Airbus group 3Q results: Revenue stable but orders plunge

By Bjorn Fehrm

October 31, 2017, ©. Leeham Co: Airbus Group presented its third quarter results this morning. Revenue was stable at €43bn, but orders were down 31% compared with the first nine months of 2016.

Operating profit was down 25%, mainly because of less A320neo deliveries, as engines are scarce.

A330neo during first flight 19 October 2017. Source: Airbus

Group level results

The Airbus revenue for the first nine months was €43.0bn (€42.7bn 2016) with operating profit at €1.8bn (€2.4bn). Reported profit for the nine months was €2.3bn (€2.4bn). The major items between the operating result and the reported result (EBIT adjusted vs. EBIT reported) were charges of €150m for the A400M and an income of €640m for the sale of the Defense & Space Electronics division.

Orders were down 31% compared with the same quarter last year, with 271 aircraft booked compared with 380 last year. Airbus blames the lack of available delivery slots, but the disruption of the group’s sales units by the ongoing bribe investigations likely also plays a role.

The group warns in the third quarter press release for possible future “material impact on the financial statements, business and operations of Airbus” from the ongoing fraud investigations.

For 2017, the company confirms its present guidance, although the targeted 720 aircraft deliveries might be challenging.

Commercial aircraft and 400M
A320

Airbus planned 200 A320neo deliveries for 2017. Due to engine problems, where engines are delivered as spares to airlines instead of to Airbus, this is now a tough target. Deliveries to date are 90 A320neo.

The Pratt & Whitney engine issues are well-known. The company is testing fixes for the problems during the autumn. Airbus expects improved engines to be available for 2018 deliveries.

Recently there has been some maturity issues for the CFM LEAP engines as well, although these are of a much lower magnitude according to Airbus.

A330

The A330neo flight test is now ongoing since the first flight, 19 October. Test progress is good so far. First delivery is planned for mid-2018 to TAP Air Portugal. Airbus expects to keep production at six aircraft per month over the A330neo transition.

A350

Ramp up of A350 production is going to plan, with 120 aircraft delivered to date, of which 50 are this year. The new accounting rules (IFRS 15) will mean that actual production costs will be booked from 1 January 2018. This will increase the reported losses from the A350 ramp up phase. Cash flow will not be affected.

The A350 will deliver positive margins from 2020 as stated previously, says Airbus.

A380

Nine A380s have been delivered in 2017. The order book supports production until 2019. The lowering of the production rate is causing smaller losses, which Airbus is working to minimize. 

A400M

Airbus has delivered 12 aircraft during the first nine month of 2017, compared with 11 aircraft in the same period 2016. Negotiations with the customers are ongoing to reach an agreement over deliveries and final capability for the aircraft. Accrued loss provisions for the year stand at €150m.

61 Comments on “Airbus group 3Q results: Revenue stable but orders plunge

  1. Hi Bjorn

    I am mystified where you have deliveries of 140 for the A350 from as I see that only just north of 120 have been delivered (including the Sri Lankan mothballs).

    The elephant in the room is what has happened to the well oiled Airbus sales machine which has consistently underperformed over the past year. Their wide body sales have fallen off a cliff when compared to Boeing successes.

    Is it really that they have nothing to sell or could it be that the ongoing investigation into malpractice has compromised the whole sales team. Note there is still a vacancy at the top given JL’s imminent departure.

    • Re A350 deliveries, typo, thanks Bob.

      Re the sales performance, time will tell what’s behind it.

    • probably a bit of both

      if I were an airline executive, I certainly would not take a meeting with someone if I thought there was a potential cloud hanging over his/her head

      imagine you live in china which has gone through a recent crack down on corruption by public officials . . . I wouldn’t take any risk even if only perceived and not real

  2. A 9 year backlog is too much. Airlines can’t wait 9 years. A320 production is to rise. A350 production must rise.

    The CFM problem is being reported differently by FlightGlobal. They reported that Safron has put $400m aside for the issue. Presumably GE will do the same for the HPT is their area of responsibility. In order words the issue is considered more serious by some.

    Qatar re-ordered 4 cancelled A350

    • The A32X series backlogs could still cost AB dearly in sales.

      Can’t see DL waiting forever for replacement aircraft, this could swing them to MAX’es? If AB moves hard on an CS500 first deliveries could be from Mobile in 4-5 years from now, potentially a good 320/MD88 replacement?

      If Boeing launches the “797” it could theoretically be delivered to early customers before an A322, that’s just not on?

      • How on earth can a 797 (I assume clean sheet) be delivered before a derivative A322? I suppose it is possible but at the most highly unlikely.

        • Hi Mark, that seems the silly reality at the moment. A32X backlog 9 years.

          If 797 launched next year certification in 8 years (max?), first deliveries in year 9 if not earlier.

