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World’s largest plane maker has moved back its narrow body ramp up plans by three months
Airbus stemmed an outflow of cash in the third quarter as it learned to navigate an industry reeling from the pandemic, but also said the aviation market’s recovery would start later than initially forecast.
The world’s largest plane maker posted a positive free cash flow of €600 million, equivalent to $705 million, as it started delivering more planes. Amid a sudden drop in traveler demand, airlines have moved to delay, defer or cancel orders for new jets. Airbus and rival Boeing Co. have reduced production levels to adjust.
However, Airbus was making more planes than it could deliver, hitting cash flow, as airlines typically pay most of the cost of a new jet upon delivery. Airbus still has finished planes awaiting delivery, but the company was able to reduce the number by around 10 aircraft to 135.
Airbus burned through €4.4 billion in each of the first two quarters of the year. It set a target for free cash flow to be at least break even in the fourth quarter, its first guidance since the start of the pandemic.
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The European plane maker will increase production rates of the short-haul workhorse next year, throwing a lifeline to a battered industry
When it started flying in 1987, Airbus’ A320 seemed like a moonshot project from an upstart plane maker, with little chance of challenging the supremacy of the Boeing BA 2.97% 737 on short-haul flights. Skip to 2020, and it is one of the few products keeping the aviation industry afloat.
This week, Airbus reported positive cash flows for the third quarter as plane deliveries resumed. The European company shipped 145 commercial aircraft, compared with 28 for its U.S. rival Boeing. While the Airbus number was still down 20% from a year earlier, it is an impressive figure in a pandemic. Global air traffic remains stuck at half of 2019 levels, giving airlines little reason to take on planes.
The workhorse A320 family stands behind Airbus’ resilience. At this pace, it could amount to 63% of combined deliveries from both plane makers this year, compared with 39% in 2018—before the grounding of Boeing’s troubled 737 MAX. Airbus Chief Executive Guillaume Faury confirmed reports that A320 production rates will start to ramp up from 40 to 47 a month in the second half of next year.
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Airlines give away seats as they try to stop the cash burn and make travelers feel comfortable flying again
Airlines are resorting to a new tactic in navigating the pandemic-inspired collapse in travel: They are giving seats away.
Alaska Air Group Inc. ALK +2.77% ran 48-hour sales in August and September, offering an entire three-seat row for the price of a single ticket. Europe’s biggest airline, budget carrier Ryanair Holdings RYAAY +3.09% PLC, offered 2-for-1 specials for flights through mid-December. Southeast Asia’s AirAsia brand earlier this year sold “unlimited passes,” allowing customers in some markets to travel as much as they wanted for a few months.
The deals can drum up demand and get travelers comfortable with flying again. They are also keeping at least some cash coming in the door, as airlines keep much of their fleets parked. Alaska Airlines usually runs 10 to 12 big promotions a year; it has recently been offering three a month.
Alaska Airlines was already keeping the middle seat open for social distancing. Its buy-one-get-one-free offer allows a pair of passengers traveling together to get their own row for the price of a single seat. On days when the Seattle Seahawks play at home, the airline, which is based in that city, offers discounts of as much as 40% depending on how many touchdowns quarterback Russell Wilson makes. Overall during the third quarter, Alaska Airlines said ticket prices were down 17%.
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Boeing and Airbus are winding down production of the 747 and A380, planes that ended up being too big for their own good
It’s time to eulogize the passing of the 747 and A380, engineering marvels that defied gravity, tantalized travelers with luxurious cabin space and opened intercontinental travel to the masses by making cheap fares plentiful.
The pandemic sped up their demise, which seemed inevitable regardless. There’s little doubt air travel will see weaker demand for several years, which is a killer for enormous airplanes that require strong demand to fill seats. The losses will be mourned by many travelers, and will be particularly hard on airplane aficionados for whom these incredible machines represented jet nirvana.
But from the beginning, both jumbo jets were too big for most markets, and the only way airlines could fill them was by offering very cheap fares. And while travelers profit from cheap fares, airlines don’t.
Boeing announced at the end of July that it would discontinue 747 production in 2022 when it finishes building the last 15 freighters on order. The last passenger version of the 747 was delivered in 2017, though two planes built for an airline but never delivered will become Air Force One presidential transport.
Almost all 747s at passenger airlines are grounded, according to Cirium, an aviation data and analytics company. Several big airlines that fly the older 747-400 say those planes are done. The newer 747-8, flown by three airlines, likely will return to service. There are just 35 of those.
PAST GLORY FOR THE `QUEEN OF THE SKIES’
Airlines have grounded most 747s during the pandemic, and most won’t ever fly passengers again. Here’s a breakdown.
