Airbus Cautious on 2021 After Cementing Cash Flow Turnaround

Airbus SE generated 4.9 billion euros ($5.9 billion) in cash during the fourth quarter, while issuing cautious guidance on the pace of its recovery from aviation’s worst-ever crisis.

The European planemaker rode a December flurry of jet deliveries to beat its target to break even for a second straight quarter, based on adjusted free cash flow. Yet jet handovers are forecast to stay at 2020’s depressed levels this year, even as Airbus plans to ramp up production in the second half.

The company’s downbeat outlook for this year surprised analysts who had expected Airbus to target higher aircraft deliveries after successfully balancing demand with output in the final months of 2020. The assessment reflects uncertainty over when the “tipping point” for a travel rebound will come, Chief Executive Officer Guillaume Faury said on a conference call.

Airbus Cautious on 2021 After Cementing Cash Flow Turnaround

“We can see progress on vaccination campaigns but new variants of the virus are spreading, and at the same time we see reinforced lockdowns,” Faury said. “The pace of recovery will not only depend on the evolution of the pandemic and rate and effectiveness of vaccines, but also the reaction of governments.”

Airbus Cautious on 2021 After Cementing Cash Flow Turnaround

The uncertain outlook confirms Airbus has yet to break free from the Covid-19 crisis that’s pummeled manufacturers and airlines alike for the past year. Air travel remains challenging, with countries tightening borders despite vaccine rollouts. Since January, when the planemaker slowed a plan to increase output, customers have pared back flight schedules and dragged out aircraft deliveries further.

Delivery Plan

Airbus shares fell as much as 4.6%, and were down 3.4% to 90.67 euros as of 12:24 p.m. in Paris.

The Toulouse, France-based company reported earnings before interest and taxes of 1.83 billion euros for the fourth quarter, a 35% drop, as revenue slid 19% to 19.8 billion euros.

Airbus expects jet handovers this year to at least match the 566 delivered in 2020, Faury said. The goal for adjusted free cash flow -- which excludes the impact of M&A and customer financing -- is breakeven, while EBIT is forecast at 2 billion euros, according to a statement Thursday.

Airbus said last month that output of its top-selling A320-series narrow-body will rise gradually to 45 per month through the fourth quarter. It had previously targeted a faster jump, to 47 monthly by July from the current rate of 40 planes.

Travel Setback

Faury told Bloomberg Television that the guidance on deliveries reflects the very uncertain environment and the difficult start to the year. The company could beat these forecasts if the outlook improves, he said.

While case counts are coming down, new virus strains have created uncertainty about the timing of a global travel recovery. Passenger traffic may improve by only 13% in 2021 in a worst-case scenario, the International Air Transport Association said this month. That compares with an official forecast of a 50% rebound issued in December.

The CEO said on the conference call that the company currently has fewer than than 100 undelivered aircraft, including a “small number” of white-tails, or jets without a customer. He reiterated his expectation that the commercial-aircaft market won’t return to pre-Covid levels until sometime between 2023 and 2025.

In the meantime, airlines’ shaky finances will ripple back to Airbus. The planemaker’s cash flows will feel the impact from lower pre-delivery payments from customers, as well as a greater requirement to help finance plane purchases, Chief Financial Officer Dominik Asam said on the call.

The company may be required to finance 1 billion euros or more for its customers, though it hopes export credit programs will help to fill the gap.

“It’s not our intention to do more than we need to do,” Asam said. “We’re not a bank, we’re an aircraft manufacturer.”

Backlog Drop

The value of Airbus’s order backlog fell by 98 billion euros to 373 billion euros at year-end, reflecting in part the longer-term damage wrought by the coronavirus pandemic on the health of the aerospace industry.

Around 10% of the drop in value is down to cancellations and the coronavirus impact on the backlog, Faury said.

The company relies heavily on the Asia-Pacific region for deliveries, with almost 30% of its order backlog in the region, while another 30% is for European customers and 21% destined for North America.

©2021 Bloomberg L.P.

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