Airbus Follows Boeing in Paring Output to Weather Longer Slump
Airbus Cuts Wide-Body Rate, Cash Burn Hits $14 Billion
(Bloomberg) -- Airbus SE cut back wide-body jet production after it burned through 4.4 billion euros ($5.2 billion) in the second quarter, in a further retrenchment meant to safeguard cash while it waits out a collapse in demand.
Airbus will now aim to produce five A350 aircraft a month rather than the six targeted in April, the world’s biggest planemaker said in a statement Thursday. The move followed an even steeper cutback at archrival Boeing Co. announced a day earlier.
With global fleets largely grounded during the second quarter, Airbus delivered one-third the number of planes it did a year earlier. The company is clamping down on costs with the aim of halting cash outflows in the second half, as it braces for a depressed travel market that could last for several years.
“We believe it’s going to be a long and slow recovery,” Chief Executive Officer Guillaume Faury said on a conference call. “We’re trying to take a balanced view on this and not be too pessimistic.”
Air travel is reeling from its biggest-ever slump after the pandemic brought decades of growth to a shuddering halt. That’s left Faury walking a tightrope as he seeks to hold down spending without doing permanent damage to the system of suppliers and skilled workers on which Airbus will rely when better times return. Prospects for a quick rebound are meanwhile receding as new flareups of the virus lead to the reimposition of curbs on flights.
Airbus booked 900 million euros of Covid-19 related charges and said future restructuring could cost more.
It’s tough right now to know what the market will look like by the end of this year and even by the middle of 2021, Faury said. Single-aisle plane production could ramp up again from 2022, though air traffic is unlikely to recover to fully until some time between 2023 and 2025, he said.
The stock traded 3% higher as of 12:50 p.m. in Paris, paring its decline this year to 51%.
Jefferies International analyst Sandy Morris said Airbus is making a reasonable effort to balance support for its customers, supply chain, and employees with generating an acceptable performance for shareholders. One positive sign was a smaller-than-expected build-up in inventory, he said in a note to clients.
Discussions with customers are “difficult” as Airbus pushes airlines to take planes, Faury said. In some cases, the manufacturer is demanding cash compensation from carriers that aren’t able to accept deliveries.
Airbus’s own cash burn for the quarter matched the level for the first three months, excluding a one-off payment to settle bribery claims, as the virus prevented the handovers of 145 aircraft. Faury said the ambition now is to be cash neutral in the second half, before customer financing and any spending on acquisitions.
Toulouse, France-based Airbus, which has logged just 25 orders since the end of January, posted an adjusted loss of 1.31 billion euros for the first half before interest and tax, including the charge, compared with a 2.19 billion-euro profit a year earlier.
Revenue plunged almost 40%, with the decline exacerbated by a three-week shutdown of assembly lines as the company took steps to guard against the virus and assessed the situation.
Boeing Pain
The update comes after Chicago-based Boeing announced a raft of new measures Wednesday to preserve cash and adapt to the shrunken market. The U.S. company delayed the debut of its new 777X model, cut build rates for existing planes, said it will end production of the 747 jumbo, and mooted the shutdown of one of two plants that build the 787 Dreamliner. Job cuts may be stepped up.
The ratcheting down of wide-body rates reflects scarce demand for aircraft used in long-haul services. Airbus left its other production unchanged, after slashing output to 40 planes a month for its popular A320 family in April. At the time, A350 rates were trimmed by about 40% to 6 per month, while the slower-selling A330 was cut back to two a month.
A Canadian assembly line that builds the A220, a smaller model acquired from Bombardier Inc., will progressively return to its pre-virus rate of four planes month, Airbus said.
The company is embarking on the biggest restructuring in its history with plans to cut 15,000 jobs in the commercial aerospace division. Faury has meanwhile extended credit lines and clamped down on expenses to give access to 30 billion euros to manage the pandemic.
Airbus said the U.K. Serious Fraud Office has requisitioned its GPT Special Project Management arm, which operated in Saudi Arabia and was closed in April, to appear in court over a corruption-related charge.
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