FRANKFURT—Airbus will not decide on further changes to its production rates before June and any potential adaptations will be “on a smaller scale” than previous cuts, Airbus CEO Guillaume Faury said April 29.
Airbus plans to spend the next few weeks on a deep dive into the plans and financial performance of its customers, both lessors and airlines. The OEM wants to better assess what both their short-term behaviour and long-term strategies will look like. Faury said the analysis will be “very granular.” Airbus is also trying to assess what the recovery in traffic will look like and is adapting its financial planning accordingly.
Importantly, the company’s CFO Dominik Asam believes that “if we are able to do what we plan, [government aid] should not be necessary, given that at the beginning of April we had about €30 billion ($32.5 billion) in liquidity resources, which should be ample funding under the circumstances I’ve described.”
The company decided April 8 to reduce output across its product line by around one third. Airbus plans to build 40 narrowbodies a month—down from more than 60—as well as two A330/A330neos and six A350s per month. Analysts have suggested that Airbus will have to make further cuts of a similar size as customers continue to defer deliveries.
Faury believes that deliveries will be “very low” in the second quarter after the manufacturer was able to hand over 122 aircraft in the first quarter, which was only partially affected by the COVID-19 crisis. Nonetheless, Airbus was unable to deliver 60 completed aircraft in Q1.
“After the summer we will start delivering aircraft at a better pace,” he said. Faury believes that the number of undelivered completed aircraft will peak in the third quarter. “But the picture is very dynamic,” he cautioned.
While the short-term focus is on cash conservation and cutting rates, Faury also wants to position Airbus in a way that enables it to resume growth quickly. “The race will start again, we want to be fast and agile. There is a threat to be stuck in the crisis and not be able to compete again.” Faury believes that the single-aisle market will recover faster than the widebodies but the pace of the recovery and the timing “are very difficult to predict.” He indicated that there could be “a very aggressive ramp up in single aisle production” after the COVID-19 crisis. The A321XLR development program will continued “at good speed.”
In discussions with airlines, Faury has observed there is more of a preference for smaller aircraft compared to pre-coronavirus planning. He argues that Airbus is well positioned in this regard, particularly with the A220 as its smallest narrowbody, and with the A321XLR taking on some former widebody missions.
Faury expects widebody demand to recover between 2023 and 2025, while the outlook for narrowbodies is “not that gloomy.” Therefore, Airbus is also trying to preserve its ability to go back to previous production volumes quickly once the demand justifies it. Investment in new facilities such as the additional single-aisle final assembly line in Toulouse will only be made once it is clear that there is demand to go beyond 60 aircraft per month.
Given the accumulated problems Boeing is facing because of the coronavirus and the MAX grounding, Faury argues that Airbus’ “capacity to compete is improved. Our product range is the right one.”
He also considers the crisis as “potentially an opportunity to accelerate fleet modernization.” He described the collapse of the planned commercial aircraft joint venture between Boeing and Embraer as “collateral damage [of the crisis] for the competition” and “positive for us.”
Faury made clear that while Airbus “cannot focus short-term on decarbonization,” it will come back “big time and Airbus intends to be a leader. This has not changed.”
He said that while some projects had stopped they were “very few” in number. The most prominent cancellation has been the E-Fan X project with Rolls-Royce, announced April 24. Most of the learnings in the project have been generated before flight and flying it would have been “very expensive,” Faury said.
Airbus reported a €481 million net loss for the first quarter on sales of €10.6 billion. That compares to a €40 million net profit on €12.5 billion in sales a year earlier. The adjusted operating profit was down 49% at €281 million. Free cash flow was a negative €8 billion in the quarter—almost twice the amount in the first quarter of 2019—as Airbus had to store 60 undelivered aircraft as inventory and as €3.6 billion in settlements for the bribery scandal were paid.
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