past week in another segment on this website. Boeing has a prime opportunity to not only furnish a 757 replacement but to also go beyond that and bring to market an aircraft that satisfies the shortfalls of the 739, beat the A321LR and position this new aircraft where Airbus would have little room to counter. I’m confident that it’ll be a dual offering, both single and twin aisle aircraft.

      • You are welcome.

        Now all they have to do is actually do it and not talk about it, Sooner the better.

        • Sounds nice enough and seems – part of – the reasoning behind Leeham recently suggesting launch of an NLT in 2018 to attack the A321LR and replace the 737-9.

          Except: Who’s to say that Airbus doesn’t simply follow suit a year or two later? (To be sure – exactly the same logic would apply if Airbus launched an NLT in 2018, say, to pre-empt Boeing’s supposed plans.)

          Also – a twin aisle would necessarily be larger than both those types, so it’s neither a true 757 nor A321LR replacement. Somebody looking at 30 A321NEO and 10 A321LR wouldn’t really consider 30 A321NEO and 10 NLT.

          Which is to say – an NLT should be done (by either OEM) if there’s a big enough potential market between A321LR/737-9 and 787-8/A338 to justify the cost, taking into account that the next single aisle offering from both OEMs will likely be larger at the top than MAX and NEO are.
          Focusing, as is the fashion these days, so much on the A321LR/757 seems, to me, a bit misguided when it comes to deciding about launching a ~8bn plus development programme. Identifying a niche doesn’t mean there’s a business case for a dedicated plane for that niche.
          And that’s regardless of whether you look at Airbus or Boeing.

          • If there’s a need for a twin between the narrowbody lineup and the A359, Airbus is in a better position to develop one as a replacement of the A330 series, perhaps trimmed of excess range, and seating between 240-280. The market potential for such a new aircraft is a bit bigger to Airbus than Boeing.

          • Boeing might need to move forward as the A321-series seems to outsell the 737-9MAX for now. A New Light Twin can superseed the 737-9. The problem is Engine availability of a durable 10000 cycles on-wing dependable and not too expensive Engine.

            The A320 is not that modern anymore and many detail designs hang on due to history and spares management. A Twin with 2-4-2 in economy is more comfortable than a 3-3 narrowbody config. Making for more pax and quicker turn around.

            Boeing and PWA could convince UAL to launch another PWA powered Boeing Aircraft using US goverment funding for this US Engine-Aircraft combination.

            UAL might force the USAF to do a C-17neo first to be sure the new PW1045G is a dependable 45k Engine and the USAF first take delivery of 200 installed Engines.

            The USAF with Congress do not need to support PWA buying out of production Engines from E. Hartford. It used to be the opposite that the USAF or US Army Air Corps were the first to buy new Engines that became commercial after some time. But after living thru the TF-30, F100, F135 initial hickups might have scared Pentagon, but now we Think PWA has itS Finger on commecial issues and can deliver.

    • Boeing may be winning the transition battle? I think we are looking at very different timescales. The relative imminence of a330neo as compared to the b777x. The fundamental disappointment to airbus being the ‘loss’ of the ephemeral china order. Am guessing the regional was making up the difference almost exactly and would have kept Toulouse humming at 10 a month.

      I never understood whether this order was always a no go or whether it is a victim of Chinese governmental interference related to political muscle flexing. I always thought that growth in china and the mission lengths required for domestic services were perfectly attuned to the a330ceo. Can anyone cast any light on this

      • The A330-regional was linked to a final assembly plant in China for that model. As that was a bridge too far for Airbus, I suspect that the regional order was put on hold.

        • So we are saying that Airbus pulled the plug? Are they concerned about a C929/ c939? It seems that our old hat machinery (A330/B777) suddenly has more life than everyone originally thought and maybe the IP issues were too much.

  3. ..100 investors knocking on Airbus doors to snap up the area of defense that will no longer be retained under the motto “we will get out of all activities where we can not be a dominant player in the market”.

    Thats a rather ancient view. They may have other reasons, low returns or high investment but as an outfit like Google or Apple shows you can overturn an existing market and replace those who were dominant, yes Microsoft Im talking about you, or Nokia or many others.

    • While I somewhat agree in general I’d also point to the wording: “where we can not be a dominant player”, not “where we are not a dominant player”.
      Will be interesting to see which areas they see as lacking potential. With defence, it’s a lot trickier than with commercial, anyway, as political will/policy influence that field almost 100% by definition.