          If the 322 is launched at the same time using the same production line delivery only in year 10, doesn’t make sense.

      • I think it is costing Airbus in sales for both the A320 and A350. Having said that, not a bad place to be in.

        I do think they should do the CS500. A simple stretch but add RR Advance to the equation. Would put an end to the A320 and 737-8. Probably force Boeing to abandon the NMA in favour of a NSA.

        Still need to produce them though; a problem but a nice problem to have

          • May not apply for two reasons.

            PW non-compliance with its contract. For example late delivery of engines. Customer refusal to accept delivery because of durability.

            Airbus may have refused to accept some contracts when it took a majority stake in the C series.

            I don’t know, but both are possibilities

  3. In a way, Boeing have been proved right, it was a bit too soon to replace the CEO /NG generation.
    If airbus is short of planes to sell, then they need to get the CS 500 up and running ASAP. Start whoring the 2nd assembly line around the world and Trumps boys will soon change their minds. All those clever lawyers will suddenly find ways around the anti dumping /non dumping rules.

    • As somebody Pointer out, no futura (yet) on a CS500 as long as it is 150 seats or more.

  4. Airbus is clearly not motivated to throw cash at a second C-series line. They are also paying the price for the glacial ramp up on the A350 (and attendant lack of market interest in 330NEO’s). I do suspect they are losing orders due to this program pace (noticeably slower from launch through first 100/200 deliveries than the 787 in actual practice even.)

    GTF will continue to get worse for at least another 6 months before it really can get better. They desperately must want to deliver many more A320’s, as they probably have operators ready and willing to take over 300 per year, not just half of that. If they were to build a “new line” for anything, it would be the 320 series.

    Can they afford to terminate the 380 in the next 12 months?

    • What could be the reason to build another assembly line if no engines are available?
      Once the sales team of Airbus has got past the legal issues they are certainly a little too busy with right now, and test flights prove that the A330NEO is at least as good as advertised and no other 787 or A350 slots become available, airlines will order more A330NEOs, no doubt.
      Terminate the A380? I don’t think so. Airbus is playing for time and that’s probably the best they can do right now.

  5. The backlog is too big because the A320 and A350 proved too competitive. Airbus are stuck with the A330 that refuses to die, and now the CS300 will kill the A319. Performance & no competition threatens the generate A400M exports.. Heads will roll.

    https://youtu.be/09l-Wc_33fk?t=1m53s

    • Well that’s one take.

      As I recall you could say that about the 787 as well (grin)

  6. You cannot ramp up a new program like a mature one.

    So no, the answer is not ramping up the A350. You simply have to continue the planned ramp up, get the production stable and then you can look forward.

    As I have said on many occasions, too many people think life is an App, you push the button and you get immediate results (Your umber cab) – what’s not gotten is the hundreds of millions spent on coding and system that allows that to work.

    It does not work that way. A large and extremely complex item like and aircraft is a slow moving and hard to goad into faster action beast.

    And if you push too high too fast, you have a crash of the system.

    That does not mention that if you ramp up to 15 a month and suddenly the backlog goes down and you have no new orders to fill it.

    Your suppliers can’t afford to max ramp and then have to throttle back and take those losses.

  7. It would behove many to follow the AeroTurboPower listed as one of the blogs in the right column under COMMENTARIES:

    From the Leap testing you can see a steep drop.

    There is a serious problem there of some kind.

    Maybe a bit less P&W bashing?

    If it was easy we all would be doing it.

    That’s why there are only 3, and its still a hard slog.

    • Saw that, it looks like P&W are funding solutions just as CFM are running into trouble. It could be that customers will end up forgetting about PPs birthing pain first.

  8. Less orders means less pre-payments. 30pc less probably means 3pc? less income with no related costs and represents a 3pc drop in margin. As I see it profit would be over 3bn if orders we’re still comming in. You can see why I would like to know if BA are still taking bigger advances, it seems to me that it has an exaggerated affect on the accounts.

    • I am not sure how the prepayments are booked in US GAAP but I am quite confident that they would not increase profit. Profit can only be realised once the product is completed and sold. What the prepayments will do is to improve cash flow and may fudge the FCF which is a key investor stat

  9. So it appears nearly 2 years after launch, Airbus is only delivering 9 A320s a month. A320NEO had a 16 month headstart on first deliveries over 737Max, first delivery was Jan 2016, and in that time has managed to deliver a grand total of 158 units. 737Max will have completely caught up to A320NEO in a matter of 6 months, if not sooner.

    Couple that with the large backlog, and it doesn’t bode well for Airbus to be able to sell NEOs in any significant quantities for the forseeable future. Not only can you not produce them fast enough, but you have no open delivery slots for years. Thats a bad combo.

