FRANKFURT—Airbus is faced with an avalanche of requests for delivery deferrals and is preparing for substantial production cuts as many of its customers struggle with the impact of COVID-19 on air transport.
The aircraft manufacturer has taken measures to boost liquidity to €30 billion ($32 billion), excluding non-pooled cash, and is not asking European governments for help.
Airbus CEO Guillaume Faury and CFO Dominik Adam stressed in calls with reporters and analysts on March 23 that the company has a strong balance sheet and “significant liquidity available to cope with additional cash requirements related to COVID-19.”
The company now has access to a new €15 billion credit facility that increases available liquidity from the €25 billion as of the end of 2019 by almost another €5 billion, in spite of the €3.6 billion compliance penalty payment to authorities, €500 million for the acquisition of Bombardier’s share in the Airbus Canada partnership and the funding of operations in what is normally already a low-delivery time of the year.
While Airbus has not requested government help for the company itself, it is “advocating strong support to the ecosystem, mainly airlines and the supply chain when they are in difficulties.”
In the context of a potential no-deal Brexit, Airbus had already taken measures to create a buffer on components and other parts to keep systems running in case of any disruptions. Those measures are now helping it to cope with any COVID-19-related delays.
To protect its financial position, Airbus also is withdrawing the previously announced dividend proposal of €1.8 per share, which would have led to a €1.4 billion cash outflow later this year. The company is suspending voluntary pension top-ups and also is cutting operational costs where possible.
Production that was temporarily suspended in Spain and France for several days has resumed partially as of March 23 after new health protection and distancing measures were put in place. Faury pointed to the Tianjin final assembly line in China, which went through a similar exercise earlier in February and is now back at its planned production rate.
Faury made clear that “the widebody market will be significantly impacted.” The industry already faced oversupply in 2018 and 2019, therefore production rates were adapted. “We are very likely to see strong oversupply again and we will have to take decisions,” he said. However, Airbus does not plan to make any hard decisions to discontinue products altogether. “The weaker ones might emerge stronger,” Faury said, referring to the A330neo.
Several of Airbus’ key customers are in financial distress and in no position to take additional aircraft. Faury confirmed that many airlines are asking for deferrals while some are still prepared to take delivery of aircraft. However, the logistics of physically taking delivery are becoming more and more difficult with travel bans and quarantine requirements in place in all key countries.
“We managed to keep a certain flow of deliveries, but it is becoming increasingly difficult,” Faury said. Airbus is therefore looking at possibilities to store finished aircraft until customers can take delivery of them.
Airbus sees itself better protected on the narrowbody side, where it benefits from a large backlog and overbooking. Also, ironically, past difficulties help now as the major production delays--particularly in the A321neo program--have led to a backlog of aircraft that should have been delivered a long time ago and are now part of the overbooking equation over the next few months. “There is large uncertainty in the short term,” Faury said. “We are not trying to believe that things will be as they were before."
While airlines are hurting in particular, lessors “play a very important role at the moment” as at least some of the larger ones are still taking delivery of aircraft where possible. Financing provided by export credit agencies also could become a more important tool in supporting deliveries, Faury said. While the recovery has started in China, other countries are not yet at that point, he noted, and “it is difficult to assess what the low point is… We don’t believe all airlines will be bankrupt but it is not unlikely that the size and shape of the business will be different.”
