Airbus results depressed from continuing delivery delays

AirbusNewOct. 26, 2016: Airbus Group reported that its nine months financial results continue to be depressed by delivery delays in the A320neo and A350-900 programs.

The Group reported revenues of €43bn for the period and charges that lowered profits.

Net cash fell by nearly €5bn from the same period last year. Earnings at the Commercial unit fell 59% YOY.

The press release with detailed results may be found here.

Revenues flat year-over-year

Revenues were flat YOY. Deliveries of A320ceos plus the neos, combined with deliveries of the A350s, albeit behind schedule, were offset by lower A330 deliveries.

“As expected, the nine-month performance reflects the heavily back-loaded aircraft delivery schedule, ongoing production ramp-up and transition to new versions of our A320 and A330 aircraft,” said Tom Enders, Airbus Group Chief Executive Officer in the press release. “For the remaining months of the year we remain totally focused on deliveries to achieve our earnings and cash guidance. The commercial environment continues to be rather healthy, with a backlog of more than 6,700 aircraft supporting our production plans and reflecting the strength of the product portfolio. Further integration of the group, as recently decided, will simplify the company’s governance and improve competitiveness.”

Airbus delivered 462 aircraft in the nine months vs 446 a year ago.

“Transition pricing”

Airbus obliquely indicated pricing for the A330ceo and A320ceo is lower than a year ago.

“Commercial Aircraft’s EBIT before one-off was €1.8bn (9m 2015: €2.2bn), driven by the lower A330 rate, delivery profile, transition pricing on A330 and A320, and higher ramp-up costs, while research and development (R&D) costs decreased,” the company said.

Airbus said the early “teething” problems with the Pratt & Whitney Geared Turbo Fan on the A320neo “is largely over,” but industrial ramp up issues at PW remain.

Airbus continues to forecast about 670 deliveries for the year. (This is an increase from the press release figure of more than 650, reported on the earnings call.)

Earnings call

Chief Financial Officer Harald Wilhelm.

Quotes are paraphrased.

  • Globally there have been challenges in the supply chain and internal issues.
  • The financial numbers represent the back-ending of deliveries.
  • Merging the companies into one company simplifies the governance and reduces costs.
  • 2016 earnings guidance is maintained. Free cash flow guidance is maintained except for the need to do direct customer financing with export credit financing temporarily on hold. No forecast was provided for a return to ECA financing.
  • Cancellations excluding 82 aircraft for Kingfisher and conversions from ceos to neos remains low. Deferrals are also low.
  • R&D will be coming down on A350.
  • There are more than 20 A320neos awaiting engines, with deliveries slipping on some to 2017. Delayed deliveries on A350s will ease from the fourth quarter going forward.
  • Customer advances are healthy.
  • There should be 45 A320neos delivered in the fourth quarter. Only 15% of 320 deliveries will be neos for the year.
  • 26 A350s have been delivered. 40 are in the final assembly line. Traveled work is coming down. Supply chain remains difficult. Delivery target remains at 50.
  • Overbooking for 2018/19 remains extremely healthy and into 2020 as well.
  • A350 recurring costs: we are still on the learning curve but making good progress. There is some flexibility to provide A320ceos in place of neos if PW is late with engines. I cannot exclude again some back-loading of A320neos in 2017.

26 Comments on “Airbus results depressed from continuing delivery delays

  1. There were 24 A320neo delivies in the first nine months. Plus 45 A320neo in the fourth quarter would mean 69 A320neo for the full year. If theses 69 represent 15% of the total A320 deliveries that would mean only 460 A320 deliveries (in 2015 Airbus delivered 491 A320’s).
    On the other hand Airbus wants to deliver 670 aircraft in total, including 50 A350. For the A380 my guess would be (no more than) 24. For the A330 I expect about 60. That would leave 536 A320 to reach the target of 670. Something does not add up here…

    • No 460 cannot be right. A320 production runs at 46 per month for quite some time now, that should equal some 520-530 deliveries.

    • I reach the same numbers as you. Perhaps the 15% cited by Airbus was a rounding to give a directional sense of magnitude.

  2. There certainly does appear to be a bit of wishful thinking re deliveries. Looking at EBIT and OPM the already low return provided to the investors is further hit by all these delays. If
    Boeing achieved this level of return their senior management would be out on their ear.

    On the good side the A350 1000 will be out of the box soon and the A330neo should follow shortly. I get the feeling that Airbus will take a well earned pause after the flurry of development activity that has engulfed them for the past 5 years

  3. “If Boeing achieved this level of return their senior management would be out on their ear. ”

    That is definitely not what I witnessed over the years. Executives stayed in place during huge delays and (deferred) costs explosions.

    Many A320 variants in production, V2500, CFM56, LEAP and GTF powered, and then we have 3 variants A319, A320, A321, produced on 4 lines over 3 continents.. Compare that to the 737 FAL.

    • @Keesje/ @ Philip

      I am aware of what you refer to of course but if you look at the underlying earnings of Boeing they have been consistently stronger than Airbus over a long time period. That is after stripping out accounting differences. Airbus has had difficulty in generating an acceptable level of return, perhaps they are effectively ‘buying the future’ with all the research and development. Alternatively the somewhat byzantine production process will never be efficient in relation to Boeing.

      • @sowerbob
        From what I can make out the A350 production system looks more cost-efective than the barrel-type of the 787. With the 777X robot assisted assembly Boeing plays catching up with the high level of automation Airbus has been developing and implementing very successfully for many years already.
        Well, and if you would apply Airbus accounting system on Boeing, I think results would have looked really bad in the past years.
        Airbus “buying the future” does not sound like something very desirable as you put it, but if you turn it around you could just as well state that Boeing appears to be “selling the future”. I have to admit I’d rather take the first flight, not the second.

