By Bjorn Fehrm
April 27, 2018, ©. Leeham News: Airbus Group presented its 1Q2018 results this morning. It’s heavily influenced by A320neo engine delivery delays.
Only 30 A320neos were delivered during Q1 out of a year total of 400. This has left Airbus with 60 A320neo gliders parked at Toulouse and Hamburg, waiting for engines.
The Airbus revenue and profit for 1Q2018 were down to €10.1bn (€11.4bn 1Q2017) and €0.01bn (€-0.2bn) as a result of the A320neo delivery problems.
Airbus group headquarters and Commercial aircraft is now merged into a unit called simply Airbus. It dominates the group with 72% of revenue, at €7.2bn (€6.7bn). The helicopters business is still experiencing a weak market with revenue down at €0.96bn (€1.2bn).
Defence is stabilizing at revenue of € 2.2bn (€2.3bn) despite the sale of the US Communications business. The problem child A400M now has a renegotiated delivery plan and expects to deliver 20 aircraft per year from 2020.
Group guidance for 2018 is kept. This does not include the big Joker, the integration of CSeries into Airbus. Integration work is going better than expected and is now expected to close mid-2018. Airbus is planning aggressive sales activities for a “State of the art CSeries line” after the close. The rumoured names for the aircraft once in Airbus are A210 (CS100) and A230 (CS300).
Airbus plans to deliver 600 A320 during 2018 whereof 400 A320neo. This is still the target after a first quarter with only 30 neos delivered of a total of 95. Pratt & Whitney is now delivering engines again after reintroducing the original knife edge seal instead of the troubled updated seal. Both engine manufacturers assure Airbus they will reach the year targets despite initial delays.
The A320 line is now sold out until 2023 and Airbus is studying how to reach rate 70/month or higher after reaching rate 63 next year.
Sales of the A330neo is not going to plan. Airbus will, therefore, reduce from 60 planned deliveries this year to 50 for 2019. The replacement cycle for A330 will then kick in after 2020 and will lift the rate once again, according to Airbus CFO Harald Wilhelm. The 787 Trent 1000 engine problems are not affecting A330neo as it has another version of the Trent 1000 family.
A350 production is running well and Airbus is confident of 10 deliveries per month at end of 2018. The program is on track to be cash positive before 2020.
After securing 20 orders and 16 options from Emirates in the first quarter, the production of A380 at a rate of six per year is now secured well into the next decade.
Basically, the only cash positive program today is the 320, which is being substantially delivered engineless, in addition to substantial performance restrictions to operators.
Terrible. Things are going to have to change in Toulouse over the next couple years. Speculating from airbus about going to 70 without affirming supplier (and engine) support for the plan, seems a bit premature given their inability this very quarter to meet goals at even 47.
What leads you to think the A330 is not cash positive? Not anything in the piece above at least…
Agreed on the A330.
Also while the A350 may not be cash positive, its not a 32 billion black hole either.
What I do stornlgy believe is reading the tea leaves.
When Boeing decides to ramp up the 787 that tells me they have more positive response and its not a move to drive cash.
Conversely, when Airbus drops rate as they have done on the A330, then that confirms no sales in proposed.
As this is a two year event, ramping down and then saying it will go back up looks to me to be window dressing. 5 years time would be more like it, the time backlog on parts outlooks is two years.
Put this in context that they were talking about ramping up, I would call it bad news for the A330.
As the NEO engine is a Trent 1000 derivative and not a TEN, I would call this an iffy area as well. The same issues will have to be solved. Overall not what I call good news.
“As the NEO engine is a Trent 1000 derivative and not a TEN, I would call this an iffy area as well.”
For the nth time, the Trent 7000 NEO engine is a Trent 1000TEN derivative engine.
I don’t know whether the A330 is cash positive or not. I do know that running a production line below the optimal level increases costs incrementally including one time charges to adjust the production rate; that the A330NEO is at a stage where it is burning up R&D although those costs are offset by a A330CEO delivery payments; and that Airbus is reportedly offering the A330 NEO at very attractive prices which will impact future profitability.
The A330 program is not a boat anchor to profitability but it is neither a hot air balloon and its near-future looks mediocre. Nobody here needs investing advice about Airbus’ future profitability, but last quarter’s report was very weak and the same issues will continue for the next few quarters.
The original A300 architecture is the fly in the ointment for BA as it corrals any realistic BA MoM’ster candidate into the too wimpy for cargo TA category that will be marginal to say the least.
50T OEW — the current A321 is in the zone at this weight plus it can play its joker with a new wing / wing box / saddle that ups the efficiency and range for no extra weight.
60T OEW — everybody is waiting for the engine folk to deliver but high volume SA is in the driving seat.
70T OEW — any fight between a wimpy BA TA and a Super Duper 60 sized A328 would be to close to call so your $15bill development budget would not be money well spent.
