With Boeing having yesterday reported a Q1 $561 million net loss on revenue of $15.22 billion and CEO David Calhoun openly emphasising on the earnings call “that the new Biden administration knows the importance of getting the [trade] relationship straight”, Airbus this morning reporting a better than expected Q1 net income result of EUR 362 million and last but not least, the CEO of Heathrow Airport Holdings confirming that total losses since the C-19 pandemic began had hit £2.4 billion, the last twenty four has been particularly interesting showing as it does, the range of difficulties impacting right across all segments of the aviation sector.
Heathrow Airports John Holland Kaye said that just 1.7 million passengers had travelled through the airport during the first three months of this year, 91% lower than in the corresponding period two years ago in 2019 and that as a result, losses for the quarter ended 31st March were £329 million. With the number of flights using the airport sharply reduced as airlines responded to the impact of large-scale international lockdown and quarantine requirements cargo volumes also fell by 23% over the same period in 2019.
Is this as bad as it gets for the airport operator? Possibly the answer to that is yes although I suspect that the current quarter, although in theory likely to benefit from a planned restart of international travel from May 17th, will provide some initial benefit. However, continuing C-19 uncertainty in Continental Europe, South America, India and Asia Pacific regions together with understandable nervousness of some would-be passengers means that overall improvement in numbers of airline flight using Heathrow will be slow. For now, the best that anyone can really hope for is that the worst is now past and that hope and anticipation turns to positive reality during the second half of the year.
Airbus, which continues to go through a massive period of restructuring under CEO Guillaume Faury, one that just last week witnessed the announcement of further senior management changes in the form of Alberto Gutierrez becoming chief operating officer and Michael Schoellhorn heading up the Defence and Space, told investors that it had delivered 125 commercial jets during the quarter, received new order for 39 aircraft but that, net of cancellations during the period, it had a net order deficit of 61 aircraft. Last week Delta Airlines also confirmed an order for 25 additional A321 neo aircraft and options for a further 25.
As the Q1 results demonstrate, Airbus is undoubtedly charting the right course through this very difficult period. Q1 deliveries were higher than many had expected and it will be interesting to see the impact of further efficiencies on Q2 deliveries. The European planemaker said that positive contributions from its defence, helicopter and space businesses together with cost, restructuring, favourable hedging strategy and cash containment all played a part in the better than expected Q1 results performance. A380 programme costs of EUR29 million together with an EUR 177 million cost taken in relation to the dollar pre-delivery payment mismatch and balance sheet revaluations led to a total of EUR232 million financial adjustments.
Boeing, which yesterday reported lower first-quarter revenue than a year ago, when it was in the midst of the 737 Max crisis, was additionally hit by delays in 787 deliveries combined with the and initial impact from the C-19 global pandemic put on a brave and open face that generally pleased investors helped no doubt by confirmation that sales at its defense and security unit had risen by 19% to $7.16 billion due in the main to higher KC-46A tanker sales.
Overall, in comparison to Q1 2020, revenue declined 10 per cent to $15.2bn and the net loss was $561m (Q1 2020 net loss of $641m). The company reported negative free cash flow of $3.68 billion in the quarter compared to a negative $4.73 billion a year ago but that it had ended the Q1 period with an unchanged $63.6 billion of net debt.
Having already been a member of the Board for ten years, the appointed of Dave Calhoun as President and CEO of Boeing in January last year, just weeks before the C-19 pandemic began to cause such intense havoc right across the aviation sector, there can be little doubt that he has impressed Boeing investors working hard to restore confidence both internally within the company and externally, particularly through his honesty and subsequent handling of the 737 MAX issue. Last week Boeing announced that it was to raise the CEO retirement age to 70 meaning that Calhoun will likely stay in the position for another six years. It was also announced that Chief Financial Officer Greg Smith, seen by some as a probable successor, will now leave the company in the summer.
In respect the 737 Max and China, Boeing does not expect China will allow the aircraft to fly until the second half of the year. On the earnings call yesterday Mr. Calhoun talked of the need for [737 Max] regulatory approval and he highlighted a view that US-China relations area a risk factor for its business, along with Covid-19 infection rates and the pace of vaccinations and his remarks in relation to the US-China relationship in order to ensure the new Biden administration “knows the importance of getting those relationships straight” were particularly poignant.
Accounting for 25 per cent of the global aviation growth thin Boeing’s future market forecasts, China is undoubtedly a critical market for Boeing. The company said that it plans to increase production of the Max to 31 per month by early 2022 but, as CFO Greg Smith was reported to have said yesterday, timing of regulatory approval on the 737 Max by the Beijing regulatory authorities will affect both our delivery plan and order activity from China and clearly, it will also affect future production rates.
CHW (London 29th April 2021)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785