Airbus beats Q2 profit target, sees delivery challenges ahead

PARIS: Airbus on Wednesday posted stronger-than-expected core second-quarter earnings, led by the switch to efficient new single-aisle jets, and maintained its profit forecast for the year while warning of delivery challenges in the second half.

Europe’s largest aerospace group said second-quarter adjusted operating profit rose 72% to 1.98 billion euros ($2.2 billion), led by a more-than-twofold rise at the main Airbus commercial planemaking arm. Revenues rose 23% to 18.32 billion euros.

Analysts were on average forecasting adjusted quarterly operating income of 1.774 billion euros on revenues of 17.824 billion, according to a company-compiled consensus.

Airbus is trying to overcome industrial delays at a newly expanded plant in Hamburg, Germany, which is responsible for enhanced cabins for the in-demand A321neo, the largest version of the planemaker’s best-selling single-aisle family.

Airbus said it was looking at options to increase the share of the A321neo in the wider A320neo family.

“The second half of the year in terms of deliveries and in particular free cash flow continues to be challenging,” Chief Executive Guillaume Faury said in a statement.

Airbus is nonetheless on course to be the world’s largest planemaker in 2019 as US rival Boeing faces a longer-than-expected grounding of its 737 MAX, ordered by worldwide regulators in March in the wake of two fatal accidents.

Boeing last week posted its largest-ever quarterly loss due to the grounding crisis.

Airbus took 75 million euros in new charges in the second quarter related to the cost of winding down its A380 superjumbo programme after deciding to scrap output due to weak demand.

Airbus took 90 million euros in other charges including compliance costs as it pursues a four-year-old investigation into the use of middlemen in aircraft and other sales. It said in its accounting notes that it was too early to assess liability for potential fines or other lawsuits.

The European company warned formally for the first time of damage to deliveries and finances if the United States goes ahead with plans to imposes tariffs on European planes as part of a long-running transatlantic trade dispute over subsidies.

Airbus said it continued to support a negotiated solution.

Air France-KLM provisionally agreed to order 60 of Airbus’s new A220 jets on Tuesday while announcing the retirement of the planemaker’s A380 superjumbo from its fleet, in a bid to improve the airline’s fuel efficiency and costs.

In a boost for the A220 programme acquired by Airbus from Bombardier last year, Air France-KLM’s board approved 30 options and 30 purchase rights in addition to the 60 firm orders worth a$5.5 billion at 2018 list prices. Airbus no longer updates list prices. The order was first reported by French daily La Tribune.

The company said the 120-150-seater A220-300 would “improve Air France’s environmental footprint” as it gradually replaces its older A318 and A319 models at the smaller end of its fleet, starting in 2021.

Air France-KLM will also drop the A380 superjumbo entirely by the following year, the company said, adding that the current competitive environment “limits the markets on which the A380 can be operated profitably”. Air France had previous disclosed plans to retire three of its 10 superjumbos.

The move comes five months after Airbus announced it was scrapping production of the world’s largest airliner in response to lacklustre sales.

With two decks of spacious cabins and room for 544 people in standard layout, the A380 was designed to challenge Boeing’s legendary 747 but failed to take hold as airlines backed a new generation of smaller, more nimble jets.

Air France-KLM will “examine the possible options for the replacement of these planes with new-generation aircraft now available on the market,” the company said.

Following the A380’s demise, Airbus’s arch-rival Boeing is hoping its new twin-aisle 777X jet may scoop up more orders as it prepares to enter service next year.

Airbus said the A220 order was a memorandum of understanding, meaning final contractual details must be negotiated before it appears in the company’s order book.

Air France-KLM, formed from a merger of French and Dutch flag carriers in 2004, continues to operate a mixed fleet between its two main national networks.

Last month, KLM provisionally became the first major European customer for the newly certified E195-E2 offered by A220 rival Embraer of Brazil, whose commercial aerospace arm is being acquired by Boeing.

However, Embraer was not given a chance to compete for the Air France part of the fleet shake-up, industry sources said.

Airbus bought the loss-making A220 programme from Canada’s Bombardier last year and immediately began offering it to customers that already have other Airbus aircraft, allowing it to juggle prices and ancillary services across the fleet.

Monday’s deal extends a rebound for the A220 after leasing company Air Lease Corp provisionally ordered 50 of the planes at last month’s Paris Airshow as part of a broader deal giving the lessor access to Airbus’s hot-selling new longer-range A321XLR.

Reuters