80T OEW — the B767 and its gene pool will fail in the future because of history and …
90T OEW — A360 with its A300 CSA and its 60M fuselage and its 6K NM nominal range will eat its lunch.
BA has a couple of strengths:
The industry just loves its hype.
It has squeezed the crap out of its build processes.
The U.S. Big 3 are getting moist waiting for BA to do anything.
Plus AB is a bit slow at the moment.
The B787 was all sizzle and no sausage / all hat and no cattle but the market bought it and as the man said quantity has a quality all of its own.
The numbers stack up only because the plebs are playing sardines up the back at 9 abreast.
AB got it right with the first A350 — it worked and was better than the B787 in its highly publicised 8 wide introduction.
Keep telling yourself that if it makes you feel better about HA and AA.
“Basically, the only cash positive program today is the 320.”
That claim is based more on wishful thinking than reality.
It’s interesting to note, though, that annual deliveries of the A330 only passed the 60 mark in 2006. According to your take on things, Airbus must have lost a whole lot of cash on A330 production for the first 15 years, or so.
“Speculating from airbus about going to 70 without affirming supplier (and engine) support for the plan, seems a bit premature given their inability this very quarter to meet goals at even 47.”
Deliveries is not equivalent to production output. In fact, the 50 per month target was reached last year.
As the ongoing A330Neo development cost reduce profits attributable to the A330 from 2014-present, it is axiomatic to say that Texl1649 is not arguing profitability of the A330 prior to the cost associated with A330Neo development.
Texl1649 may be implicitly pointing out that Airbus announced the A330 production rate adjustments since the A330Neo announcement in 2014 from 10 to 9, 6, and now a little over 4 per month and the lack of follow-on orders since 2014 negatively impact the financial health of the A330 line and future profitability.
With the kind of arbitrary definition alluded to by @Texl1649, that the A330 programme somehow cannot be a cash positive today, I’d be curious to know how the situation is with the 777; a programme that currently has roughly the same production output as the A330 — not mentioning the fact, of course, that the 777X is vastly more expensive to develop than the A330neo.
Beat me too it …
Production rates and future figures;
B7double7 family vs A330 family?
Plus the A380 will be one to watch …
Could be the sleeper in the pack.
If you have a goldmine route into busy airports all that floor area is hard to resist.
Plus once you have flown it you never want to go back.
Every other aircraft becomes a pain in comparison — something to moan about.
A380 is the sleeper?
More like narcolepsy.
Boeing seems to be doing fine based on their quarterly. 777 sells for more then the A330 as the 777 has no competition (A330 competes with the A350 and 787). Also, the 777 rate is 60/year rather then 50/year. Both airliner are in a space where new orders are rare (after launch but before actual use data), but Airbus keeps cutting A330 production numbers while the 777 numbers are stable. That’s a sure sign that Airbus thought they could obtain and needed to obtain new orders to keep the production rate stable.
For the record, the 777 is probably not cash positive either but selling more numbers of more expensive airplanes offsets 777x cost relative to the A330 program. The 767 has been an earnings surprise and the 737 and particularly the 787 are crushing it right now.
But I didn’t make an obvious straw man argument about how much Airbus made or lost on production 12-27 years ago when the comment was only about the current quarter. That sort of thing annoys me greatly.
Boeing, in fact, launched the 777-9 (777X) in response to the A350-1000. Saying, therefore, that the 777 has no competition, is flat out wrong.
What is annoying, though is this idea that a fully amortized airplane supposedly is not cost effective to produce at at a rate of 50 per year — quite a high ouput if you look at the historical record of wide-body deliveries over the last 50 years. Using A330 production levels as a case in point for the first 15 years, is therefore not a straw man argument, however much you want it to be so — but then, of course, A and B seems to be held to different standards by quite a few stateside commenters.
What is also annoying is this obsession about “the last quarter”. Changes implemented by Boeing for the 7E7/787 programme — caused in part by the modus operandi of quarterly capitalism — appears not to have served the company well. Sacrificing a company’s health, or an entire economy’s health, for the sake of short-term gains will ultimately lead to disaster down the road. The fact of the matter is that Boeing’s “shoot-from-the-hip” approach to business strategy and game theory is not a viable method in the long-run for their Large Commercial Airliner (LCA) business. In fact, I’d guess that an honest LCA SWOT analyses on the part of Boeing — which examine strengths, weaknesses, opportunities and threats — would recognise that their strengths are primarily their present performance and not how they’ll perform a decade hence ; that their product strategy is sown in weakness; that opportunities are increasingly far and few between; and that the greatest threat facing the company, just might be that the leaders of the Boeing company has succumbed to hubris and strayed from the disciplined creativity that led them to greatness in the first place.
