Airbus Sees More Pain in Commercial Market Through 3Q2020

 - April 29, 2020, 5:23 AM
Airbus is deferring further decisions on possible workforce reductions until June, when it expects to have a clearer idea of reduced demand for airliners. Meanwhile it continues to invest in the automation of production, including at its A320 structures facility in Hamburg. [Photo: Airbus]

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

Airbus does not expect to have clear visibility of the full short- to medium-term impact of the Covid-19 crisis until June. In a briefing for financial analysts this morning to announce diminished first-quarter results for 2020, the European aerospace group indicated that it will likely defer decisions on steps to right-size the business for another two or three months to allow more time to reassess the situation of its airline customers and also to get more complete guidance from governments on steps to ease lockdown restrictions.

According to Airbus, its 1Q 2020 results only partially reflect the impact so far of the pandemic. The group’s adjusted operating profit was down by 49 percent compared with the same period in 2019 at €281 million ($305 million) on revenues that were 15 percent down at €10.6 billion ($11.5 billion). Its cash flow for the quarter took an exceptional hit from the €3.6 billion ($3.9 billion) penalty the company paid to settle corruption charges imposed last year.

Group CEO Guillaume Faury told analysts that the greatest Covid-19 impact so far has been on its commercial aircraft business. Its short-term reaction has been to scale back production rates by around a third to 48 units per month, including 40 A320s, 6 A350s, and 2 A330s. The A220 production line in Canada is expected to return progressively to a monthly output rate of 4 aircraft

During the first quarter, Airbus delivered 122 airliners to 49 customers. This was 40 fewer than in the first three months of last year and 60 aircraft could not be delivered due to order deferrals or because airlines were physically not able to take delivery. Faury indicated that most of the suspended deliveries were for operators in China and Europe, where government-imposed restrictions impeded operations.

In view of the continued uncertainty over market conditions, Airbus said that it will continue to withhold financial guidance on prospects for 2020. Faury said that he expects the third quarter to mark a low point in terms of deliveries for this year, adding that, in some cases, rates will depend on the outcome of on-going discussions over possible government relief for individual airlines.

Gross airliner orders for the first quarter stood at 356, which was reduced by 66 confirmed cancellations to a net rate of 290, leaving the backlog at 7,650 units. The cancellation rate for 1Q2020 was actually lower than that in 1Q2019.

“The industry is now facing the gravest crisis in its history and we have a strong focus on matching production to demand and also cash containment,” Faury said. “In the long-term, we are convinced that people will still need and want to fly. We believe we have the right product portfolio and a strong position with the A320, including the development of the [new longer range] XLR [model]. We expect the narrowbody sector to recover before the widebody market.”

First-quarter net orders for the A320 stood at 248 and the backlog at 6,220 units. According to Airbus, the narrowbody family has increased its market share from 58 to 60 percent.

Responding to analysts’ concerns about the condition of the aerospace supply chain, Faury acknowledged that many companies will suffer a big drop in cash flow through the second and third quarters of this year. He said that Airbus is working with national industry associations to try to sustain the supply chain, adding that the most urgent cases are companies that entered the crisis in a weak position, including those who have lost income from the grounding of Boeing’s 737 Max aircraft.

This year, Airbus now intends to reduce capital expenditure by around €700 million ($761 million) to €1.9 billion ($21 billion) by suspending or deferring activities deemed not to be critical. However, Faury said that the group will continue to spend on priority research and development areas, including the “decarbonization” of aviation, digital technology, and robotization in the production process.

Earlier this month, Airbus announced that it is tapping government-backed payroll protection support schemes. This has resulted in around 3,000 workers being furloughed on close to full pay in France and a further 3,200 in the UK.