  4. The Defense sector is cumbersome because they are entangled in existing lines of products which are not selling. You can’t just click those disasters into the bin, like you do on the web : you have to work your way out and off, which takes time/resources. If there are (ill-advised ?) Investors who are prepared to lift those “danseuses” off the arms of Enders, that would clear the table wherefrom Airbus Group military division could scramble using disvestment proceeds to create new lines of better welcomed products and start making money. But first they need to remove from the helm all the CEO’s who got enticed by the referred “danseuses” … Enders could let those people be sold away out of Airbus Group as a part of the disvestment packages !

  5. Boeing will also reduce production on the 777, just like Airbus on the A330. Airbus gets the A330NEO from 2017, Boeing the 777X from 2020.

    So they have 2-3 extra years to fill but apparently it is smarter not to announced production cuts for the 777 at this stage. Maybe late 2016 would be a good moment. Management can manage stock related bonuses and incentives around that.

    No need to wake up Wallstreet, 2018 is a long way out. Boeing will be able to keep up production because surely airlines will jump on the old 777s, even after the A350J hits the sky. Because they will!

    • So far Boeing is holding up with the orders not to.

      May not succeed but so far they are good. Will see.

  6. I don’t think Airbus is not too concerned the NSA race. Maybe the NLT race but not the NSA race. Airbus owns more of the market share in the all of the NB offering between Airbus and Boeing except the MAX 7 vs A319 NEO. With that said, Airbus can sell the NEO, CEO and the LR all the way into next decade with no problems, especially if the rate of production is raised.

    “I think an Airbus NLT would be positioned slightly larger then a Boeing NLT. Because it would start above the A321 (or even A322) and cover the segment up to the far bigger A350-900.”

    Based off of what fuselage and wing? The A321 would have to go through some big changes to accomplish a twin aisle offering like 270 seats, 5k range etc. Unless they develop a new plane I don’t see where it would come from. That, and the LR is as far as you can modify the A321 in its current form.

    “I have little faith in the A330R ideas, the A330 is too much aircraft, with or without paper tricks.”

    Yet 2 months ago you were excited about China getting A330R’s and the opportunities it would represent https://leehamnews.com/2014/11/13/zhuhai-airshow-airbus-gains-a320-order-while-regional-a330-needs-explaining/ Uh oh …

    “But first they need to remove from the helm all the CEO’s who got enticed by the referred “danseuses” … Enders could let those people be sold away out of Airbus Group as a part of the disvestment packages !”

    The best take away that I took from an Airbus exec was that they want to steer away from everything that doesn’t fly. Makes sense in my opinion.

  7. Recently we have observed an intensification of commercial and military interest in multi-role miniature and “small” drones (papparazzi, espionnage, surveillance, technical visits, hit missions …). UAVs may be listed under “things that fly” so certainly this sector will grow ?

  8. “Yet 2 months ago you were excited about China getting A330R’s and the opportunities it would represent https://leehamnews.com/2014/11/13/zhuhai-airshow-airbus-gains-a320-order-while-regional-a330-needs-explaining/ Uh oh ”

    Rotate.. I’m very much interested how you reached this conclusion, reading my own posts!

    Re a Airbus NLT, it wouldn’t have to cover the 737-9 and avoid 787-8 capabilities like a Boeing NLT would. It would still be significantly smaller and lighter then the A330NEO too. As shown on the slide 2-3-2 would seem most suitable. 2-2-2 doesn’t add capacity and 2-4-2 becomes a kind of rewinged A330.

    http://s191.photobucket.com/user/keesje_pics/media/Airbus%20A360%20Concept_zpszrtxls4q.jpg.html

    • It appears that your current comments contradict those of what you said in November regarding the same topic. (When the aroma of an A330R order from China was strong, so was your enthusiasm. Now that it’s not, well, so went the enthusiasm.) That’s all.

      I agree if Airbus was going to enter the NLT space, it would need the metrics similar to what you provided. But my concern is where would you be able to get a fuselage of this size unless you 1) dust off the the A358 or 2) do some carving of the inner walls (or other creative space creating methods) to create the space required to warrant the room to add one more seat and aisle.

      The point I’m trying to make is that I am not yet convinced that Airbus is as needy as Boeing is. Boeing needs something to regain what it lost to the A321, A321 NEO and A321LR. For the rest of the decade that battle is lost but where Boeing can regain lost market share is by bringing a new NLT and NSA,with a launch of approximately 2018-2020.

