2019 Outlook: leaving Airbus’ troubled year behind

Discussion
Recapping 2018: the Ugly

Airbus’ 2018 could easily be called the Good, the Bad and the Ugly.

The Ugly part of 2018 was the outfall of the fraud and corruption investigations, which began in 2014. Its maelstrom caught COO Fabrice Bregier as the first victim of the year. Although not implicated in the improprieties, Bregier was nevertheless snared in the fallout. By February he was gone.

Bregier’s exit was announced when CEO Tom Enders declared he would leave in April 2019. Then the CFO, Harald Wilhelm, was told his position was untenable despite being the whistle-blower for the briberies. He’s leaving with Enders, four months from now.

Next out was the new sales chief, Eric Shultz, who came in November last year to replace John Leahy. It didn’t work for him, so he’s out. Insider Christian Scherer took over after Shultz’ nine months tenure. The first choice for the job, Leahy’s deputy, Kiran Rao, was blocked from getting the job, another piece of collateral damage. He leaves Airbus Dec. 31.

Airbus COO and production specialist Tom Williams and Program head Didier Evrard both retire by Dec. 31, after staying on over retirement age to fight the production problems.

With all the changes it’s with an almost clean deck as the new CEO, Guillaume Faury, takes over the helm of Airbus in 2019. He needs to get his new team up to speed fast. He’s competitor Boeing is on a roll after turning the Dreamliner mess into a successful program.

The Bad

The Bad part of the year is the production problems which continued unabated in 2018. Last year was the year of A320 delivery troubles. Engines couldn’t be produced in 2017 for all the neo aircraft rolling of the production lines in Hamburg and Toulouse. This was supposed to change for 2018. It didn’t.

Airbus confounded the problems by adding its own problems to the mix.

The A321neo dragged because the new three door version was hard to produce. The deliveries stayed at anemic rates during the first half of 2019. By first of October, with 75% of the year passed, deliveries of A320/321neos were at 50% of the year’s units.

The A330neo, due end of 2017, wasn’t out the door until 26th of November next year, when launch customer TAP Portugal flew home its A330-900 from Toulouse. Sales for the A330neo have been slow. Add to that, Hainan Airlines couldn’t pay for the 10 it ordered. The A330 production rate, originally with a goal of 6/mo, now is set at 4.5.mo. It was 10 just a few years ago.

The A380 barely limps on with a planned rate of 0.5 aircraft  a month after 2020.

The A400M needed a revised agreement with the buyers; UK, Germany, France and Spain, to stop the bleeding. The changed contract should have been closed by now, but it’s going slow. Will it close before end of year?

The Good

The year had two bright lights. The A350 program is running well its cabin supplier problems solved. The year’s highlight was the first A350-900URL delivery to Singapore Airlines. It opened the 20-hour Singapore to New York route again.

In addition, Cathay Pacific increased its share of the larger A350-1000 while Qatar Airways praises the performance of the ones it has. Its good news for a slow-selling variant.

The other light of 2018 is the A220. Boeing’s suit of Bombardier handed Airbus 50.01% of a brand-new aircraft for $1. It complements the A320 lineup and sales picked up only weeks after the deal closed. JetBlue shunned its incumbent Embraer for 60 of the new Airbus and the new US startup of JetBlue founder Neeleman added another 60 to the tally.

Deliveries of A220-100 to Delta Air Lines have begun and Airbus is now erecting more buildings in Mirabel to increase capacity for a stronger Skyline.

2019 Outlook

After this review of a painful 2018, here’s what to look for in 2019.

A220

Airbus expects good things from its new A220, nee Bombardier CSeries.

High hopes for the A220. Airbus photo.

The MOUs for up to 120 A220s announced at the Farnborough Air Show are expected to become firm orders before Dec. 31 this year.

Next year, Airbus will make a push to add more sales in the US and expand them throughout the globe. As noted above, Airbus is expanding the legacy production site at Montreal Mirabel Airport. Ground will be broken in mid-January for the final assembly line in Mobile (AL).

A320

Having struggled painfully with engine delivery delays from PW and CFM, and in-service headaches with the PW GTF-powered model, Airbus believes these problems are largely behind it. PW is caught up and CFM is getting there.

But the new assembly line in Hamburg isn’t yet running smoothing and there are some issues with the new A321neo ACF that are causing some heartburn.

Still, production is now 63/mo—a big advantage over Boeing’s 52/mo for the rival 737 (with plans to go to 57/mo in July).

Nevertheless, we’ve heard this song before. Proof will be in the pudding when deliveries are running smoothly and Toulouse and Hamburg airports aren’t littered with A320neos without engines or other troubles.

Launch of the A321XLR is assumed a given by many. While some, including LNC, believe Airbus should pre-emptively launch this model to further encroach on the viability of the Boeing business case for the NMA, it seems more likely this will be a response. Launch may come at the same Paris Air Show where Boeing is expected to launch the NMA program.

Or maybe not.

But this is the sexy headline to watch for, while the more important one is reliable and on time deliveries.

A330neo

This program has struggled.

Slow sales, an almost-stillborn A330-800 and engine delivery delays (this time, from Rolls-Royce) prevented this from being a profit contributor in 2018.

Officials hope 2019 will be better.

Will 2019 prove a boost for the A330neo? Airbus hopes so. Airbus photo.

The business case rests on the expectation that aging A330s, which begin surging from 2020, will give the boost for the orders that are sorely needed.

Airbus insists that the A330-800 is a competitive answer to the prospective NMA-7, the 270-seat, 4,500nm range concept Boeing shows about.

The A330-800 is a much larger airplane with an 8,200nm range. Airbus says it will derate the engines and “paper” the airplane for a Light Gross Weight version, claiming this model will be economically competitive with the NMA-7.

But as Airbus was once fond of saying when it suited its purpose, physics are physics. The NMA will be much lighter. It will also have new technology engines vs the 2003-based Rolls-Royce Trent 7000 on the A330neo.

Next year will be important for the future of the A330neo.

A350

The A350 was perhaps the brightest spot in 2018.

Although some supplier (interior) delays hurt, these seems in the past. The airplane is performing very well.

Some orders were swapped to bolster the A330neo (some might argue “sacrificed”), but the backlog is healthy.

The production rate is now at 10/mo. Airbus must increase this to 13/mo to open up delivery slots; it’s losing sales to the Boeing 787.

LNC looks for a decision on production rate as the top headline for this program.

A380

Officials stubbornly cling to the hope that the A380’s day is just around the corner, relying on their argument airport congestion and general traffic demand will rescue this program.

It’s been an argument for the A380 since the program was launched in 2000.

Only then, there was no Boeing 777-300ER, no 787, no A330s with 6,000nm-8,200nm ranges and no A350.

Nor were there A321LRs and 737-8s to open point-to-point, thin routes that bypass hubs.

There was no 777-9.

The airplane world has changed, far more than even Boeing imagined when it launched the 787 in 2003.

The A380 has 1990s generation engines. It needs new engines. It needs aerodynamic clean up. It needs customers to support these investments.

Customers are going to be hard to come by. There aren’t any lining up for the first generation of A380s coming off lease.

Airbus is stuck with this airplane through the 2020 decade as a result of its commitment to Emirates Airline.

LNC doesn’t see any positive event for the A380 in 2019.

Scott Hamilton contributed to this article.

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