Airbus Group takes $1.5 billion hit for A400M, A350 problems


Airbus Group took a 1.4 billion euro ($1.5 billion) hit for problems with Europe’s troubled A400M transport aircraft and its A350 jetliner on Wednesday, clouding better than expected quarterly profits.

Delays in deliveries of another keenly awaited jet, the revamped A320neo jetliner, which competes with Boeing’s upcoming 737 MAX, also weighed on Europe’s largest aerospace group, whose core profits fell 4 percent in the second quarter.

Shares in the Franco-German-led group rose over 4 percent, however, as helicopter and defense units outperformed forecasts and the company stuck to its targets for the year.

Airbus Group posted 1.03 billion euros of charges for the A400M following gearbox problems and fuselage cracks and 385 million for the A350, whose deliveries have been held up by shortages of seats and, most recently, botched toilet doors.

The charges for the A400M, on top of about 5 billion euros already written off in Europe’s largest defense project, were roughly in line with analysts’ expectations.

Designed to give Europe independent heavy-transport capability and sold to a group of NATO nations at a fixed cost that turned out to be too optimistic, the plane has been plagued by difficulties since its engine development went awry in 2008.

Most recently, a flawed component in gearboxes built by GE subsidiary Avio has forced Airbus to make costly fixes.

Airbus has also been struggling to develop the defensive systems for Europe’s newest warplane and missed two crucial milestones for versions known as 1.0 and 1.5: triggering clauses that could allow nations to cancel the 20-billion-euro project.

Failure to tackle that crisis despite repeated pledges has fueled mounting frustration inside and outside the group after a 3.5-billion-euro bailout from seven European nations in 2010.

However, group CEO Tom Enders said the aircraft could already do the bulk of what it was designed to and that he was confident of finding a “reasonable” deal in talks with buyers over a new schedule.

The financial impact of those talks could be “significant,” Finance Director Harald Wilhelm told analysts, reiterating warnings of further writedowns.

Enders also expressed optimism about the chances of exporting the aircraft, designed to fit between the C-130 Hercules and the now-halted Boeing C-17, which has so far only had two confirmed export buyers, one of which canceled.

Despite worries over the economy, Enders insisted the commercial aircraft market still had good momentum, allowing the company to breathe more easily over its goal of selling at least as many jetliners as the 650 it plans to deliver this year.

After an unusually slow first quarter, Airbus ended this month’s Farnborough Airshow with 380 net orders since the start of the year and added a further 30 from Jet Blue this week.

Problems mainly with two key suppliers have left Airbus with rows of incomplete civil jets and an unprecedented delivery task for the rest of the year. But the company said it could still meet its target of handing over more than 650 jets in 2016.

These include 50 of the new carbon-composite A350 aircraft, compared with just 12 in the first half of the year. Until recently, the jet has been relatively free of delays that spread across the global aerospace industry in the past decade.
“The guys are burning to demonstrate that they can deliver 50 (A350) aircraft by the end of the year,” Enders said.