      • A320 has some issues with both its engines right now. CFM probably isn’t that big a deal. PW is a disaster. My point is A320 had a 16 month lead on MAX start of last year. That lead will certainly be gone sometime in 2018. Meaning that, like A350, Airbus has a bigger backlog and isn’t producing them as fast. Meaning slots will be available sooner for a MAX than they will be for an A320.

        A320 ramp up challenges cost Airbus its advantage over MAX, which strictly speaking, was time to market. Boeing was 12-18 months behind since the inception of both programs. Pretty much not anymore, and by end of 2018, Boeing will likely have delivered more total Max than Airbus has delivered total A320.

        That’s not good for Airbus and future sales.

        • Maybe this is the right time for AB to pursue an A320+, an approximate 3-4m shrink of the 321 with wing and other updates.

          This could dangle the carrot for airlines to do conversions from the 320 and give a good reason to wait for the updated aircraft that will knock the socks of the MAX8/9’s.

          It will reduce the backlog of the standard 320, bring in an option for conversions to a theoretical CS500 available in 5 years and there will be no reason for airlines to look at the MAX8 again.

  10. And if you think Airbus will deliver 110 NEOs in 2 months, I have some swampland in Arizona I’d like to sell you. They’ll be lucky to deliver 30 with a good tailwind.

  11. A350 Deliveries are even in worse shape than NEO. 3 full years into deliveries, and they are still only delivering 6 a month, and grand total of 120? 787 at same point was at 10/mo and grand total of 228.

    This partially explains why A350 family has 40 orders for 2017, and a net 46 orders SINCE 2013!!! 787 has 83 orders in 2017, 777 has 43 orders for 2017, thats a 3 to 1 ratio on widebodies in Boeing’s favor in 2017 alone, and over the past 4 years its worse than that.

    If you can’t build them fast enough, that’s a problem.

    • the 100th delivery was 30 months after the first, and 10 per month was designed to be reached by end of 2018.
      Boeing of course had a large block of unsaleables as they ramped up production out of 2 factories too fast, and had huge deferred production costs because of it.

      • No doubt Boeing has a ton of deferred costs on 787. However, going forward, the 787, and 777 for that matter, are better positioned for new orders. A350 has a backlog of over 750 frames. Only 120 have been delivered in nearly 3 full years. This year they have delivered 56 frames in 10 months. Last month they delivered 6. That is rate 6 3 years in. They are planning to be at rate 10 by end of next year.

        Do the math. Even at rate 10, which is a year away, they will need over 6 years to deliver their existing order book. They aren’t at rate 10 now, they are at rate 6. So its more like 7 years. That’s nearly 2025.

        Meanwhile 787 has already delivered 600 frames, and the backlog is about 680. But Boeing is already at rate 12, and can do rate 14. 680 frames at rate 12 is less than 5 years of backlog, and at rate 14, its 4 years flat.

        So 787 slots will be available 2-3 years sooner than the next available A350 slots. That’s a huge disadvantage for Airbus. 77W is obviously available now if you want it, 779 will basically have same availability as an A350. So again, Airbus is at a big disadvantage due to their glacially slow ramp up on A350. Of course it’s hard to build jets, no argument from me…

    • You are right Alex. And no, it’s not about pushing a button but airbus has erred on the side of ultra conservative and it’s hitting now, and over the next few years. The cash flow situation will hamper their ability/willingness to respond over the next seven years too.

      People here and elsewhere were hysterical over the 787 delays, but the 359 ones are actually much more severe when one compares actual deliveries vs orders.

    • @ Álex Rodriguez

      I think you are being a tad disingenuous with the truth, by my reckoning they are now at rate 8 in terms deliveries and in the usual Toulouse manner will churn out massive numbers in the last month (presumably bonus related).

      I think I would rather be in Airbus shoes on a project that cost considerably less than half to bring to market than the B787 partly because of the less gung ho approach to the ramp up. The A350 will likely be both cash positive and profitable in far less time than the B787 and I think that is what matters.

      • A few years ago AB management, can’t remember who, said A350 pricing was more solid than A380/787 pricing as they hadn’t given launch discounts nearly as big as they had for the A380 or as big as Boeing had given for the 787.
        So the program shouldn’t take too long to make money.

      • 56 deliveries in 10 months and 6 last month. That’s rate 6. Will A350 be cash positive sooner than 787 was? Sure. But good luck selling new frames and adding to the backlog when you are going to need at least 6 years and maybe closer to 7 to deliver your current order book. If an Airline wants to order a new A350 they can plan on delivery in 2024 or 2025, unless slots open up. Or you can go to Boeing and get a comparable jet in 2021 or 2022. That’s a huge disadvantage for Airbus. And it’s showing in their order book.

        • Take you point on the backlog, rate 8 refers to the fact that in recent months deliveries have been 36 in 5 months (rate 7.2) and on average 9 for the past two months so they are getting there. There is supposedly scope for rate 13 eventually but when that is is a moot point.

