Airbus Books New Write-Downs -- 2nd Update
July 27 2016 - 05:25AM
Dow Jones News
By Robert Wall
LONDON-- Airbus Group SE on Wednesday reported big charges on
two of its largest airplane programs, posted a fall in operating
profit and warned that its full-year cash-flow target could be in
jeopardy.
The European plane maker recorded a EUR1 billion ($1.1 billion)
charge against earnings from delays in delivering A400M military
transport planes. The A350 long-range passenger plane program took
a EUR385 million earnings hit, the Toulouse, France-based company
said.
Airbus Chief Executive Tom Enders called the charges "not
acceptable."
The A400M military transport plane has been a perennial headache
for Airbus. The program ran years late and billions of dollars over
cost. At one point, Airbus considered walking away from the
contract.
Development problems on the plane have been followed by
production issues that have slowed deliveries. The latest setback
has been linked to a parts fault on an engine component, though
Airbus also has struggled to introduce new features customers have
been promised.
Airbus said more A400M charges loom as it negotiates with
customers about revised delivery plans. Mr. Enders said further
charges would be far smaller than the latest earnings hit.
The European plane maker has secured 174 orders for the A400M,
with Malaysia the only customer beyond a group of six European
countries and Turkey backing its development. Without additional
deals, Airbus will lose money on the project, the company has
said.
Mr. Enders said there were good export prospects in Asia and the
Middle East. Airbus is trying to cut the costs of building the
plane to make it an easier sell, he said.
Airbus confirmed its full-year guidance, though signaled its
goal of achieving free cash flow at last year's level could be at
risk. Problems on the A400M and delivery delays made attaining the
cash goal "more difficult," Mr. Enders said, though he still
considered it "achievable."
Earnings before interest and taxes before one-time charges--the
measure watched closest by analysts--retreated 4% to EUR1.18
billion in the second quarter.
Net income in the period rose 86% to EUR1.4 billion. A EUR1.1
billion gain from the creation of a rocket joint venture with
France's Safran SA and the sale of EUR868 million worth of shares
in French combat plane maker Dassault Aviation SA bolstered the
bottom line.
Airbus's earnings came in slightly ahead of analyst
expectations. Shares in the company rose more than 3% in early
Paris trading.
Sales in the period fell 1% to EUR16.6 billion. Airbus delivered
fewer planes in the April through June period than the year after
suppliers fell behind on getting parts ready on time.
The plane maker stuck to its plan to deliver more than 650
planes, though it delivered only 298 planes in the first six
months. It also said plane orders would outstrip deliveries this
year. The company has booked more than 400 orders this year, Mr.
Enders said.
Airbus and rival Boeing Co., the world's largest plane maker,
have enjoyed a boom for jetliner orders. For some models, the two
manufacturers have a backlogs of planes sold and yet to be
delivered stretching beyond 2020. Both companies are boosting
output on key programs to satisfy demand, but suppliers have
occasionally struggled to keep pace.
Airbus has had to park A320neo narrow-body planes at its final
assembly sites in Toulouse and Hamburg, Germany, waiting for
engines. Seats and lavatories are among missing parts that have
slowed handover of A350 long-range jets. Mr. Enders said that other
production issues also have affected the program and that reducing
the cost of building each plane has gone more slowly than
anticipated, leading to the earnings impairment.
Airbus signaled it would slow the rate at which it builds more
A350 planes, though it stuck to a plan to boost output to 10 planes
a month at the end of 2018. Airbus would reach its target of
building A350s that deliver a profit toward the end of the decade,
Airbus Chief Financial Officer Harald Wilhelm said.
Write to Robert Wall at robert.wall@wsj.com
(END) Dow Jones Newswires
July 27, 2016 05:10 ET (09:10 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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