By Bjorn Fehrm
28 April 2016, ©. Leeham Co: Airbus Group has had a slow start to 2016. Deliveries of A320neo, A350 and A400M are slowed by problems with engine and cabin suppliers. Only 127 aircraft were delivered out of a total guidance of 670 deliveries for 2016, a mere 18%. Group 1Q 2016 (1Q 2015) revenue were €12.2b (€12.1b) with EBIT of €501m (€651m), down 23% year on year.
The group expects to recover the shortfall in deliveries during the year and to reach guidance levels for revenue and EBIT, except for the troublesome A400M. This time it’s a engine gearbox item which is the culprit. Airbus CFO, Harald Wilhelm, gave a clear warning during the quarterly conference call: the A400M program “risks a significant charge” during the year.
The financial results for the divisions for the quarter were:
Details of the Airbus Group 1Q 2016 results are below.
Order intake for the quarter was at a low level with 10 (101) net orders. Order guidance was not be changed; orders will be back-loaded more than usual, according to Wilhelm. Gross orders were 32 with 22 cancellations, with 14 conversions to neo versions for A320 and A330.
2016 is a transitional year for the A320 and A330 programs and a ramp year for A350. This impacts the results, according to Wilhelm. That the EBIT loss was not larger is due to a favorable dollar rate and a fall in R&D spending with A320neo and A350 programs nearing completion and the A330neo having spent the brunt of R&D during 2015. On a group level R&D spending for the year will be slightly over €3b as opposed to €3.5b for 2015 according to Wilhelm.
Here the performance of the different aircraft programs:
Only five A320neo aircraft have been delivered out of a planned ~20. The problem has been deliveries of Pratt & Whiteny (PW) engines, which have been plagued by software and heat-related issues. PW has promised to deliver the corrected engines during the summer, said Wilhelm. CFM deliveries are progressing to plan.
Wilhelm could not understand where the rumors of a slow down and remix of neo to ceo came from. Once the production plan for the year was made late last year, there can be no changes he said. “Our plan for approximately 20% neo of the year total remains,” he said. On a question if the A320 experienced more competitive pricing (ref Boeing’s claims), Wilhelm answered “no, we don’t sense any difference”.
2016 is the start of the bridge for A330 to the A330neo according to Wilhelm. Consequently pricing for delivered aircraft is lower and the rate is at six per month (it will be raised to seven per month for 2017). Revenue and margin for A330 during 2016 will therefore be lower. A330neo development is on track.
A350 is still plagued with delays due to cabin items but also other parts, Wilhelm said. Only four aircraft out of a guided “over 50” for the year were delivered. Wilhelm said there were 40 aircraft in the Final Assembly Line at present and he maintained that 50 deliveries for 2016 was doable but is getting “progressively more challenging.”
Deliveries for the year should end at the number from 2015 (27 deliveries). Work is progressing to allow cash positive deliveries at rates as low as 20 per year. Guidance for 2017 is 20-25 aircraft.
The market for helicopters is still depressed. The Helicopter division is therefore doing a good job of keeping revenue and EBIT at only slightly lower levels than previously. Airbus is taking market share in a tough market at present, according to Wilhelm.
Defence and Space division
The trouble child in the Airbus family is the A400M program. It had just recovered from a fatal crash of a production aircraft last year (due to faulty engine software installation) when an EASA directive points to a serious problem with the GE Avio produced Propeller Gear Boxes. Only two aircraft out of a planned 20 for the year have been delivered during 1Q.
Investigation what to do is still ongoing. Priority is to a short-term safeguard continued flying of the 25 delivered A400M and the continued deliveries of aircraft. Then a longer term solution has to be found by Avio to the gearbox pinion problem. Wilhelm said that the risk of outright cancellations of aircraft is remote but there is a clear risk of a significant charge later in the year, coupled to the fixing of the problem and keeping customers in the boat.
The rest of the division was performing well, causing revenue to stay almost flat at €2,534m (€2,603m). The commercial satellite business is going well and the previously dormant Eurofighter program had received an export order from Kuwait.
On the face of it Airbus are in a bit of a mess even if it is not all of their own making. No programme is without specific challenges and there seems to be a clear acknowledgement that the A350 and A320 deliveries will be quite seriously affected for the year. I note that R and D is significantly reducing off the back of so many development programmes being to a greater extent completed. At least this means I will have a lot to see when I fly into TLS this year.
I am going to call a told you so on the A400 engines.
P&W knows how to build turboprops and gear boxes, the unholy 3 company mistake operation for the A400 that was done to appease not so much
GE got bit on this one.
And its not all roses for Airbus with the solvable but issues getting things going on the A320NEO and the A350 production.
Not as easy as some seem to think.
The TP400 and A400M problems in general were strongly linked to “Coalition of the Willing” countries ( ES, UK).
I would not be surprised if it ever surfaces that this was caused by “enemy action”.
W’ll never know how P&W would have filled in the A400M requirement. They had powerpoints only for a 9000 shp engine and were unsuccesfully fooling around with the PW800, PW6000, PW4000 and GTF at that stage (15 yrs ago).
UTC P&W were further along on the engine with their cacadian division in the lead. French President Jacques Chirac said they want a European engine to the objection of Airbus vigorously. Keesje can not come up with his fact.
40 A350’s in production, 5-6 parked waiting for interiors, while A320 NEO’s pile up and producing 3 A320 versions with 4 engine types on 3 worldwide locations.
Then there’s the A400M, great product also, that they were planning sales campaigns for at this stage. Fully dependent on the gearbox OEM now (MTU?). 5 Oppositions parliaments from all over Europe waiting for new opportunities to attack their governments over this program.
Airbus better carefully manage their resources. I wouldn’t be surprised if the A330NEo catches some delays here, because of key resources being allocated putting out fires elsewhere.
Not announced yesterday. Delta building out A321 fleet rapidly, not waiting for NEO’s.