          • Lets see how it goes with the 777X deliveries in 2020?

            As its a bit in my field of interest, wonder if anyone has check the toxicity of the Al-Li alloys and for that matter the 787’s Li-batteries?

            Lithium is a fairly “unsocial” metal.

        • You got me thinking. Having done some hasty maths this is what is possible production wise going forward,

          Cumulative sales by end of year

          2017. 140 (based on typical year end splurge)
          2018. 228 (+88)
          2019. 338 (+110)
          2020. 448 (+110)
          2021. 591 (if they go to rate 13 in year +143)
          2022. 734 (+143)

          A bit rough and ready but possible, the increase to rate 13 will take time but they have a heck of a lot of inventory at present that will help (most of it Qatar). So it doesn’t look too bad. There should be slots opening up around 2022-3 in my view.

  12. Many here talk about AB and B as if they are incompetent. The truth is it is HARD to design and build these amazing machines. To me the most amazing accomplishment is that little (population) Canada was able to design, build
    certify and start to ramp up a fantastic new aircraft. If you don’t think this is hard and doesn’t require a deep culture of skill, look at the great whale of the East and how much difficulty it has pulling this off.

    • Too right.

      There seem to be three colliding issues that make this so difficult to achieve and so critical to get right.

      1 optimising the design meaning new materials and pushing the technology to its limit for ever smaller returns.

      2 systems complexity increasing both the development time but also the need for testing and system integration.

      3 the need for an ever faster ramp up in order to earn back the massive investment made and consequent demands on the supply train.

      There are three variables, quality, cost and time associated with any development. The aircraft has to be first class quality to ensure it is accepted commercially. This leaves cost vs time as the only elements to be balanced by AB and B.

      It is just plain difficult

      • Suspect ABs ramp up needs to include planning long term labour needs, in EU they can’t hire 5000 new staff then fire them as soon as they finish ramping up. As I posted a few days ago I guess some staff used to ramp up the A350 have come from the A330 rampdown and will need to be redeployed to other projects afterwards, and that limits the speed they can build up at.
        Just a guess based on French labour regulatory reputation.

  13. Was that right about the A380: ” The lowering of the production rate is causing smaller losses”? Usually works the other way around. If that is true it implies that that the cost to build without covering overhead expenses is greater than the selling price. Overheads are typically a significant percentage of the product cost so this sounds pretty amazing.

    • Yes I am guessing unit losses have risen but by producing less the overall means the total loss will be smaller. A rather pyrrhic win

      • Is AB keeping the 380 alive in anticipation of the RR Advance engine for an NEO? In the mean time keep the actual -$ number as low as possible.

  14. I’ve been one of the 330NEO’s biggest critic’s but the 330’s are the best wide body from a passenger perspective.

    AB’s marketing potentially collapsed on this aircraft, also pushing airlines to the 339 away from 338 possibly a major mistake I think.

    The 338 with 257 seats has only 30 seats less than the 339 (AB’s brochure specs), the 338 has however a range of ~1000Nm than the 339 for the same MTOW.

    Hopefully the test results show that these aircraft have performances that can compete positively with 787’s and give the marketing guys ammo to sell this aircraft.

  15. Nearly all large 777 operators ordered A350’s. Qantas, Korean, ANA, EK are open.

    • I think the Boeing spin doctors has Qantas in their claws and will do an Air Canada on them. ANA has never operated AB wide-bodies.

      Korean a good candidate for A350’s?

      EK is an interesting one, seems they not sure what they really want? Both Etihad and Qatar are 350 customers. At some stage EK will realize that passengers prefer their competitions 350 comfort to their 10 abreast 77W’s?

      • QF isn’t bankrupt as AC was, so a different situation. ULH requirements apparently play a role.

        ANA I don’t know. They buy A321’s and even JAL ordered A350s, ANA gets A380s & might get some extra.

        Korean might be looking for US made products these days..

        EK, not sure. They cancelled, felt sorry and then oil went down.

        • Hope someone place a decent order “out of the blue” for the 330-800 (HGW?), starting to farm towards this “ugly duckling”.

          It actually fits in nicely between the 787-8 and 787-9, the 338 and 359 could a good combination for airlines operating longer haul routes.

          • I think there must be some negotiations in progress, otherwise why would they be going ahead with it?

  16. While speaking about ramping up we must not forget the supply chain. We do know that the engines are simply not available – so you might ramp up haw fast you want but no outcome no engine. We do know there is a huge problem with the seats and toilets – in order to deliver the plane even those has to ramp up……
    Consider there is probably an order of magnitude or even more people involved/needed at the suppliers than at the final OEMs !

    And there is huge quantity of items to be assembled and on on the end of the day not a single one can be missed.

    The whole ramping up is very very very complex process.

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