Bumpy Switch To New Models Hits Airbus Group Profit

26 October 2016

Airbus Group (AIR.PA) on Wednesday posted lower than expected third-quarter profits led by a faltering performance in its core commercial jet division and continued weakness in the commercial helicopter market, but broadly maintained its 2016 outlook.

Europe's largest aerospace group, which includes the world's second-largest jetmaker behind Boeing, said quarterly operating profit before one-off items fell 21 percent to 731 million euros ($796 million). Revenue fell 1 percent to 13.95 billion.

The commercial jets unit saw a 26 percent slump in third-quarter profits despite 4 percent higher revenue, with the planemaker highlighting difficulties in the supply chain for its A350 and A320neo jets. Helicopter profits fell 29 percent.

The results were below average forecasts, though the company had earlier sought to dampen market expectations as it ploughs through a tricky model transition, according to market sources.

Analysts had on average forecast quarterly core operating earnings down 19.3 percent at 743 million euros on revenue up 1.9 percent, according to a Reuters survey.

But Finance Director Harald Wilhelm dismissed concerns over the aerospace cycle, saying more airlines were trying to get planes earlier than those that wanted to cancel or defer them.

"The commercial situation continues to be robust," he told reporters.

Airbus has struggled to switch to a new model of A320 due to delayed deliveries of engines from Pratt & Whitney (UTX.N).

It said it had received "firm commitments" from engine makers that they would meet the A320neo schedule, but the mix of higher-priced new models in deliveries was weaker than expected.

Deliveries of A350 long-haul jets have also been held up by shortages of cabin equipment.

Airbus signalled greater confidence about bringing down A350 costs and said it was working towards meeting its target of more than 50 A350 deliveries in 2016, having delivered 29 this year including three this month.


Several analysts said after the report that the company had managed to squeeze out significant risk from the A350, Europe's answer to the Boeing 787 Dreamliner and a rival to the 777.

But Wilhelm also issued a warning to suppliers involved in consolidation that they should not let dealmaking divert attention from executing on contracts to prevent new slip-ups.

He was responding to a $6.4 billion deal earlier this week for Rockwell Collins (COL.N) to buy B/E Aerospace (BEAV.O), one of the largest makers of seats and cabin equipment, a sector which has been hit by repeated industrial delays.

The group reaffirmed annual targets including stable operating earnings and free cashflow before M&A activity and more than 650 total jet deliveries. Wilhelm told reporters Airbus expected to beat this with over 670 deliveries.

However, it abandoned a previous target of regaining access to European export credit financing this quarter, which means it may have to step in with more financing to airlines. Its annual cashflow target now excludes any impact from this.

The system of export credits, which underpins 6 percent of deliveries, was suspended in April in a row over transparency on the use of middlemen which triggered a UK corruption probe. The delay confirms a Reuters report last month that the export credits were unlikely to reappear this year.

Airbus offered 545 million euros of financing to airlines to underwrite deliveries in the first nine months, up from 117 million a year earlier. Wilhelm said this could grow in the fourth quarter but would "not be double", adding Airbus was in "constructive talks" with export agencies.

Rival Boeing (BA.N) was expected to announce higher quarterly earnings on lower revenue later on Wednesday.

($1 = 0.9187 euros)


Source : reuters.com