AIRBUS – DRIVING FINANCIAL PERFORMANCE FORWARD
By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.
15 Dec 14. Whilst confirming that FY15 guidance remains intact senior management at Airbus told investors last week that profits for FY16 will most likely be flat. The company also told investors that generating cash over the next couple of years will be tougher to achieve as it spends more upgrading aircraft and in restructuring defence and space. But there is also much good news in what Airbus said last week as well.
Reasoned in part by large scale change in strategy impacting mainly on defence and space and through the impact of government defence cuts the reader should be left in no doubt that what was said by Airbus last week is really about a clear determination to improve margins, to create greater efficiencies and scale, improve earning quality and to drive shareholder returns forward in the longer term. There is no gain without pain and be in no doubt either that Airbus really means business and that the best way to read the guidance provided last week is that the large scale work and change that is currently going on within the company constitutes real determination by senior management to genuinely provide investors with even better financial performance beyond 2016.
With rebranding of Airbus group activities now all but complete, with the disposal and restructuring effort, part of the previously announced portfolio reassessment, well underway investors can I believe be assured that this is a company that is striving not only for enhanced focus but for improved competitiveness and earnings.
In a period that has witnessed large shareholder and governance change at Airbus, the previously announced structural changes in how the company intends to operate in future had been welcomed for what they are and for what they were intended to provide, financial improvement. The Airbus plan included not only portfolio and structural operational change but also the much welcomed intention to achieve an orderly exit from non-core assets such as Dassault Aviation over a period of time.
The investor conference last week laid out in some detail how Airbus envisaged its future strategy for commercial aircraft, helicopter, defence and space activities would develop. This was about providing investors with a more detailed understanding of previously announced restructuring and portfolio assessment that include disposals, asset sales, rationalisation of internal capital expenditure and in relation to future research and development. The measures, some of which have already been carried out, are as I say aimed at enhancing competitive ability, earnings improvement and the achievement of greater focus and should be welcomed for what they are and the potential they offer for improvement in margins and cash flow.
Transitioning of the commercial aircraft portfolio to new generation product would work. Detailing near term industrial transitioning of the A320neo, controlled ramping up of the A350 production and the recently announced intention to transition the A330neo as near term developments the company provide and addition range of long terms programme benefits including a mix of innovation and further production ramp up of various programmes.
As reiteration of an intent to deliver commercial aircraft market commitments, to further improve products and services whilst enhancing operations, financial performance and in providing excellent value for customers and users of its products what Airbus said last week was welcome. Commercial remains as it probably always will by far the largest single area of activity for Airbus and it is perhaps worth reminding that Airbus global market forecasts show that by 2033 the world fleet of passenger aircraft is expected to have doubled from 16,855 in 2013 to 34,818. Translated, that figure would suggest requirements for no less than 30,555 new aircraft over a period o