Airbus fills in production gap for A330.

 

By Bjorn Fehrm

Introduction

Aug 3, 2015, © Leeham Co. Airbus successfully filled its production gap for the A330ceo for the transition to the A330neo, officials said Friday during the 1H2015 earnings call.

Production rate for the A330ceo can be maintained at the previously announced reduced rate of 6/mo, said CFO Harald Wilhelm.

Airbus Group reported solid progress in all areas where we previously described it had outstanding challenges. Cleaned from one time effects (among them a Dassualt share sale income of € 748m), sales and profit where 6% higher than 1H2014 at € 28.9bn and € 1.88bn respectively.  Free Cash flow consumption was now € 1bn instead of € 2.3bn last year. Airbus expects to be Cash Flow neutral on a full year basis.

Rather than going through all figures of the results, we will now go through each major program in Airbus Group and try to understand whether it is a contributor to profits or a consumer of company cash.

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Commercial aircraft

Commercial aircraft is the motor in Airbus Group. It contributes 73% of Airbus Group’s turnover and 82% of its profits. Sales during first half was better than for first half 2014, with 348 aircraft ordered vs 290. Deliveries were essentially equal at 304 aircraft instead of 303. Revenue increased from € 19,429m 1H2014 to € 21,081m with profits growing from € 1,287m to € 1,533m. The better results were due to higher margins in delivered aircraft. Of the Airbus programs, the A320 and A330 are the cash generators.

A320

A320 will continue to generate considerable margins and therefore cash for Airbus during its transition to A320neo. Airbus Group CEO Tom Enders commented that Airbus will not be really affected from a bottom line point of view by the delays in flight testing of the new engines for A320neo. First deliveries have slipped to Qatar Airways from October 2015 to the end of the year.

Should deliveries slip further, Airbus will schedule A320ceo slots instead of A320neo slots and these generate adequate margin and cash to keep the Group’s forecast as before, with slightly better results throughout than 2014.

Airbus has already to increased production rate from the present 44 aircraft per month to 50 which will take effect during 2017. One is also studying rates as high as 60 per month and expects a decision before the end of the year.

A330

Airbus has been forced to reduce production rates from 10/mo to 6/mo during  2016 and 2017. This will remain until the A330neo kicks in during the second half of 2017. Airbus CFO  Wilhelm said the recent A330ceo orders by Saudi Arabian and China for 57 A330ceos now secures rate 6 and it will not have to be lowered further. The bridge to A330neo is “secured,” he said. Enders filled in that these orders were not sold at cost, but had a sales price that generated profit margin to Airbus.

A350

Airbus is confident it can deliver 15 aircraft this year. In-service experience for the first aircraft with Qatar and Vietnam airlines has been good, with dispatch reliability around 98%, according to Enders. Next year the production ramp will be “to more than double that,” according to Enders, and this will consume cash as each initial aircraft cost hundreds of millions Euros more to produce than its sales price. This means that each unit of A350 produced during 2016 consumes cash that was generated by the A320 and 330 programs.

With an average rate of four aircraft per month and a production year of 11 months, around 40 to 50 A350 will be built during 2016. This will consume cash from Airbus bottom line. This is normal, and the trick is to keep this cash consumption to plan and to converge it to break even as fast and as reliably as possible. Airbus expects profits to stay at this year’s level for 2016.

Enders said Airbus is on plan to achieve the learning curve as planned. Boeing’s 787 program is forecast to turn cash positive (using program accounting) at around 400 produced units. Airbus should achieve cash break even for A350 earlier. The program has gone as planned during the last three years and should continue to do so. Airbus has given no information around learning curve rate (how fast the cost per unit comes down) or when the break even for A350 would be achieved, only that things are running “to plan.”

A380

The A380 is on the way to pass from cash drain to being produced at the cost of its net sales price at end of 2015 as planned. Previously Airbus has said it needs a production rate of 30 units per year to reach this cost level. Wilhelm now said Airbus can achieve a cost break even on a lower rate than 30 per year. Wilhelm was therefore confident that A380 will not affect Airbus result negatively during 2016 and 2017. He said that Airbus will be able to reroute the white tail A380 they have been left with after Skymark’s insolvency to other customers.

