Airbus Vows Earnings Jump as It Clamps Down on Problem Aircraft

By: Benjamin Katz | Feb 15 2018 at 03:18 AM | Air Cargo

Airbus SE offered an encouraging outlook for 2018, promising earnings growth of 20 percent—so long as it can iron out persistent problems on two aircraft programs that have dogged the manufacturer for years.

Investors sent the shares up the most in almost six years. The European planemaker ended 2017 with a record order backlog and delivered more jets than ever before. Even so, the company booked a 1.3 billion euro ($1.6 billion) charge against the A400M military-transport model, and said meeting 2018 earnings targets will be dependent on overcoming engine issues afflicting its latest A320neo single-aisle jet.

Airbus’s struggle to put out fires has at times overshadowed the benefits of a surge in commercial aircraft sales that will see it hand over about 800 planes this year. Chief Executive Officer Tom Enders said in a statement Thursday that the Toulouse, France-based company is working on measures to gain control over both problem programs.

“The A320neo ramp-up remains challenging and requires that the engine suppliers deliver in line with commitments,” Enders said, adding that the impact on deliveries of the latest turbine issues is under assessment. The A400M charge, aimed at “mitigating future risk,” comes on top of more than 7 billion euros in cost overruns since the program began in 2003.

Earnings before interest and tax before one-time items increased 8 percent in 2017 to 4.25 billion euros, the planemaker said. Analysts had predicted a profit of 3.99 billion euros, the average of 13 estimates. This year’s figure should gain 20 percent, so long as delivery targets are met, the company said.

Sandy Morris, an analyst with Jefferies International, said he was reassured by Airbus’s forecasts for earnings and free cash flow growth. He said he remained concerned about pricing for older A320ceo and A330ceo models, but noted the company’s optimistic tone.

“In truth, we are not sure whether rummaging around in the detail matters much, not when Slide 17 in today’s presentation states: ‘Earnings and FCF taking off!”’

The shares advanced as much as 9.6 percent for the biggest intraday jump since March 2012. They were up 9 percent at 91.73 euros as of 9:12 a.m. in Paris.

Airbus last week reached an outline deal with the A400M’s seven customer nations aimed at resetting the military airlifter project after years of cost overruns and performance setbacks. The new charge concerns revisions to the plane’s delivery schedule and capabilities, together with the retrofit of examples already delivered, the company said.

Engine Trouble

At the same time, Airbus has been blindsided by yet another flaw with Pratt & Whitney engines that power its best-selling A320neo narrow-body. The latest issue, which emerged last week after Enders suggested Airbus had finally moved on from two years of setbacks, relates to a seal that Pratt replaced after the an earlier version exhibited durability issues.

Deliveries of A320neos equipped with a rival power plant made by the CFM International alliance of General Electric Co. and France’s Safran SA are also behind schedule, due to less serious “maturity” concerns, the planemaker said.

“We’re expecting to deliver another record number of deliveries in 2018,” Enders said on a conference call. “Of course we need engines for these aircraft, but I am confident our partners will not let us down.”

Airbus faces the added distraction of a series of bribery probes concerning the use of payments and middlemen in marketing campaigns. It booked costs of 117 million euros related to compliance issues for the full year, including a 99 million-euro sum to settle a corruption investigation by German prosecutors into the sale of Eurofighter warplanes to the Austrian military.

While still grappling with the A400M and A320neo, Airbus appears to be gaining control over the A350 wide-body program, where initial handovers were held up by supplier issues with seats and interior fittings. A $16 billion order for the A380 superjumbo from Dubai-based Emirates, sealed on Sunday, will meanwhile sustain production for years to come, it said.

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