Photographer: Chris Ratcliffe/Bloomberg

Airbus Counts on Year-End Deliveries as Delays Pile Up

  • First-quarter profit down 23% on A320Neo, A350 supplier issues
  • A400M military transport poised for future financial hit

Airbus Group NV pinned its prospects for 2016 on the final months of the year, saying delivery delays involving the company’s newest planes mean annual earnings will hinge on securing a late spurt in output.

Airbus shares fell as much as 6.8 percent, the most in 4 1/2 months, as Chief Executive Officer Tom Enders laid bare the supply-chain issues affecting the handover of its key A320neo and A350 models and said fresh problems with the A400M military transport may deliver a “significant” blow to future profit.

A ramp up in Neo production is on hold until the second half as Pratt & Whitney works to fix a turbine glitch and bottlenecks in the manufacture of interiors for the twin-aisle A350 are becoming increasingly challenging, Airbus said. A400M deliveries have been hit by issues with gearboxes on the plane’s four engines.

First-quarter earnings fell 23 percent to 501 million euros ($568 million), excluding interest, tax and one-time items, and sales were almost flat at 12.2 billion euros. Enders insists Airbus can reach its goal of matching 2015’s profit, ex-items, by clawing back the delivery shortfall once glitches are resolved.

“We expect a stable financial performance but deliveries, cash and earnings will be heavily loaded towards the end of the year,” Enders said. The Toulouse, France-based company aims to hand over 650 airliners in 2016, up 15 on 2015.

A400M Provision

Kepler Cheuvreux analyst Christophe Menard said his company’s estimate that Airbus will take a one-time hit of 600 million euros against the A400M issues, which were first disclosed by the German Defense Ministry on April 1, may prove to be too low.

Airbus stock fell 3.96 euros to 54.50 euros and was trading 6.7 percent lower at 54.52 euros as of 1:28 p.m. in Paris, extending its decline so far this year to 12 percent and valuing the business at 42.5 billion euros. The shares advanced 50 percent last year in anticipation of surging profits tied to record order backlogs for the company’s new models.

Airbus’s upgrade of the best-selling A320 has become a headache after an over-heating issue afflicting new geared turbofan engines led launch customer Qatar Airways Ltd. to refuse deliveries. With Pratt & Whitney promising an engine fix by mid-year, the planemaker handed over only 103 A320 narrow-bodies in the quarter, down from 109 in the first three months of 2015.


The Leap engine from the CFM International venture of General Electric Co. and Safran SA offered as an alternative to the Pratt GTF on the A320neo has yet to be certified and some work remains to be done, Chief Financial Officer Harald Wilhelm said in a phone briefing.

Airbus delivered four A350s in the quarter out of a total of 50 it aims to hand over this year, with supplier issues curbing the supply of galleys and other interior furnishings.

“Clearly the accumulation of the A320 ramp up and of the A350 puts quite a lot of stress into our system, but also on the supply-chain side,” Wilhelm said. Orders for the A380 superjumbo will support 20 to 25 deliveries this year and next, but more sales are needed to fill out 2018, he said, declining to comment on the likelihood of rate cuts.


The CFO said Airbus is assessing the gravity of the problem affecting the A400M’s gearbox in conjunction with GE’s Italian Avio unit, which makes it. He cautioned that the company may no longer be able to deliver the 20 transport planes due in 2016.

The A400M has been Airbus’s biggest bugbear in recent years, with repeated delays causing it to enter service five years late. One plane crashed in Spain last May, killing four people on board and leading to flights to be halted for weeks after software issues caused a power failure in three engines.

Airbus’s net income fell 50 percent to 399 million euros in the first quarter from 2014’s figure of 792 million euros, which was swelled by a 697-million euro gain from the sale of a 17.5 percent stake in Dassault Aviation SA.

The company said it’s continuing to work with export-credit agencies after reporting mistakes and omissions in information provided on consultants and other third parties in previous applications relating to the U.K. It aims to restore the financing “in the near future.”

Airbus is still seeking a firm purchase agreement on its $27 billion order from Iran amid challenges in getting the U.S. to sign off on the transaction, Wilhelm said. The U.S. has an effective veto because more than 10 percent of the jetliners’ content would be made there.

(Corrects name of Kepler analyst in sixth paragraph.)
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