22 Feb 17. FY16 results from European aerospace giant Airbus are great in respect of commercial aircraft revenue and profits but once again, the company has been seriously let down by its troublesome A400M military airlifter requiring an additional EUR1.2 billion charge.
Make no mistake, the A400M is an extremely capable military aircraft and one that is now in service with various partner air forces including the Royal Air Force. It is doing the job for which it has been designed but it is well known that while the various issues that it continues to suffer have been technically resolved, the implementation programme will last several years.
There can be no denial that development, test and production issues have seriously delayed A400M delivery to partner air forces by several years. Even so, when all these issues have been finally sorted and implementation is complete, the A400M will undoubtedly provide the European government Air Forces with the capability that they both want and urgently need. To a greater extent, the A400M aircraft is already doing just that in service but there is no denial hangover issues remain.
Airbus and its suppliers have worked extremely hard to resolve the various issues and problems that the aircraft has suffered and in the main, the company has born the substantial costs associated with problems unsupported. Rightly in my view, as the project was conceived by seven government partners – Germany, France, UK, Spain, Belgium, Luxembourg and Turkey – it is they along with Airbus that should pick up a larger part of the tab for the various development and other problems that have caused delay and that have also damaged the potential for further export sales.
All aircraft developments be they military or civil have problems getting through the development to manufacturing, delivery and entry into service stage and while it may seem that the A400M has had more than its fair share of problems and issues, history would tell us that in fact the A400M is not that different from many other international military aircraft programmes that precede it.
To be fair, Airbus did receive a EUR3.5 billion bailout from the government partners in 2010 but, with the addition of the EUR1.2 billion fourth quarter charge Airbus has now notched up a in excess of EUR6 billion against the A400M programme since the development started.
Airbus CEO Tom Enders said this morning that “the board of Airbus has ordered management to re-engage with customers to cap remaining exposure [on the A400M programme]”.
Governments should heed that warning for what it says and recognise that Airbus is not just making a sensible plea for support but is also suggesting that it has had enough and that this issue will have a bearing on how it sees future involvement with governments on defence.
Lacking support, Airbus very nearly walked away from the A400M project back in 2010 and although I may well be wrong, it is looking more that if the partner governments fail to provide a stronger level of financial support that Airbus could well walk away from being an active participant in providing defence capability.
Whilst it is true that the A400M programme has been far more troublesome than anticipated it has, as an excellent report of FY16 results from Reuters this morning pointed out, “weathered repeated industrial mishaps including the discovery of problems in the engine gearbox which is made by an Italian subsidiary of General Electric”. Solutions to the various issues have also been found but the cost of implementing them has remained a burden that Airbus is finding increasingly difficult to bare.
I hope government will listen to the objective and constructive argument that Airbus will now make.
CHW (London – 22nd February 2017)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,