Airbus Slashes Delivery Target as It Struggles With Production Woes -- Update
31 October 2019 - 12:35AM
Dow Jones News
By Benjamin Katz
Airbus SE cut its key delivery goal for the year as it struggles
to build all the planes it has promised to airline customers,
though it remains poised to overtake Boeing Co. as the world's
biggest plane maker in 2019.
Toulouse, France-based Airbus expects to deliver 860 commercial
aircraft this year, a company record, though that is down from a
previous estimate of 880-to-890. It cut its free cash flow guidance
to EUR3 billion ($3.3 billion) for 2019 from as much as EUR4
billion earlier. Deliveries affect cash flow because plane makers
don't typically get paid until they hand over their jets.
Despite the deliveries short fall, Airbus shares rose 2.4% in
Paris as it held its full-year profit guidance, aided by better
production costs on its A350 wide-body and A320 families of
aircraft.
Airbus and Boeing have for years been ramping up production as
they seek to meet surging demand for more fuel-efficient,
narrow-body jets. Boeing has been hit hard by the grounding of its
best-selling narrow-body, the 737 MAX, since March, after two fatal
crashes.
With the grounding, Boeing's total orders and deliveries have
fallen sharply, putting Airbus on track to beat the U.S.
manufacturer on handovers for the first time since 2011. Airbus
delivered 571 planes to customers in the first nine months of the
year, compared with Boeing's 301.
Airbus has also been struggling -- in a different way -- with
getting a narrow-body, the A320neo family of jets, to
customers.
Chief Executive Guillaume Faury said Airbus was still recovering
from major delays last year from its engine manufacturers, in
particular from Pratt & Whitney, a unit of United Technologies
Corp., and to a lesser extent from CFM International, a joint
venture between General Electric Co. and Safran SA. These
challenges were exacerbated by the difficulty of building a bigger,
more customizable narrow-body, the A321, which is designed for
longer flights.
"It's very difficult to recover once we are late," Mr. Faury
said. "We want to be prudently ramping up."
The company remains confident it can meet a production target of
63 A320neo deliveries a month from 2021, up from close to 60 a
month now. The company has long insisted that demand for the
A320neo is sufficient to justify producing at least 70 a month.
The production woes are a setback for the new Airbus chief
executive, who took over the role this year and is under pressure
to capitalize on the MAX grounding. Airbus so far has been unable
to peel off Boeing customers, some of whom have explored switching
to the A320neo. The delays have been part of the reason they
haven't.
They were also a factor in the owner of British Airways,
International Consolidated Airlines Group SA, signing a letter of
intent for 200 Boeing 737 MAX jets in June. IAG Chief Executive
Willie Walsh has been vocal about his frustration with Airbus
persistently missing its delivery schedule. The airline group has
been forced to push back some operations, particularly at its Irish
unit Aer Lingus, which flies across the Atlantic, because of
A320neo delays.
Mr. Faury said he is aiming to be more careful in meeting
delivery plans and communicating with customers.
Airbus' third-quarter net income rose 3% to EUR989 million,
while sales fell 1% to EUR15.3 billion.
The company is dealing with the start of U.S. tariffs, part of a
long-running dispute between the world's two biggest plane makers
over government subsidies. The U.S. Trade Representative has
slapped a 10% duty on all Airbus aircraft delivered to American
carriers, with the exception of jets that are built at its plant in
Mobile, Ala.
Mr. Faury was adamant that the duties will be borne by airlines
and not by Airbus. He said that he was working with customers with
aircraft already in production at European plants to ease the
situation and called for a de-escalation of the "useless tariff
war."
The new tariffs may lead Airbus' U.S. customers to defer
deliveries of aircraft not already in production, from mid-2020,
Chief Financial Officer Dominik Asam# told analysts. Airbus should
be able to reallocate those production slots to airlines outside
the U.S., he said.
Airbus says the European Union will be able to respond to the
levies next year when its counter claim against Boeing is resolved,
allowing the EU to slap similar duties on the U.S.
manufacturer.
(END) Dow Jones Newswires
October 30, 2019 09:20 ET (13:20 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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