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Airbus Heads Toward Better Times By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.

 

 

 

Might 2017 be fairly described as the ‘annus horribilis’ year for Airbus?

Having faced a number of vexing issues in one single year the answer is probably yes it was an ‘annus horribilis’ year for Europe’s largest planemaker but even so, with 2017 now behind it Airbus should now in my view be looking toward better times ahead.

FY2017 results wise, it is worth noting that despite the raft of problems that Airbus has needed to face up to over the past year that on a relatively stable revenue outcome of EUR66.8 billion, the company has still managed to do better than it did in 2017 by producing profits of EUR 4.3 billion against a comparable EUR 3.9 billion.

Boosted by gains from investments – a net capital gain of EUR604 million from the divestment of its defence electronics business together with other improvements and positive exchange rate benefits, Airbus net profit tripled from EUR995 million to EUR2.87 billion. On the back of such improvements Airbus has signalled that it will lift the dividend to EUR1.50 per share from a previous EUR1.35.

Whatever, there is no ignoring the scale of problems that Airbus senior management have needed to face up to this past year and that have included historic corruption allegations in relation to Airbus military, satellite and civil airplane operations, ongoing Pratt & Whitney PW1100G engine delivery problems on the A320neo (note that the alternative LEAP-1A engines supplied by CFM International for the A320neo family are not affected) and that have led to delay in delivery of airplanes who ordered these engines to customers, important management changes that have required the always delicate balance between French and German control expectations to be carefully handled and maintained as far as possible.

On top of all this, the year signalled plans for the retirement and replacement of long time sales boss, John Leahy and the need to find a replacement. Pleasingly the latter was achieved and Airbus sales are now in the hands of Eric Schulz. Then there was the ongoing and troublesome issues that have long surrounding the A400M, the decision to buy into the Bombardier C-Series programme, facing up to the aftermath of the UK’s decision to leave the EU and the ongoing need to ramp up production, productivity and efficiency.

In respect of the A400M military transporter aircraft, Airbus has confirmed this morning that, following a provisional agreement with the seven NATO countries, it has taken an additional EUR 1.3 billion charge which takes the total amount of charges made on the aircraft to in excess of EUR 8 billion. Airbus CEO Tom Enders said in respect of the substantial additional one-off charge on the A400M programme that the company has “made progress on the industrial and capabilities front and agreed a re-baselining with government customers which will significantly reduce the remaining programme risks”.

Importantly Airbus said in its statement that it expected to deliver around 800 commercial aircraft in 2018 providing that engine manufacturers – this mainly a reference to problems the company has suffered in respect of delayed deliveries of engines from Pratt & Whitney for the important A320neo aircraft programme – meet their commitments. If they do then Airbus is projecting that profits could rise by 20% in 2018.

Adding this up, if some of the more significant problems that have hit Airbus over the past two years have now been partly or wholly resolved I take the view that if I am to describe 2017 as being an ‘annus horribilis’ year for Airbus this would also suggest a belief that it can only get better from here. I believe that to be the case and without in any way ignoring the mountain of problems that remain the outlook for 2018 and beyond looks very much better than it did just a few months ago.

With Airbus super-salesman John Leahy who bowed out after 30 years with the company signing a coveted and much needed deal with Emirates Airlines covering purchase by that airline of 36 A380 superjumbo planes including 16 options, having received orders for 1,109 commercial airplanes last year with a value of $137.7 billion and ending the year with a fantastic order backlog of 7,265 planes there is no doubting the underlying strength of Airbus.

Just as John Leahy bows out enter French born Eric Schulz who joins Airbus having previously been president of civil aerospace at Rolls-Royce. Although under John Leahy selling commercial aircraft might have sometimes appeared to be a one man operation the reality is that it is about teamwork and building the relationship with the customer. I have not met Mr. Schultz but I very much doubt that he would be in the position that he finds himself in if either of Tom Enders or the outgoing John Leahy had had any doubts.

The 2017 results will also be the last that are presented by Fabrice Bregier as head of the commercial division of Airbus. He will be replaced by Guillaume Faury who was previously head of Airbus helicopter. Few have any qualms over the ability of M. Faury to drive through further growth and his appointment reaffirms the balance between German and French control in the top tier of Airbus management.

Tom Enders will himself not be seeking a further mandate as CEO beyond April 2019 and we await to see who Airbus intend to appoint to the top job in the company. However, his departure, regrettable though it will be to those that have known and respected what he has achieved in his many years in the company, is not for another 14 months.

Between now and then Enders can be expected to work hard to ensure that Airbus is doing things right, achieving better results and forcing through more integration in order to reduce costs and to improve the structure and politics of Airbus operation he will surely be perceived and remembered as the CEO that turned Airbus into a real commercial entity and perceived as having done a very difficult job very well.

CHW (London – 15th February 2018)

Howard Wheeldon FRAeS

Wheeldon Strategic Advisory Ltd,

M: +44 7710 779785

Skype: chwheeldon

hwheeldon@wheeldonstrategic.com

@AirSeaRescue

 

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