Airbus in year-end production sprint to meet earnings target

Bloomberg

Airbus Group SE promised a year-end sprint to meet its 2016 earnings and delivery goals after a switch to new planes weighed on profit and output in the first nine months.
The European company plans to pull out the stops to ship almost as many A350 wide-body jets in the final quarter as it did between January and September, when a shortage of seats crimped deliveries. It will also step up production of its revamped A320neo narrow-body following delays linked to engine glitches.
Airbus said an overall target of more than 650 jetliner deliveries this year remains within reach and that it could ship as many as 670 planes. The manufacturer has ranks of complete A350s waiting to be fitted with seats and interiors at its base in Toulouse, France, while Pratt & Whitney has developed a fix for cooling issues that afflicted the turbines it supplies for the Neo.
“For the remaining months of the year we remain totally focused on deliveries to achieve our earnings and cash guidance,” Chief Executive Officer Tom Enders said in a statement. The company aims to match last year’s figures for both measures, something analysts had said it might struggle to do, even after third-quarter profit fell 21 percent.
Airbus needs to hand over 24 A350s in the current quarter in order to meet its target of 50 deliveries for the year, having shipped just 26 planes in the first nine months, when production was held up by a shortage of seats and lavatory cubicles from suppliers including Zodiac Aerospace SA. The holdup prompted a 385 million-euro second-quarter charge to cover customer compensation.
Meeting the goal is still a “a hell of job,” Chief Financial Officer Harald Wilhelm said on an analyst call, while adding that “the risk bucket” has been reduced.
The issues with Pratt’s geared turbofan engine or GTF meant only 24 A320neos were delivered in the first nine months, pushing Airbus to build more examples of its older, non-upgraded version. So-called A320 “classics” will now comprise 85 percent of deliveries this year rather than the planned 80 percent.

‘On Track’
Airbus said it has “firm commitments” to meet the agreed Neo schedule from both Pratt and the CFM International venture of General Electric Co. and Safran SA, which began shipments of an alternative engine for the plane in the third quarter, and that the jet is “well on track for on-time delivery to customers.”
All the same, United Technologies Corp.’s Pratt faces industrial ramp-up challenges which “put more pressure on the back-loading of the delivery profile,” according to Airbus. The U.S. engine maker cut its 2016 delivery target for the GTF by 25 percent to 150 units on Sept. 16.
Qatar Airways Ltd. refused to take early Pratt-powered A320neos because of the cooling issues, though Wilhelm said he expects the carrier to remain a customer for the plane, even though it placed an order for Boeing Co.’s rival 737 Max model earlier this month.
Airbus’s earnings before interest, tax and one-time items fell to 731 million euros ($796 million) from 921 million euros in the third quarter as it spent more to address the delivery delays and suffered a drop in helicopter sales.
Earnings at Airbus’s helicopter arm slumped 17 percent in the first nine months, hurt by a decrease in flying hours among operators as the lower price of crude prompts the oil and gas industry to rein in flights. The company said it’s still working on “transformation measures” for the unit, which it has said is likely to suffer job cuts. Airbus said the A400M military transport program “remains challenging,” with customer negotiations on a revised delivery schedule yet to take place. The model has dogged the company for a decade, entering service five years late in 2013, killing four people in a crash in Spain last year and prompting a 1.03 billion-euro charge against faulty gearboxes in the second quarter.
CEO Enders is meanwhile simplifying the company’s management and is poised to announce a round of job cuts as it scales back A380 superjumbo output and responds to lower helicopter sales.

9 month profit slips
Airbus Group posted a five percent fall in January-September net profit to 1.81 billion euros ($2 billion) as it revealed it intends to deliver more planes than initially forecast this year.
Citing stable overall sales of 43 billion euros for the period, the company said it would seek to raise deliveries to 670 planes, a rise of 20 aircraft, in order to hit its annual earnings targets.
“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 CEO Tom Enders.
“For the remaining months of the year we remain totally focused on deliveries to achieve our earnings and cash guidance,” he added.
Financial director Harald Wilhelm indicated Airbus was targeting delivery of “more than 670 planes” to hit full-year earnings targets.
Wilhelm conceded that, with 462 deliveries to end September, there remained much still to do but that the firm was counting on suppliers to help them hit the revised total.
January-September orders netted Airbus 73.2 billion euros — down from 111.9 billion for the same period of 2015. At the end of September, Airbus said it had 986 billion euros of orders booked.
Airbus last month said it would carry out restructuring to cut costs without indicating the scale of potential job cuts amid slow sales for the A380 super jumbo.
The company has been ramping up deliveries of its A350 widebody and single aisle A320 models but has seen pricing pressures on its A330 widebody plane ahead of the scheduled introduction next year of the updated A330neo.
Citing 11 A400M military transport planes delivered to end September Airbus said that was evidence of “notable progress” in the sector.
Airbus said receipts from its helicopters division had slid 3.0 percent even though overall deliveries had risen to 258 units from 237 last year amid a trend towards smaller models.
Earlier this month, Airbus blasted the Polish government’s handling of a failed helicopter deal worth some three billion euros which has caused diplomatic tensions between Paris and Warsaw.
Warsaw blamed Airbus for the breakdown in talks but has since invited the company to join a new tender process.