Airbus Seeks New European Help Over A400M Costs

(WN):-Airbus expects to triple the number of Airbus A320neo-family deliveries in 2017, Airbus Commercial Aircraft President Fabrice Bregier said.

“Some maturity issues remain,” Bregier conceded during the Airbus 2016 financial results presentation on Feb. 22. “Both engine suppliers are committed to deliver in line with customer expectations,” the company stated. “Challenges remain with the A320neo ramp-up and delivery profile, which is expected to be back-loaded in 2017.”

Airbus delivered 68 A320neos in 2016, and incurred significant delays and customer turmoil. That was mainly because of development and installation for Pratt & Whitney PW1100G engine fixes. Qatar Airways, the original launch customer, is among other airlines that have refused to take delivery of A320neos, and are now negotiating with Airbus to switch to the larger A321neo.

Bregier said that, in his view, getting A320neo production up to 60 aircraft a month in mid-2019 is “the only challenge on the single-aisle side,” refuting claims that the industry may be heading into an overcapacity situation.

The A330neo’s first flight is planned at the end of the first half of 2017, according to Bregier. The first aircraft is to be delivered in spring to TAP Portugal. Bregier reiterated that Airbus plans to make the transition from the current version of the aircraft to the new variant at a rate of 6–7 aircraft per month. Airbus Commercial’s underlying profit for 2016 was negatively affected by the lower A330 production rate, which is one of the highest margin civil programs.

Airbus is “pretty much covered,” as far as filling the planned production of the A380 in 2019, Bregier said. Following 28 deliveries in 2016, the manufacturer is reducing production to just 12 aircraft per year from 2017. That is a level it wants to sustain for several years, hoping that demand will ultimately pick up. 

Airbus is in the middle of identifying further cost-cutting possibilities that would help it limit the losses in the A380 program. Among other things, one of the hangars at the Hamburg Finkenwerder Airport plant is now rededicated to A320neo production.

“I believe there is a long-term future for this aircraft,” Bregier stressed. But he also admitted that “we need additional orders” to fill production slots, even at the lower rate of 12 per year.

Emirates recently deferred deliveries of six A380s due to arrive in 2017 by one year, and deferred a further six aircraft from 2017 to 2018. The move meant a sharper-than-planned reduction in output this year, but helped fill open slots later. Sustaining production at the current level would either require additional orders, and likely latest within the next year or persuading Emirates to pull some of the deliveries now planned for later forward.

Given the current state of the market, which Bregier described as “pretty small,” and the troubles that Emirates is going through in its core markets, both targets are highly ambitious.

Airbus Commercial revenues were up 7% to €49.2 billion ($51.9 billion), but the reported operating profit for the division dropped by 33% and reached only €1.5 billion. Research and development spending decreased by 21% as the A350 efforts were wound down.

But there were some significant negative effects. Airbus had already booked a €385 million A350 charge in the first half of 2016. It also saw margin pressure from “transition pricing” mainly in the A320 program and the ramp-up costs for both the A320neo and the A350.

Groupwide, Airbus suffered a €930 million negative impact due to a dollar predelivery-payment mismatch and a revaluation of its balance sheet. It booked a €182 million charge for restructuring efforts as it merges group structures with Airbus Commercial, a plan that leads to the cutting of more than 1,000 jobs.

Airbus Commercial plans to deliver more than 700 aircraft this year compared to 688 in 2016. The company delivered 25 aircraft in January. Among them were five A320s; two A320neos; 14 A321s; three A330-300s; and one A350-900.