Massive Airbus Delivery Challenge Gets Tougher With Rolls Delays

(Bloomberg) -- Airbus SE has a mighty challenge ahead of it, one that seems to be getting tougher.

The European planemaker is targeting deliveries of around 800 commercial aircraft this year, an 11 percent jump from 2017. To do it, Airbus needs to hand over some 300 jets in its final quarter, which would be a record. But delays with engines made by Rolls-Royce Holdings Plc are adding to the degree of difficulty.

Massive Airbus Delivery Challenge Gets Tougher With Rolls Delays

On Friday, Bloomberg News reported that Rolls-Royce had fallen behind schedule on deliveries for Airbus’s new model, the A330neo. Rolls was aiming to provide 30 of its Trent 7000 engines to Airbus by the end of this month, which would allow the Toulouse, France-based planemaker to deliver 15 of the wide-body aircraft to customers by year-end.

But Airbus will only get 10 engines, enough for five planes. That’s a 10-plane shortfall. The shares of both companies fell sharply on Friday before recovering most of their losses by the end of trading in Europe.

Getting production right is a critical task for Airbus’s next chief executive officer, Guillaume Faury, who is looking to prove his chops as president of the commercial aircraft business before formally taking over control of the group in April. But by all accounts, the target is all consuming.

“We have caused Airbus a significant problem, and we are working with them to manage the situation with airline customers and lessors,” Rolls-Royce’s president of civil aerospace, Chris Cholerton, and large-engine program director, Chris Young, said in a memo to staff. Rolls-Royce later notified markets that it had cut its overall delivery goal by 50 to about 500 commercial engines this year, while maintaining its profit and cash-flow targets.

For Airbus, the delays with the A330neo threaten to disrupt an already tight final quarter of 2018 that’s been stretched by design and production faults with separate engines that power its single-aisle A320 jet family. IAG SA, which owns British Airways, said Friday that its A321neo narrow-bodies have been delayed “principally related to engines, but not solely.”

The slower widebody handovers could reduce Airbus’s full-year sales by 1.5 billion euros or hit earnings by about 100 million euros, Francois Duflot, an analyst with Bloomberg Intelligence, wrote in a research note.

Airbus declined to comment ahead of third-quarter results scheduled for Oct. 31, when the manufacturer is expected to update markets on its production plans.

For Rolls, the factory stumbles threaten to pile new pressure on the company, which is already struggling through durability flaws with the engine’s sister model, the Trent 1000, which powers Boeing Co.’s 787 Dreamliner. The A330neo, whose engine suffers from similar glitches, is expected to debut in the coming weeks, about a year behind its initial schedule.

‘Source of Anxiety’

In-service disruption caused by design faults on the 787’s engine is “a source of anxiety to our customers and we must not exacerbate this by missing commitments to our Trent 7000 customers,” Rolls said in the memo to staff.

Massive Airbus Delivery Challenge Gets Tougher With Rolls Delays

It’s a setback too for Rolls-Royce Chief Executive Officer Warren East, who is trying hard to turn around one of Britain’s few remaining industrial juggernauts. In his four years at the helm, East has worked to rebuild the engineering firm from the bottom up, shedding management layers, peripheral units and outdated business practices.

“We would extrapolate that the financial impact on Rolls will be compensation payments to Airbus and the airlines, and a build-up of inventory into the year-end,” Robert Stallard, an analyst with Vertical Research Partners, said in a note, while cutting his price target on Rolls by 11 percent to 930 pence. “The profit-and-loss impact could ironically be positive, as the Trent 7000 original-equipment deliveries will be loss making, with the returns coming from the aftermarket.”

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