Meanwhile, most of the development expenses for the A330neo has already been paid for by the cash flows from the A320ceo and A330ceo programmes. In contrast to Boeing, most companies (including Airbus) book expenses as they occur.
Now, through March 31, 2018, Boeing has:
a) 831 firm orders for the 777-300ER and they have delivered 778 units.
b) 173 firm orders for the 777F and they have delivered 139 units.
Hence, the total order backlog for the current version of the 777 is 87 units (i.e. 777X not included).
At a rate of 5 units per month and 60 units per year, the backlog will run dry by the end of September, 2019. Since it will take a few years to bring 777X production up to current levels (EIS in 2020), it’s obvious that Boeing will have to cut 777 production further — down to 3 or 3.5 per month for an extended period of time, unless that they’re able to garner a significant number of new “classic” orders.
In contrast, the backlog for the A332 (i.e. including ACJs and MRRTs), A332F and A338 is 89 units; or 81 units if we deduct the 8 firm orders from Iran Air.
The difference being, of course, with the 777/777X is that the A330neo will EIS in a couple of months. In short, Airbus has managed to bridge the “gap” between the A330ceo and A330neo and should have few problems delivering 65, or so A330ceo/A330neo this year and 50 A330ceo/A330neo in 2019. Also, as quite a few A330neo customer are waiting for the 251-tonnes A330neo variant (i.e. EIS in 2020), it’s not surprising that A330 production has been cut for 2019.
Sorry. Commercial Aircraft are never delivered engineless. That does not happen, even in Europe. If you read the article, the engine manufacturers have developed fixes, they are merely prioritising already delivered aircraft, and after that, new build.
The same situation exists for the RR engined 787.
Can I ask for confirmation on what you mean by “program on track to be cash positive” before 2020.
Production on track to be cash positive? (Each airframe generates a profit)
Program on track to be cash positive? (Whole program, including R&D is now a net positive.)
I’d say the latter as Airbs writes off RnD expenses as they incur, i.e. there are no deferred costs.
Surely, there are deferred tooling costs, some capitalized expenses, etc. Presumably, AB’s accounting doesn’t through the accounting “ revenue matching principle” out the window.
“Throw”, not “through”. above.
You don’t need to have deferred costs to have the former situation. If you sold the plane less than it cost to build it than you lose money- it doesn’t matter if those expenses were written off or deferred.
But I agree that I think they mean the latter scenario.
I am 99% certain they mean that it will at that point cost less to assemble and plane than the sales price. If they were making money on a program basis then it would reflect in significantly better cash flow for Airbus.
In the past Airbus has used this term to mean exactly that. Line number 250 or whatever it is cost less to produce than what they sold it for. Prior to this all A350 have burned cash.
Well, I was actually (strongly) leaning toward the latter. I’ve seen some people use the terms interchangeably when they really aren’t the same thing; so just seeking clarification to my assumption.
By 2020, Airbus should have delivered ~300 airframes. That should be enough to turn a program profit (given it didn’t have the A380 or B787 nightmares).
edit: Note; **HALF** their A320s assembled so far this year are yet to be delivered. That means payments on parts and labour, yet nothing in the door. *That* is a massive hit on cash flow.
I am thinking it is as simple as the cash inflow exceeds the outflow per unit. No amortisation, no depreciation etc etc.
You have fully accounted cost vs contribution cost accounting.
AB talks about fully accounted cost.
£10bill development cost against 1000 unit run.
Each plane takes a £10mill hit in the fully accounted world.
You only sell 700 — well if you haven’t folded at some point you are going to have to book a £3bill exceptional item on your accounts to recognise the development cost you are not going to get back.
On the basis that everyone seems to talk about the terrible teens — Plane 20 is when the cash covers the variable / contribution cost of building the plane.
In the above example plane 1001 becomes the joker.
Do you run it for cash(flow) or do you disturb the market with a price drop?
“We’re very well positioned on the industrial side,” says Wilhelm. “There is progress on recurring costs, we’re on track for break-even, now what matters is to make it margin-positive and cash-positive.”
Bjorn, thanks for this article. Does AB’s 320neo accounting take into account any, related PW engine compensation for its “gliders”? Or, possibly, is this compensation fully offset by that paid by AB to aggrieved 320neo customers?
It seems the C Series should be included in the Airbus assessment even if the merge is not final. There is zero question in my mind it will be.
Av Week as a write up on the C, Aero Turbo Power responded with my concerns on the numbers.
The Av Week claim ramping up but a C100 for Delta is set for 4th quarter delivery, the numbers do not add up. Sadly Av Week is prone to a bright headline and the details do not support the headline contention.
Mentioned was interior supply issues and engines are not the pacing item.
Three Cs100 for Delta is on final assembly line now. How could that mean 4th qtr delivery ?
The Cseries isnt included in Airbus report as its financials 1Q2018. Cant just add future stuff, as formally the byin isnt a done deal yet.
