Airbus Earnings Jump on Higher Output of Rival to Boeing Max

(Bloomberg) --

Airbus SE earnings surged in the first quarter as the European planemaker churned out higher numbers of the A320 narrow-body jet that’s the biggest global rival to Boeing Co.’s grounded 737 Max.

The company delivered 126 A320s, a model that appears to have overcome a run of engine manufacturing faults just as the 737 faces questions about its future after two fatal crashes in five months.

Adjusted earnings before interest and tax jumped almost 40-fold to 549 million euros ($614 million), according to a statement Tuesday, providing a solid starting point for Chief Executive Officer Guillaume Faury, who took over from long-time head Tom Enders on April 10.

While some 737 Max operators have indicated that they’ll consider a switch to Airbus’s latest A320neo, the Toulouse, France-based company has said it isn’t banking on a flurry of new orders, partly because its narrow-body production capacity is sold out over the next few years.

Faury said he in any case expects that the crisis at Boeing will be “temporary.” Still, the commercial aircraft market is robust and Airbus is evaluating its ability to lift A320 production capacity, he said, reiterating a target for 880 to 890 jetliner deliveries across the lineup in 2019.

Airbus shares traded 0.8 percent lower at 121.96 euros as of 9:07 a.m. in Paris, giving a market value of 94 billion euros. The stock has surged 45 percent this year, outstripping Boeing, where gains have been limited to 18 percent as it battles to return the Max to service.

With the issues concerning Pratt & Whitney engines for the A320neo seemingly resolved, deliveries of the plane are set to “dominate,” Jefferies analyst Sandy Morris wrote in a note. That should outweigh any negativity surrounding the early termination of the A380 superjumbo program, which contributed to a 58-plane reduction in the order backlog in the quarter, he said.

Faury said on a call that he wants to smooth out production to avoid having deliveries back-loaded to the fourth quarter, as has been the case in recent years. That’s led him to rein in ambitions to lift A320 output to 70 or more planes a month from the 60 planned this year, while ordering a review to establish what rate the supply-chain could cope with.

A400M Relief

Airbus is still facing problems ramping up deliveries of the A321, its biggest narrow-body, amid issues with the highly customized cabin. It also handed over just three A330neo wide-bodies after turbine supplier Rolls-Royce Holdings Plc was hit with production delays, out of an overall total of 162 aircraft.

The company said talks are progressing on amended contracts for the A400M military transport plane, with a resolution expected by mid-year, and reported no new charges against a project that’s drained cash for years. That allowed it to reiterate a forecast for a 15 percent gain in adjusted full-year EBIT.

Delays to a border-control project in Saudi Arabia amid a German ban on arms exports to the country following the death of journalist Jamal Khashoggi cost the company 297 million euros in the first quarter. Chief Financial Officer Dominik Asam said a decision in March to extend the moratorium for a further six months had “handcuffed” Airbus.

To contact the reporter on this story: Benjamin Katz in London at bkatz38@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Christopher Jasper

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