Flying high Airbus stock takes wing on earnings, outlook

For all the controversy and problems, the aircraft maker’s numbers look good and 2018 may be even better.
Airbus aiming for superjumbo profits.

Better-than-expected earnings powered the Airbus stock price to a 10-percent gain as the aircraft maker waxed optimistic about 2018 despite engine problems with its workhorse A320, issues in military aircraft, transition in top management, and a pending corruption probe.

With an order backlog of more than 7,000 commercial aircraft, the French-German-Spanish joint venture plans to boost its production of jet airliners to 800 this year from 718 delivered in 2017. Free cash flow before mergers and acquisitions and customer financing of €2.95 billion ($3.68 billion) was well above the 2016 level of €1.4 billion targeted by the company for 2017.

Surging orders and production create economies of scale that bolster profit even as development costs recede, company officials said. “Continue the ramp up,” is the company byword going into 2018, Chief Executive Tom Enders said at a press conference in Toulouse. Some of the problems that have slowed down growth have been or will be overcome, he added. Airbus this year expects a 20 percent gain in another earnings measure, EBIT adjusted, from €4.3 billion in 2017, realized on €67 billion in revenue.

Continue the ramp-up. Tom Enders, CEO, Airbus, on the plan for 2018

Problems with the Pratt & Whitney engines for the A320neo family planes designed to save on fuel have slowed down deliveries. But Airbus has spoken with the engine makers and Mr. Enders said the company is confident it can meet its 2018 production target of 400 single-aisle aircraft with the new engines.

Another drag on earnings has been A400M military transport plane, which has been plagued by delays and led to another €1.3 billion charge in 2017. But Airbus has now reached an agreement with customers on catching up on the deliveries, Mr. Enders said, calling it a “breakthrough” in what he has often described as a Damocles Sword hanging over the company. Airbus now hopes to find other customers for the plane as well.

Uncertainty over the future of the A380 superjumbo was removed for the medium term with a new order for 20 of the planes from Emirates airline. Production of just six of the giant planes a year still falls short of break-even, but the company is hopeful of further orders. China, in particular, is “underrepresented,” Mr. Enders said, even though the plane, which normally seats somewhere from 500 and 600 passengers, is ideal for transporting large groups of Chinese to foreign countries.

The Eurofighter combat jet, which at one point faced a doubtful future, has gained a lifeline through an order for 24 planes from Qatar. Mr. Enders said the company is confident of further orders from new and existing customers. Airbus wants the German Air Force to replace its aging Tornado jets with the new Eurofighter. The top brass like the US F-35 better, but an extremely high price tag makes it an unlikely choice.

In the meantime, what the company is calling a “generational transition” in top management proceeded with the departure of Fabrice Brégier as head of commercial aircraft. Guillaume Faury, head of the helicopter division, will officially take over that post next week. Regarding his own successor, Mr. Enders, who will step down in April 2019, said only that he would have international experience and be younger. Mr. Faury himself is considered a leading contender.

The ongoing corruption investigation remains one of the company’s challenges in 2018. Authorities in several countries are looking into improper payments made by the company to secure both military and commercial orders. Airbus has not put aside any reserves for possible fines, though it has warned the investigations could eventually have a “material” impact.

Management was upbeat about other product lines. The company hopes to reach break-even on the A350 wide-bodied airliner by the end of 2019. It is satisfied that versions of the A320 family can hold their own against any new “middle of the market” plane developed by Boeing and is happy to have big development projects of its own to crimp earnings.

Thomas Hanke is a Paris correspondent for Handelsblatt. Washington, DC-based Darrell Delamaide adapted this into English for Handelsblatt Global. To contact the author: [email protected].