Airbus, a Jewel of the European Economy, Signals Distress
Airbus, a Jewel of the European Economy, Signals Distress
Airbus, the European aircraft giant, could not make planes fast enough earlier in the year. But the coronavirus pandemic has forced it to face a devastating fact: Some airlines that put in orders do not want its planes now.
The aerospace company said on Wednesday that 60 of its aircraft could not be delivered in the first quarter, partly because the airlines that ordered them want to put off paying for them.
With the majority of the world’s commercial aircraft sitting on runways and not earning money, airlines do not need new planes.
“We are now in the midst of the gravest crisis the aerospace industry has ever known, ” Guillaume Faury, the company’s chief executive, said in a statement on Wednesday.
The company reported a net loss of 481 million euros (about $522 million) in the first quarter of 2020, a reversal from a profit of 40 million euros in the same period a year ago.
Last year, while Boeing struggled with the grounding of its 737 Max plane after two crashes killed a total of 346 people, Airbus topped its American rival in the global race for aircraft deliveries. Two months ago Mr. Faury told investors that the company’s A320 jets — the main competitor to the 737 Max and the bulk of Airbus’s commercial business — were sold out through 2025.
Now with business down by a third or more, Airbus’s factories in Germany and France have been producing too many aircraft. The company has been spending far more cash — to pay employees and purchase the hundreds of thousands of components that make up an aircraft — than it is receiving from customers.
Recently, Mr. Faury sent a memo to employees warning that Airbus, with a work force of 134,000, was “bleeding cash at an unprecedented speed, which may threaten the very existence of our company.”
Specifically, the company bled 8.5 billion euros in cash in the first quarter, with 3.6 billion euros going to settle a corruption investigation with authorities in France, Britain and the United States.
Over all, it delivered 122 commercial aircraft compared with 162 in the first quarter of 2019. Aircraft delivery is a key threshold for earning revenue for aircraft makers.
The numbers released Wednesday reflected the January-March period, and the situation for Airbus appears likely to worsen before it improves because the effects of the pandemic on air travel only started midway through the quarter.
“April and maybe also the following months will be tougher in terms of deliveries than what we have seen,” Dominik Asam, the company’s chief financial officer, said on a call with reporters, although he expressed optimism that the situation might improve later in the year.
Earlier in April, the company said that it would slow overall production by about one-third by temporarily halting or slowing work at various facilities including plants in Mobile, Ala., Britain, France and Germany. On the same call, Mr. Faury said these output cuts would be reviewed later this year and could go deeper.
During these slowdowns, the company is shedding staff through government-financed furloughs. On Thursday, about half of the 6,000 workers at a facility in Broughton, Wales, that makes wings will begin a furlough largely paid for by the British government but partly financed by Airbus. It is also furloughing about 3,000 workers through a French government-assistance plan. More of these temporary job reductions are likely to come in France, Spain and Germany, according to the company.
The company is trying to adjust its operations to the collapse of the world’s airlines, Airbus’s main customers.
“This is just a very unusual circumstance in which the end user market has simply failed,” said Richard Aboulafia, vice president for analysis at Teal Group, an aviation consulting firm. “This has never happened before.”
A meltdown at Airbus would have geopolitical ripples. With German, French and Spanish ownership and plants strung across the continent, it is a largely successful pan-European project that has created a powerful rival to Boeing and the American aerospace industry.
“The importance of Airbus transcends the purely economic aspects of its activities,” said Daniel Capparelli, head of the trade practice at Global Counsel, a consulting firm. Airbus, he said, was the “flagship example” of choosing and supporting European Union-wide industrial champions.
Its success “enables Europe to throw its weight around and compete with the U.S. on a global scale,” said Mujtaba Rahman, managing director for Europe at the Eurasia Group, a political consulting firm.
Beyond its own employees, Airbus supports hundreds of thousands of other mostly well-paid and technologically sophisticated jobs across Europe.
“This is the sort of employment that national governments everywhere have been trying to grow,” said Sandy Morris, an analyst at Jefferies, an investment bank. If Airbus suffers a steep downturn, he added, “I really don’t like the implications for employment across Europe.”
Analysts said that Airbus was not in immediate danger of running out of money. The company has a strong balance sheet, reinforced by 15 billion euros in new credit lines. If stress increases, the company could take loans from the European Central Bank, they said.
“They are in an OK state to withstand what is likely to be a very bad year,” said Jeremy Bragg, an analyst at Redburn, a market research firm.
This relative financial strength could give Airbus a competitive advantage over Boeing although at present there is not much to play for. Boeing, which remains hobbled awaiting the return of its most popular plane, said Wednesday that it planned to cut its work force by about 10 percent.
Mr. Faury appears to be trying to prepare both his employees and their unions for what are likely to be tough upcoming measures to reduce costs.
He has also become a cheerleader in the efforts of ailing airlines to secure government aid, noting that his company — and its vast network of suppliers — need healthy airlines. The company will not be able to perform well after the crisis without “an ecosystem that will be still alive and able to recover,” he said.
In a recent interview with the German magazine Der Spiegel, he also suggested that European governments could promote an arrangement for airlines to phase out old, polluting aircraft and replace them with more climate-friendly models.
Mr. Aboulafia, though, warned that the collapse of air travel looks “a lot worse” than previous versions, like the 2008-2009 financial crisis. Air traffic, for instance, is down about 80 percent, according to the IATA, an organization that represents airlines.
Airbus and other plane makers are likely to need to dial back a lot more than they have, he said. It will also probably take years before demand for aircraft recovers.
“In order to keep up even a minimal level of production, they are going to need help” from governments and financiers, he said.