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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