“Pratt & Whitney is now delivering engines again after reintroducing the original knife edge seal instead of the troubled updated seal.”
What was the issue with the original knife seal? Why did PW replace it with a troubled updated seal?
I have not seen it reported. You can guess is was something they could see probably wear or function wise that they wanted to fix.
Unfortunately the fix was vastly worse than the original issue.
I saw a variation on that on Suburban rear end seals one time. Original had worked fine for many years.
They redesigned it and failures all over the country and spares hard to get.
No one sets out to make it worse, but the best laid plans of mice and engineers.
According to P&W
“Leduc says the engine’s original knife edge seal was delivered with a design flaw that required an inspection after a certain interval of flight hours.”
As usual CFM engine problems fly under the radar
“Norwegian Air Shuttle ASA has shelved flights between Europe and Canada until next year after delivery delays afflicting Boeing Co. 737 Max narrow-body jets left too little time to market the planned routes.
and this one
Nice attempt at false equivalency. CFM may be “flying under the radar,” but at least they’re flying.
Five week delay for CFM is nothing compared to this PW cluster f***. Norwegian Air Chief Executive Officer Bjorn Kjos called it a “slight delay.”
What are we in–the second year waiting for this GTF fix?
Are CFM deliveries on schedule?
What does the reuters story say ? Does 5 weeks behind sound like on schedule. Does deliveries to Norwegian delayed sound like on schedule ?
Just read Safran says they can only increase CFM production in 2019?
Assuming PW sorts out the PW1100G’s problems, can they ramp up production?
They made .01 billion this quarter. Even building some/a whole lot of undelivered gliders I see it as improbable they didn’t make free cash flow on the A32x line. Given that the total is zero basically, it’s tough to attribute a lot of actual cash flow thus to the only widebody program they could be making it from. (They’ve said “not yet” on 359 and have explained taking losses on the 380line for the life of the program to the original lenders).
If folks want to theorize the 330 line is still somehow profitable at less than half the rate of five years ago, fine, whatever, I’m not real emotionally invested in it, but I’d disagree. I also don’t think Boeing makes a lot of cash on the 767 today, especially in light of the tanker disaster, if that helps you feel better.
I will cast aside my emotional investment (ha). I don’t understand how the A330 can suddenly become loss making. The minimal capital investment on NEO aside the facility to build the A350 is shared with A350 and as such the ramp of the latter carries the fixed cost base of the former. What sort of thing would drive up the cost so much on a mature aircraft?
Regarding Airbus 1Q 2018 cash flow: See the excerpt below from a 4-27-18 Bloomberg article. See the link after the excerpt for the full article.
“Airbus’s production difficulties caused it to burn though an astonishing 3.8 billion euros ($4.6 billion) of cash in the first quarter. Boeing had about $2.7 billion of free cash flow during the same period, according to Bloomberg data. A five-year comparison makes even grimmer reading from an Airbus perspective. By my calculation, Boeing has generated $39 billion of cash since January 1 2013, about 13 times more than Airbus.”
“The main problem is that Airbus has built a bunch of planes that haven’t received their engines yet. Dozens of A320neo aircraft are sitting on the tarmac in Hamburg and Toulouse awaiting functioning turbines from Pratt & Whitney and CFM International, which have suffered delays and technical glitches. Naturally, airlines don’t pay up until their planes are finished. And with Airbus’s inventories rising, it’s consuming cash.”
More on Airbus 1Q 2018 cash flow, this time from a 4-27-18 MarketWatch article that is more a traditional news article, and less of an opinion piece, than the Bloomberg article that I referenced above.
“The first quarter’s slow delivery pace also hurt Airbus’s cash position. The company suffered EUR3.8 billion in free cash outflow before acquisitions and customer financing. The plane maker, which typically takes in most of its cash in the last quarter, stuck to its plan to generate around EUR3 billion in free cash flow this year.”
Delays with Qatar’s cabin fit (Q-suites) on the 350-1000’s also not helping deliveries.
Could an A339F change the fortunes of the 330NEO?
Will be interesting to what AB has in mind for the 220-280 seat twin aisle market, BA will have the 787 and 797. Maybe something in between and most likely powered by Ultrafans?
Off topic, but see a journalist refer to the 359ULR as an 4 engine, fuel guzzling contraption. Wonder if she is looking for a job at Boeing marketing (tongue in the cheek)?
With the 330-800 having no orders for it must indicate something. An 251T version could have a niche market, but how big?
Not sure if this has any merit but is this not now an opportunity for AB to put a twist with the certification of the 338 as a lower GW version? MTOW 230-235T, engines de-rated to 67Klb, range ~6500Nm. Maybe that’s what many airlines need, if they can reduce OEW it could be a bonus.
An 251T could be done if there’s airline interest, an 256T with 76Klb engines crossed my mind if landing gears allows?