By Benjamin Katz, Bloomberg
Airbus said it will almost halve production of its slow-selling A380 superjumbo, casting further doubt over the program’s future, while warning that engine glitches are still weighing on deliveries of the single-aisle A320 that’s due to become its largest-volume model.
The A380 build rate will be reduced to eight jets a year in 2019, down from 15 this year and 28 in 2016, Airbus said Wednesday. While the company aims to eke out the backlog in anticipation of revived demand as airports get busier, it said the handful of ongoing contract negotiations may not produce sales.
“Even if we should get another order before the end of the year that will not change the needle on our rate decision, except if we would get an unexpectedly high order, Chief Executive Officer Tom Enders said.
As the A380 struggles for survival, Airbus faces a host of issues with other models that it’s relying on for future earnings. The revamped A320neo version of the narrow-body workhorse is a major concern, Enders said, with fixes developed by engine supplier Pratt & Whitney proving unreliable, while talks are continuing with Qatar Airways after it canceled four planes citing quality issues and delays. Airbus also took a charge against cost overruns on the A400M military-transport plane as second-quarter earnings tumbled 27 percent.
In contrast to Airbus, Boeing is already reaping the benefits of record industry backlogs as it ramps up output. Free cash flow surged to $4.51 billion in the second quarter, the Chicago-based company said Wednesday, allowing it to reward investors with $3.4 billion in stock buybacks and dividends. The stock jumped, 10 percent, the largest gain since October 2008.
The A380 was already due to see production cut to one aircraft a month from next May, and the reductions mean that it is no longer breaking even on a per-plane basis. The company has long since given up on recouping the program’s 25 billion euros in development costs.
Airbus last month offered an enhanced version of the A380 featuring fuel-saving winglets, which combined with an already-announced layout revision accommodating 80 more people would shave 13 percent from per-seat costs. Dubai-based Emirates, the leading superjumbo buyer, is exploring the upgrade with a view to buying 20 planes, though Tim Clark, its president, had wanted a more significant upgrade featuring new engines.
Airbus stood by its full-year forecast for a mid-single-digit percentage gain in earnings, free cash flow matching the 1.4 billion euros achieved in 2016, and 700 jetliner deliveries, though Enders said that depends on engine suppliers “meeting their commitments.”
The issues with Pratt’s geared turbofan mean that delivering the close to 200 A320neos targeted — of which just under half are powered by the United Technologies Corp. division — has become “more challenging,” Airbus said. It handed over 59 Neos in the first six months.
“There are just too many maturity issues on this engine,” Enders said. “That is frustrating for us, that’s frustrating for the customers. We have too many removals of engines on aircraft that are in service. The situation for us all is very unsatisfactory.”
While the handover of Pratt-powered Neos was initially held up by a cooling problem that required airlines to delay firing up the turbines in hot conditions, the latest glitches concern issues spanning bearings to the combustion chamber and blades, the CEO said.
Only about one-third of Pratt-equipped planes were able to be delivered in the first half, leaving 30 to 35 A320neos parked without engines, Airbus Chief Financial Officer Harald Wilhelm said on a conference call with analysts.
CFM International has also identified quality concerns with the high-pressure turbine disc for its Leap 1-A engine also offered on the A320neo, though it should hand over all of the planned powerplants this year, Enders said.
CFM, a joint venture of General Electric and Safran, is analyzing the issue though can’t say when that process will be complete, according to a spokesman. The suspected defect, separate from one that’s afflicted the Leap variant supplied for the Boeing 737 Max, affects a “limited number” of turbines currently moving through CFM’s production line.
Airbus’s second-quarter earnings before interest and tax fell to 859 million euros from 1.18 billion euros a year earlier, excluding one-time items. Analysts had predicted a figure of 914 million euros.
The company took a 70 million-euro hit against the A400M, adding to 7 billion euros of charges over the past decade, and said meeting agreed technical capabilities and managing associated expenses remains “highly challenging,” with build rates now under review.
Enders also revealed that cost assumptions factor in winning export deals beyond the project’s core nations, something the plane has done only once with a contract from Malaysia, though Indonesia has signed an outline order.
Airbus was more positive about its latest A350 wide-body airliner, which is in a critical phase of its production ramp up. While the model has been plagued by supplier issues concerning seats and cabin fittings, leading Qatar Airways to cancel four planes last month, some 30 aircraft were handed over in the first half, up from 12 a year earlier and one short of the target.
Talks with Qatar Air are continuing about the schedule for further deliveries and an “acceptable, amicable solution” should be found, Enders said. The carrier was due 10 A350s this year and 20 in 2019, according to Deutsche Bank.
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