Airlines recently saying their 747s won’t return: British Airways, Qantas, KLM and Virgin Atlantic
Airlines that previously retired passenger 747s: United, Delta, Cathay Pacific and Singapore
Airlines with the newer 747-8: Lufthansa, Korean Air and Air China
Airbus announced in February that it will end production of its superjumbo A380 in 2021, again after the last remaining dozen or so airplanes on order are delivered. You might say airlines announced the end of the A380 long ago because big orders just never materialized, except at Emirates. “The A380 is not only an outstanding engineering and industrial achievement. Passengers all over the world love to fly on this great aircraft. Hence today’s announcement is painful for us,’’ Airbus said when announcing the end of production. “A380s will still roam the skies for many years to come.”
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Previous MAX program manager and chief engineer in closed-door congressional interviews stand by Boeing’s design of the plane
Two high-ranking executives who oversaw Boeing Co. development of the 737 MAX told House investigators the company’s design process wasn’t flawed despite two fatal crashes, a contrast to other company leaders’ concessions of past engineering errors.
The Chicago plane maker is approaching the final steps of getting its beleaguered MAX fleet returned to service. Lawmakers, safety experts and global regulators have previously identified technical and management lapses in the airplane’s development.
Transcripts of closed-door interviews in May with Keith Leverkuhn and Michael Teal, who directly managed MAX development through the aircraft’s 2017 debut, are part of a final congressional report slated to be released this coming week detailing a series of company and government missteps during and after certification of the MAX.
Their stance shows that nearly two years after the first fatal crash, there are differing views inside Boeing and a continuing debate across parts of the industry about the significance of pilot mistakes versus Boeing design flaws as factors in the MAX crashes.
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Transportation Committee’s findings blame design errors, flawed aircraft certification system for fatal errors
House Democrats issued a sharply worded report revealing new details of how the combination of Boeing Co. BA 4.19% design errors, lax government oversight and lack of transparency by the plane maker and regulators set the stage for two fatal 737 MAX crashes.
The 238-page document, written by the majority staff of the House Transportation Committee, calls into question whether the plane maker or the Federal Aviation Administration has fully incorporated essential safety lessons, despite a global grounding of the MAX fleet since March 2019.
After an 18-month investigation, the report, released Wednesday, concludes that Boeing’s travails stemmed partly from a reluctance to admit mistakes and “point to a company culture that is in serious need of a safety reset.”
“We have learned many hard lessons as a company from the accidents of Lion Air Flight 610 and Ethiopian Flight 302, and from the mistakes we have made,” Boeing said in a written response to the report, referring to the two fatal MAX crashes. The Chicago-based aerospace giant added: “We have been hard at work strengthening our safety culture and rebuilding trust with our customers, regulators, and the flying public.”
The findings released Wednesday also questioned whether pending changes inside the FAA would be sufficient to end what the report describes as fundamentally inadequate government reviews of new aircraft designs. Engineering and management errors on the MAX, according to the report, reflect a flawed approval process in which agency managers often undercut the authority of lower-level FAA engineers, giving industry undue influence over the process.
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Coronavirus-driven travel slump leads to mounting job losses as plane makers cut output and airlines curb flying
Companies that make parts for Boeing Co. BA and Airbus SE EADSY jets, and provide airlines with everything from engine spares to window shades, are shrinking rapidly in the wake of the pandemic-driven travel downturn.
The Precision Castparts unit of Berkshire Hathaway Inc. BRK.B +0.29% this week became the latest supplier to flag huge job cuts as the maker of aircraft-engine parts said it had shed 10,000 staff—30% of its workforce—since the start of the year.
Warren Buffett’s investment vehicle took a $10 billion write-down on its 2015 acquisition, highlighting how the crisis gripping the airline industry is expected to linger. The world’s two biggest plane makers signaled to suppliers that they plan to lower jet production for several years.
U.S. aerospace manufacturers have already shed more than 100,000 jobs since the start of the year, according to Labor Department data and regulatory filings, with the pandemic adding to existing pressures from the sharply reduced production of the still-grounded Boeing 737 MAX jet. Sector employment had climbed to almost a million at the end of last year and fell to 925,000 by June 30. Job cuts have continued to mount in recent weeks.
The biggest supplier on the MAX program, Spirit AeroSystems Holdings Inc., is cutting 8,000 jobs, around 40% of its commercial aerospace workforce. General Electric Co. is shedding 13,000 from its aviation unit, and other big suppliers such as Raytheon Technologies Corp., Howmet Aerospace Inc. and France’s Safran SA have disclosed cuts in recent weeks.
“We have received more production schedule changes this year than I think we’ve seen in the last five years,” said Spirit Chief Financial Officer Mark Suchinski on a recent earnings call.
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Travel slump leaves aerospace giant looking to cut more jobs than previously planned
Boeing BA Co. plans more job cuts in response to a pandemic-driven drop in jetliner demand it expects to continue for at least three years.
The aerospace giant told its employees in a memo late Monday that it is adding a second round of buyout offers, a move that would further reduce its workforce by an unspecified number beyond the cut of 19,000 already announced in July.
The company has increased the target set in April of cutting overall staff numbers by around 10%, according to the memo to staff from Chief Executive David Calhoun.
Further details are expected on Aug. 24, with the takeup of the buyout offer by staff reducing the number of compulsory job cuts required.
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