Airbus helicopters

Airbus Helicopters is experiencing a down market but has been successfully executed a transformation program to control the effects of the weak market. Through costs cuts and focus on services Helicopters have been able to mitigate a lower production rate and increased revenue with 5% to € 2,950m and profits with 8% to € 162m.

Airbus Space and Defense

The defense unit contains Airbus’ problem program at present, the A400M. After the crash of an A400M during a test flight due to faulty installed engine software, the program has been delayed even more than it previously was. Airbus is confident it can deliver 13-17 aircraft this year and is now in discussions with the customers how to change the program to minimize the consequences of the accident. A charge of € 290m has been taken in Q2 to cater for the extra costs due to the accident and its consequences. The program is the real cash drain on Airbus Group at present.

Other activities run better. Airbus is successfully selling and delivering A330 MRTT tanker versions of A330 and the satellite business is going well. Airbus has also created a joint venture with Safran around the Ariane launchers. They expect this to increase the launcher business as well.

Profit for the division is up 20% at € 267m at flat revenue of € 5531m, despite the A400M problems.

Summary

Airbus is on track to achieve the guidance that was given December 2014 in its investor conference of a slightly better 2015 than 2014. It sees the same progress for 2016 and then clear upside for 2017 when the A320neo will have achieved 50 units per month and the A350 program has reached rate eight or higher.

2017 is also the transition year from A330ceo to neo. The years beyond 2017 have the potential to be even better than 2016 and 2017 (our remark). The commercial aircraft side has a good prognosis going forward and the risks in the A350-1000 and A330neo programs should be low.

Airbus is working hard to also get the Helicopter and Defense and Space division to be reliable profit generators. As said in our February article, this is not the Airbus as we know it. The management is working to make it a reliable and profitable company with solid shareholder value. The first half 2015 results shows they are making progress to achieve this goal.

13 Comments on “Airbus fills in production gap for A330.

  1. thank you for such a clear and concise summary. The tone of your report seems to reflect the confidence of the underlying message. A lot of the ‘problem children’ appear to be being brought under some sort of control. It is highly significant that cash burn drops to zero by year end.

  2. How do you get 40-50 A350s being produced next year when last week Airbus indicated it would be at least double this year’s 15 planned deliveries? At Le Bourget this year they said there would be 60 350s delivered in 2016. To me it seems that there are some problems for Airbus in scaling up 350 production as the 2 numbers vary significantly and Le Bourget was less than 2 months ago.
    I know CX are scheduled to receive 12 359s next year and I wonder if that is achievable?

    • The production of A350 has gone reasonably well but not as well as Airbus (Evrard) has postulated over the last quarters and years. We have simply recognized that Airbus has a production year of 11 months (shut production line in August and December of total 1 month) and that our average estimated OUTPUT of the FAL is 4 per month. One has to understand that all discussions from Airbus in their presentations is around FAL starts, ie input, not output. Through flow time for the FAL is approx 7 months, so it takes time before an increase in FAL starts rattles trough into increase in deliveries.

      • Thankyou Bjorn.

        I guess my main point is that between Le Bourget and now, the 350 2016 delivery schedule has gone from 60 to something greater than 30. This indicates to me that there may be issues in the production ramp-up.

  3. We had an Aussies A330MRT on the ramp in Anchorage today.

    Kind of a stutter step as the refueling assembly is quite well hidden, took me a minute to sort, it down, ok, A330, gray, funny symbols, lots of antennae’s and oh yes,

    Interesting but its a big bird for sure.

    • MRTT @TransWorld: And it’s flying and it’s refueling US-made airplanes. Unlike some other tanker we could point to.

      • It is odd how the A330 conversion has apparently gone so well (or did the simply start a long time ago?) and the 767 conversion has not.