  9. rotate …. “So was your enthusiasm”

    Rotate, I understand your feelings, but lets pls stick to the facts. I said:
    – “only in very high capacity (350-400 pass /slot) + significant cargo (20t, LD3s) flights that narrowbodies can’t do in 2 flights.
    – “MTOW (paper) remains 242t the aircraft have good (rest) value, later on as long haul machines / cargo converts.”
    – “The large A330 wingspan /footprint is an airport issue.”
    – “Other question if the cargo capacity could be used.”

    I do not understand where you see my enthusiasm..

    Re Airbus NLT, of course it would be a new design, probably based on A350 panel composites technology. A380 and A400M showed Airbus is not shy to step into new segments if they see a business case.

  10. There could be two programmes to be announced at at Farnborough this year. The first could be the launch of the A380NEO for EIS in 2019(remember that EK will guarantee to purchase around 70).
    The second could be a study to evaluate options for the A350-800. A review of the A350-800 could result in less range – Say 6000nm and a small pax increase to 279 (flexi-toilets, less galleys and thinner, restricted seats). Possibly fit Trent 7000’s. This twin aisle would be able to bridge the gap to replace the A330NEO eventually and sit between the A321NEO and A350-900. All in all, there should not be any rush to do this. However, should Airbus also engineer in heavier landing gear to cater for domestic cycles – this could be quite a versatile jet covering twin aisle domestic routes through to thin long routes up to 6000nm with reserves.

  11. As far as I have seen Lightened up / Regional / rewinged version of long haul aircraft, fuel / cost efficiency is an illusion.

    The A330/A350/787/777 are optimized to transport 300+ people at 40k ft over the world for 15-20 hours a day, for 25 years, with full cargo belly’s, perform a abusive landings, do ETOPS, take mean turbulence and 3 heavy checks during that time.

    Lightening it up to make it an efficient short haul machine is an illusion. Even a new wing leaves you with a wing box/ fuselage optimized for above life. Its like doing shopping with a Hummer.

    Airlines use regional big twins if they need the capacity per slot and have no choice. An A358R at 360 seats and big belly has a small market anyway. And it cannot be build cheap.

    • It might be done easier with a ply by ply CFRP built-up plane. But as mass comes down from a lighter aircraft and much less fuel you need a smaller engine. No modern 40k -45k engine is avaiable right now. The issue is like for the first short range A300 with CF6-50’s. They did not last more than a few thousand cycles at best, but for this aircraft you want a CFM56-7B type 15000-20000 cycles of life on wing at that level of shop bill.

    • There is no engine now. But there is a market. Both Airbus and Boeing will look for a ” middle of the market engine” based on the latest technology.

      The V2500 and CFM56 were able to handle 23-33klbs, the Leap and PW1000 will be able to do 25-40klbs. The lower thrust ranges being reserved for 737-7 and A319.

      Now those two seem moderate popular, expect RR to build the Advance for 27-45k lbs, using a slightly large core. Same for the next CFM “Geared Leap” and PW “GTF mark II” of next decade.

      http://www.derbytelegraph.co.uk/images/localworld/ugc-images/276250/Article/images/20710131/5842243-large.jpg

      GE carefully placed their bet on “no gear” out of weight and reliability concerns. We are 8 years down the road, and I’m not talking butthurt, but Airbus, Embraer, Bombardier, Irkut, MHI selected the PW geared engines & talking to Comac. Time to revisit past, balanced and wise choices I reckon. Then give it a different name and rewrite history 😉

      • I agree that PWA might be closest to certifying a new 40k engine as the PW1100G-series is a bigger engine to build from. However as they experienced with the PW2000 it is not so easy getting a 40k engine to stay on wing for 15000 cycles and have similar cost thru shop as a regular CFM56-7B. Is is a diffent game than getting 1500-2500cycles from a normal widebody engine that they charge $4-6M sending thru shop.

        • Claes, CFM reached its high reliability after many iterations, shopvisits and enhancement packages. They succesfully (?) try to transfer that trackrecord onto the Leap. Many think the Leap is as reliable. For no reason IMO. Its a brand new engine with high temps pressures and new materials. W’ll have to wait and see..

          • I agree that CFMI did a good job on the CFM56-2 then on to the CFM56-3 that became better than the competing JT8D-200’s on to the CFM56-5A and CFM56-C2 that evolved into the more reliable -5B and the -C4. So when the -7B came out much groundwork was done. For the -7B/2 some work was needed but overall it sets the standard for narrowbody engines. I agree taht the LEAP is a Hot Rod and CFMI must do its homework, but GE usually test their new engines alot out at Peebles, but we will see. Customers will discover much much they can repair the CMC parts, the risk is that they are one time use.

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