Leonardo Sees 2020 Hit from Decline in Civil Aviation Markets

 - May 7, 2020, 1:29 PM
Some deliveries of Leonardo's AW139 helicopter were disrupted by travel restrictions resulting from the Covid-19 pandemic. [Photo: Leonardo]

This story is part of AIN's continuing coverage of the impact of the coronavirus on aviation.

Leonardo sees most of the negative effect of the Covid-19 pandemic falling on the civil side of its business. Announcing first-quarter results on May 7, the Italian aerospace and defense group indicated that a “heavy” slowdown this year could diminish income from the civil helicopters sector, as well as from its aerostructures work and its ATR regional airliner joint venture.

The group’s civil aviation businesses accounted for about 18 percent of revenues in 2019. It said military and government markets continued to show more resilience. 

Earnings suffered a 75 percent decline in the first quarter, falling to €41 million ($43 million) before interest, tax, and amortization. The impact of the Covid-19 pandemic resulted in a net loss of €59 million ($61 million) for the first three months. Revenues finished only 5 percent down, at €2.6 billion ($2.7 billion).

The fallout from Covid-19 began to affect Leonardo in March, as Italy suffered a particularly severe outbreak in the early stages of its spread across Europe. However, the government designated the group’s facilities as having strategic status, allowing them to stay open, albeit with some reduction in productivity.

Despite the difficulties, Leonardo managed to increase its order intake by 36 percent during the first three months, with €3.4 billion ($3.5 billion) in new sales. The group’s backlog stands at €37 billion ($38 billion), representing around two-and-a-half years of production.

The public company has suspended financial guidance for 2020, based on continued uncertainty in business conditions and outstanding questions about when and how authorities might lift the Covid-19 lockdown restrictions. “We don’t know how much we can make up [for losses] in the rest of this year,” commented Leonardo CEO Alessandro Profumo. “We expect to see a greater [negative] impact in the second quarter, but we are starting to see stabilization and we expect to accelerate in the second half of the year.”

Leonardo aims to reduce costs by up to 15 percent this year. It plans to reduce labor costs by 10 percent but did not give details of how any possible workforce reduction. The group will reduce gross investment by 25 percent.

According to CFO Alessandra Genco, Covid-19 travel bans led to some delays in deliveries of helicopters and ATR aircraft, mainly because customers could not travel to its factories. Profumo added that the company has yet to see significant supply chain disruption, but it continues to monitor the situation.

Revenues from Leonardo’s helicopter business fell by around 5 percent during the first quarter to €704 million ($731 million). The company attributed the results partly to reduced deliveries of its AW139 twin. Leonardo is trying to introduce a so-called “smart delivery” process in which it shares as much information as possible with customers via digital means to reduce the need for them to send staff to the factory.

According to Genco, Leonardo’s aerostructures business suffers from a high degree of exposure to reduced output for Airbus and Boeing. She indicated that the activity will result in a loss for 2020.