Wednesday, February 22, 2017

Airbus Takes $2.3 Billion A400M Hit, Sees Profit Gain This Year

Jet programs set to improve but troop carrier still a headache; Planemaker predicts mid-single-digit earnings advance in 2017.

By Andrea Rothman
February 23, 2017

Airbus Group SE said profit will increase this year as it regains control over costs and production challenges from a switch to the latest A320 narrow-body aircraft and increased output of the A350 twin-aisle model.

The company still major faces issues with the delayed A400M military transport, which it said Wednesday “remains a concern” following charges of 2.2 billion euros ($2.3 billion) last year that weighed on net figures.

What should be boom times at Airbus given a record order book have been frustrated by holdups including a shortage of interior fittings for the A350 and engine glitches with a revamped version of the A320 that caused it to make more lower-margin older planes. Chief Executive Officer Tom Enders is betting that the problem models will get back on track this year, allowing the Toulouse, France-based company to reap the benefits of higher build rates.

“The progress we made last year gives us confidence that we have the building blocks in place to achieve our earnings and cash-flow growth potential,” Enders said in a statement.

De-risking and strengthening the A400M program will also be a top priority for 2017, he said. While a “crisis” concerning the model’s propeller gearbox was addressed with an interim fix, further challenges have emerged concerning the plane’s military capabilities, so that cash retention by customers will weigh on the program into 2018, causing Airbus to seek talks to cap its exposure.

Airbus shares traded 0.7 percent lower at 66.77 euros as of 9:07 a.m. in Paris after earlier falling as much as 0.9 percent. The stock has advanced 6.3 percent this year.

Cash-Flow Boost

While group earnings before interest and tax fell 3.6 percent to 3.96 billion euros last year, held back by the stuttering jetliner projects and a weaker performance at defense and helicopter divisions, the figure was marginally ahead of the 3.80 billion euros estimated by analysts.

Airbus also met its goal of achieving positive free cash flow, which totaled 1.4 billion euros, recovering from a negative 4.73 billion euros after the first nine months as the company delivered a mammoth 266 planes in the final quarter, or two-fifths of the annual total. This year’s figure should be similar, before takeovers, disposals and customer financing.

About 85 percent of the A320 delivered in 2016 were older variants following cooling issues with a Pratt & Whitney turbine that’s one of two power-plant choices on the higher-priced Neo or New Engine Option model.

The company also sold some of its defense activities last year, curbing earnings, and spent more on funding airline orders after European agencies suspended export-credit assistance amid a bribery probe begun by the U.K. Serious Fraud Office.

Enders has broken down barriers between Airbus’s group structure and the commercial jetliner arm, making the division’s chief Fabrice Bregier his effective No. 2 as chief operating officer for the whole company. That’s also meant job losses among the company’s white-collar staff, as well as at a helicopter unit hurt by lower demand.

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