        On the face of it it should be nothing more than a matter of bolting on the refuelling kit and painting the airframe grey. If the 767 has become harder than that, is that not the fault of the people who wrote the spec (DoD?). It wouldn’t be the first time spec writers have ruined a project by over doing it…

        I know the A330 benefited from the wing already having hard points available, but given the USA prefers booms to hoses, surely that wasn’t a big deal for the 767?

        I shall go trawling through the rest of Leehams – there’s bound to be answers aplenty!

        • The first flight of an A330MRTT was in 2007. The Australian KC-30A was introduced into service in 2011 and the boom did pass its final evaluations tests and was accepted just this year. About seven years between first flight and operational capability. The first real KC-46 aircraft isn’t even in the air yet.

          The DoD evaluated the KC-X project risk for Northrop/Airbus “low” and “moderate” for Boeing.

          The KC-X specs were set for a KC-135 replacement. Not really ambiguous. The Italian and Japanese KC-767 without auxiliary fuel tanks can only carry 160,000 lb of fuel. Boeing offered this version against the A330MRTT for Royal Australian Air Force tanker competition. Australia deemed the KC-767 as to small. The fuel load of the ancient KC-135 was 200,000 lb. So Boeing offered a 767-200 with auxiliary fuel tanks on the lower deck with a total fuel load of 212,000 lb for KC-X contest. Main deck cargo capability was a requirement by DoD. A useful requirement for USAF considering the world wide deployment of US forces. To load or unload main deck freight from a KC-46 will be a tricky task. The engine is very close to the main cargo door.

          The 767-300(F) was not possible due to take off performance (longer tail). Boeing put together a tanker aircraft with -200 fuselage, -300 wings, -400 flaps and new avionic systems. The civil version is called 767-2C.

          The A330MRTT was chosen by many Air Forces. In my opinion the reasons are quite simple. The A330MRTT does not need a main deck cargo capability to forward freight. So main deck airline seating could remain instead of a palletized seating option. Another point is many national airlines of the MRTT costumers still operate A330 and will do it for quite a time. Therefore basic maintenance is no problem and the proper pilots are already there (e.g. Singapore or South Korea).

          • The existing – F A330 maindeck cargo door & floor is a standard option for the A330 MRTT. Customers sofar prefer passenger layouts over cargo decks.

            I guess the NEO option will available soon as well as a A330-300 base platform and auxiliary fuel tanks. Maybe even the Level cabin nosewheel from the -F.

            When will the KC-Y competition be? That will be a real challenging competion, requiring all dedication, ingenuity and creativity thinkable to explore new ways of winning the business, from congress.

          • @keesje
            The longer A330-300 can carry more freight but that was a secondary issue for the last tanker competition but maybe for KC-Y congress may rethink its position because otherwise a KC-777 would have no chance against an A330-200NEO/A330-800.

            Also USAF could ask for the same fuel load as a KC-10. That is what USAF did for KC-X. The fuel load of a KC-10 is about 165.5 t. 777F with auxiliary fuel tanks could carry about 200 t. That could it be a nice trick. An A330MRTT-800 can carry just 120 t. Maybe Airbus could offer an A340MRTT with just two engines…

            The strange thing about the KC-10 and the A330MRTT is even today the A330MRTT can offload more fuel at long distances than the KC-10. A KC-10 just burns a lot of more fuel than an A330.

  4. What about the required work force for the A350 project. I can imagine that Airbus is not so pleased to create too many new jobs for the A350 due to the strict France labor rights. Therefore I always thought Airbus will move workers and engineers from A330 to A350 and a cut in A330 production rates is to anticipate.

    Producing the A350 at 10 aircraft per month and additionally the A330 would require a lot of more workers. Moving the A330 production to China is hence a smart move.

    • Strange as though it may sound to American ears, labour rights seem not to be such a big problem at Airbus right now. Certainly, the management-workforce relationship seems a lot less fractious than in Puget Sound. Of course, management will seek to control costs, but labour is a very small percentage on that, and why flip off the people whose motivation and skills you need to build world class aircraft?

    • A330 production isnt being moved to China, its only a cabin completion centre. The already built planes will be flown in. The rate is only 2 per month so isnt even all the 6 per mo production in Toulouse.

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