        • Boeing publishes results with the Airbus accounting method along with it’s program accounting.

        • @ gundolf

          Buying the future was not meant to be perjorative, far from it. The investment in products, processes and capability should hopefully glean results. What I do not know is whether the overall productivity of Airbus matches that of Boeing. History says it wasn’t particularly productive in former iterations of the company. There is a difference between productivity of an individual process (automation helping) and overall productivity of the program.

          The structure of the organisation still has substantial duplication of management. I believe the received wisdom is that on like for like accounting Boeing has consistently outperformed Airbus by a large margin. Sooner or later Airbus must consider how to close the gap.

  4. Accounting is different between Airbus and Boeing. Airbus is taking all of the issues on the bottom line as they arrive. Boeing spreads the cost of issues. Which is best, no idea. Good times are ahead for both manufactures for all projections over the next 20 years suggest rich pickings

  5. Overbooking remains healthy would seem to be the big take away.

    The rest could have been guessed at from the news in general. It will be interesting to see going forward into the future if de-selection of Zodiac, and sending a message to suppliers, will help future programs. As for P+Ws problems I never expected PP ramp up to be smooth but they have the GTF technology which looks like being the way forward. Everybody else has had issues with their new engine programs except CFM so far, and it is still to early to talk about that. Funny though that is never seems to be the new gearbox that causes the problem, it looks a bit like they were over-focused on the new thing and not enough on the existing tech part of the engine.

  6. “Overbooking for 2018/19 remains extremely healthy and into 2020 as well.”

    Enjoy it while it lasts.

    • Yep, headwinds and that backlog can disappear quickly with “deferrals” and or outright cancelations.

      Its based on a single airline having problems, the problems start to affect all and then its Katy bar the door and see who can bails first with the least damage (deferral, uhhh how does 2030sound?

    • Flightglobal: “Pratt & Whitney executives say they will open two new factories over the next six months to get delayed geared turbofan engine deliveries back on track, but they also appeared to lower the bottom range for planned deliveries in 2017.”

      This is not good. It only shows the extent of their problems with these new fan blades. Obviously they had not properly tested the system before entering production. The impact is huge for Airbus and Bombardier, and is likely to last for quite a while. If they have to build two new factories it can only mean they are not in a position to increase production at the existing sites to the originally expected levels. The fact that P&W has to build two new factories appears to me as extremely serious, because these new factories will certainly not be in a position to deliver fan blades at a high enough rate for at least one or two years.

      Instead of manufacturing the GTF fan blades with some of the new carbon technologies they opted for the cheaper aluminium blades. Obviously it is going to cost them much more in the end. The whole situation looks like a major fiasco.

      • Indeed it does. About a year ago someone posted warning that this was about to happen,but looking through the archives I can’t find it. Obviously this person turned out to have very good sources.

        • That’s news to me as well. Like you, I am very surprised by this. I had never heard any rumour about it, and I thought that all PW1100s would be built in the US and the PW1500, along with the smaller variants, in Canada.

          • It seems that it was a bit of hush hush at MTU
            “The final assembly line for the newly in-service PW1100G was temporarily behind partitions and off-bounds to us when we visited MTU in early May, ” Flight Global
            Its the first time they have assembled complete commercial engines, but of course supplied major section of V2500

          • They are almost an integral if not integral part of P&W but interesting they have moved up to equal per Safram and GE.

            Clear responsibilities of who designs and is responsible for what part of the engine (as are the rest of the IAE partners but not to that extend)

            What was interesting was when Safran aka Snecma but also Turbomeca in another entity under Safran) designed their own engine it flubbed and set back Desaults program for their newest business jet.

          • The engine you are talking about is the Silvercrest for the Falcon 5. Safran should have given the mandate to Turboméca, not Snecma. Turboméca is a small engine specialist like Pratt & Whitney Canada. The engine was too small for Snecma to based the design on existing technologies developed for its M88 military engine, like they did for example for the SaM146 engine on the Sukhoi SuperJet. Snecma had their hands full with the Leap and neglected the Silvercrest. While the former works fine they now have to redesign the latter. I don’t understand why Safran did not give the mandate to Turboméca instead. In cases like this one it is often preferable to give a bigger mandate to a small player than a small mandate to a bigger player. Snecma knew where their priorities were and we see the result today.

      • 2 new factories? Surely you knew that one of those was Montreal, the only other one to make up the 4 is MTU in Munich.
        As for the carbon fibre fan blades, GE has done this technology before on the GE90 ( and GEnx) so can have confidence using it on much smaller engines. P&W or their partners would be starting from scratch so Im sure time and cost came into the decision to skip it for this new engine. The technology moves all the time so means when they do indroduce them it will be using all the latest shapes and production processes.

        • The two new factories are for fan blade manufacturing only. They will complement the two existing fan blade factories in the US and Singapore.

          Consequently, the assembly plants of Middletown, Munich and Montréal will receive their fan blades from one or more of these four fan blade factories (two existing ones and two under construction) to assemble their respective variants of the PW1000G engine (GTF).

          P&W had a contingency plan and this is the reason why the fan blades were manufactured at two separate sites. But it quickly became evident that this plan was not robust enough. So they urgently needed to add two more fan blade factories to supply the three plants where the various GTF engines are presently assembled.

          But until the two new factories will have been built and will have started to produce fan blades in sufficient numbers, production will be slowed down and the engine assembly rates will remain lower than Airbus and Bombardier would like. In high society they would refer to this sort of thing as a major f..k up.

  7. All in all its worth thinking that for all the talk about Boeing, its not as easy as people think it is and while the 787 was without a doubt the most egregiously bad example,

    It Is Not Easy

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