Airbus optimistic about 2018 with record orders, despite a $1.6bn charge
London — Airbus has struck an optimistic tone in its outlook for 2018, promising earnings growth of 20% — so long as it can iron out persistent problems on two aircraft programmes that have dogged the manufacturer for years.
The European aircraft maker ended 2017 with a record order backlog and delivered more jets than ever before. Even so, the company booked a €1.3bn ($1.6bn) charge against the A400M military-transport model, and said meeting 2018 earnings targets will be dependent on overcoming engine issues afflicting its latest A320neo single-aisle jet.
Airbus is struggling to put out fires when it should be enjoying the benefits of a surge in commercial aircraft sales that will see it hand over about 800 planes this year. CEO Tom Enders said in a statement on Thursday that the Toulouse, France-based company is working on measures to gain control over both problem programmes.
"The A320neo ramp-up remains challenging and requires that the engine suppliers deliver in line with commitments," Enders said, adding that the impact on deliveries of the latest turbine issues is under assessment. The A400M charge, aimed at "mitigating future risk", comes on top of more than €7bn in cost over-runs since the programme began in 2003.
Earnings before interest and tax before one-time items increased 8% in 2017 to €4.25bn, according to Airbus. Analysts had predicted a profit of €3.99bn, the average of 13 estimates. This year’s figure should gain 20%, so long as delivery targets are met, the company said.
Sandy Morris, an analyst with Jefferies International, said he was reassured by Airbus’s forecasts for earnings and free cash-flow growth. He said he remained concerned about pricing for older A320ceo and A330ceo models, but noted the company’s optimistic tone.
"In truth, we are not sure whether rummaging around in the detail matters much, not when slide 17 in today’s presentation states: ‘Earnings and FCF taking off!’"
Last week, Airbus reached an outline deal with the A400M’s seven customer nations aimed at resetting the military air-lifter project after years of cost over-runs and performance setbacks. The new charge concerns revisions to the plane’s delivery schedule and capabilities, together with the retrofit of examples already delivered, the company said.
At the same time, Airbus has been blindsided by yet another flaw with Pratt & Whitney engines that power its best-selling A320neo narrow-body. The latest issue, which emerged last week after Enders suggested Airbus had finally moved on from two years of setbacks, relates to a seal that Pratt replaced after the an earlier version exhibited durability issues.
Deliveries of A320neos equipped with a rival power plant made by the CFM International alliance of General Electric and France’s Safran are also behind schedule, due to less serious "maturity" concerns, the aircraft maker said. "We’re expecting to deliver another record number of deliveries in 2018," Enders said on a conference call. "Of course, we need engines for these aircraft, but I am confident our partners will not let us down."
Airbus faces the added distraction of a series of bribery probes concerning the use of payments and middlemen in marketing campaigns. It booked costs of €117m related to compliance issues for the full year, including a €99m sum to settle a corruption investigation by German prosecutors into the sale of Eurofighter warplanes to the Austrian military.
While still grappling with the A400M and A320neo, Airbus appears to be gaining control over the A350 wide-body programme, where initial hand-overs were held up by supplier issues with seats and interior fittings. But the company said a $16bn order for the A380 super-jumbo from Dubai-based Emirates, sealed on Sunday, will, meanwhile, sustain production for years to come.