30 April 2015, C. Leeham Co: Airbus Group presented their first quarter results today Thursday, a week after Boeing presented theirs. It is a good occasion to look at how these companies performed. We will focus on commercial aircraft for Airbus and compare its performance with Boeing’s commercial aircraft and then comment on other Airbus activities more summarily.
In a later article we will look at Embraer, who also published their results Thursday, and compare with Bombardier’s first quarter which they announce on May 7th.
Deliveries, revenue and sales
For deliveries and revenue, Boeing is clearly the leader of the two with 14% more deliveries than in 1Q2014 at 184 aircraft and posted revenues of $15.4bn, up 21% from last year. Airbus trails that by a full 50 aircraft at 134 and had revenues of 8.6bn Euros, down 4% from last year. This is 44% lower revenues than Boeing, a large difference, even when considering that Airbus closes their factories over New Year. Airbus large deficit in deliveries versus Boeing was in twin aisle where Boeing delivered 45 aircraft and Airbus delivered 20 A330, a rate of 6.7 per month, 1 A350 and four A380. The one A350 delivered is explained by start of production for the type, there are a further 14 in the final assembly line that will get delivered during the remaining months of 2015.
What Airbus needs to compete with Boeing is an A320 line at full bore (it delivered 101 A320 which is rate 36) and an A330 that has transitioned to A330neo. In addition, the A350 program needs to pass rate five, something it should do next year. As Airbus Commercial Aircraft is the motor in Airbus Group, Group revenue was also down 5% to €12.1bn. The additional deficit to 1Q2014 revenues came from Defence & Space, where only two A400Ms were delivered. D&S revenues were down 6% at €2.6bn. Airbus Helicopters bounced back a bit from a bad 2014 with €1.3bn, up 9% from 1Q2014.
Boeing booked sales of 110 net orders during the quarter versus Airbus 101. Of Boeing’s orders, 71 were for the 737 versus 67 A320s booked for Airbus. The rest of Airbus’ orders were for the A330: nine ceos and 25 neos. Boeing’s twin aisle orders were seven 777s, 35 787s and three 747-8Fs. Clearly the A330neo has saved Airbus’ twin aisle order situation during the winter. The A350 did not book a single order during 1Q. The slow sales of A330ceo is a problem for Airbus. Airbus CFO, Harald Whilhelm, stated that they will be able to keep the recently announced rate cut of six per month but that can come into question as well if sales does not pick up.
Profitability and free cash flow
Profitability for Airbus and Boeing shall be viewed in isolation as they do not use the same accounting practices and a direct comparison therefore makes no sense. I will focus on Airbus profitability as Boeing’s has been discussed since Boeing’s earnings call last week.
With deliveries and revenue down, Airbus commercial aircraft still saw an improvement in EBIT of 8% to €569m, mainly due to the large development programs now starting to dwindle down. Airbus Group has avoided a large decline in operational profits by tight expense control Group-wide and timely restructuring actions in Space & Defence to fix the recent problems there. Airbus Group EBIT was down 7% to € 651mn and Tom Enders, Airbus Group CEO, says that the disciplined start to 2015 gets the group on its way to meet full year targets, which by and large is a repeat of 2014 results.
This results forecast is plausible as the year will be back-loaded for the A350 and A380 programs and Airbus has got a large cash injection by selling a further stake in Dassault Aviation. The Dassault sale made a profit of €697m. As a result, Airbus Group has a net cash position of €9.5bn and is buying back shares with the money. Free cash flow for 1Q before M&A was € -1136m versus € -2060 a year ago, The Group expects to break even on free cash flow before M&A (i.e. without the Dassault money) for the year. Group wide R&D expenses were €701m versus €727m a year ago.
The 1Q results show that Airbus is in a transitional period. A320ceo is handing over to A320neo during the year and A330ceo is having trouble selling now that the A330neo is available (A330neo will not start deliveries until December 2017 barring delays). A350 deliveries have started and Airbus stated a total of 15 aircraft shall be delivered this year. These are expensive to produce and Airbus is taking the losses from the early part of production directly, so while A350 deliveries will increase revenue they are lowering 2015 profits, different to Boeing which evens out the costs over the first 1,300 787 and therefore can book revenue and profits from the beginning of the program.
A good point for Commercial Aircraft is that A380 will go from costing money to deliver to generating at least a black zero during the year. One shall not expect it to generate a lot of cash this side of 2020. On the Group level, the A400M will continue to cost money this year and probably next as well. After that it should slowly work itself to a cash positive program.
It all sounds a bit negative but one shall remember Airbus is now exiting a phase where they were mopping up after the A380 debacle, finishing development of A350-900, A400M and A320neo. These three programs will all deliver series aircraft during 2015 and the only larger development programs remaining will be A350-1000 and A330neo. The former should have a straight-forward birth during 2016-2017 given how solid the -900 program performed in the last years and the A330neo will profit from A320neo. The A320neo program has been run on rails, and nothing less should be expected for the copy book A330neo.
While 2015 will be a year on a Group level which by and large will be a copy of 2014, the subsequent years should gradually build up to an Airbus Group that will earn high revenues and profits. With their practice of taking the pain of development and early production directly, present heavy investments are soon done and the years ahead should be the time for harvest.