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Airbus SE is hunting for a new captain (CEO) to steer it through some of its worst turbulence in years.
The plane maker is facing investigations around the world over alleged corruption at a time when many of its most senior executives have laid plans to depart or already exited. While Airbus has secured orders for jets that have lengthened its backlog for years, it and rival Boeing Co. face big production challenges—including tight supply lines—to deliver those planes.
Airbus on Friday confirmed Chief Executive Tom Enders wouldn’t seek an extension to his contract beyond April 2019. His No. 2, Chief Operating Officer Fabrice Brégier, who runs the commercial plane division that delivers most of Airbus’s revenue and profit, will leave in February.
Boeing Co.’s attraction to Embraer SA fits one of the goals Chief Executive Dennis Muilenburg has set for the aerospace giant: creating a level playing field in the commercial jetliner business.
Boeing this week confirmed a Wall Street Journal report that it was in talks with Embraer. But factors such as potential VETO from the Brazilian government could thwart a tie up. Analysts said that the chances of a full takeover were slim and that an expansion of the companies’ existing joint venture was a more likely outcome.
Airbus SE said this week it had completed a record-setting order for 430 jets from four airlines. These four airlines are linked to a U.S. private-equity firm. This one announcement narrows the gap opened up by rival Boeing Co. on new plane deals in 2017.
The European plane maker booked the order first outlined at last month’s Dubai Airshow for A320neo family jets. These 430 jets are destined for carriers linked to Indigo Partners LLC: Frontier Airlines in the U.S., Hungary’sWizz Air Holdings WIZZ PLC, Mexico’s Volaris and JetSmart, a new Chile-based carrier.
The sale is the biggest-ever bulk buy of planes in terms of aircraft number, with the jets carrying a list price of $49.5 billion before discounts that analysts estimate could run as high as 60%. Airbus and Indigo didn’t disclose the actual terms.
Boeing says its time for a new aircraft. The next new Boeing, known as the “new midsize airplane,” and unofficially, the 797, would likely be a double-aisle jet. The long process of design, building, testing, etc would mean the aircraft is not intended for delivery until around 2025.
The goal is to meet airlines’ needs for a plane bigger than the single-aisle 737, and smaller and with less range than the 787 Dreamliner. The new plane would overlap with the discontinued but still widely used 757 and 767, ferrying 200 to 280 passengers up to around 5,000 nautical miles.
The market for such a plane is questionable, which is one reason Boeing has not started developing it yet. The last 757 came off the line in 2004, and while airlines might like a replacement, it hasn’t been a major priority.
And Airbus has an aircraft in that space already. It can elongate the popular single-aisle A321. This would be at a lower cost and lower execution risk, since it wouldn’t be a completely new plane.
Boeing Reported First-Quarter Profit Down 9 Percent due to a $156 million charge for the KC-46 program, and a $70 million pretax charge for its 747 program. The U.S. Air Force aerial refueling tanker program is over-budget and behind schedule, while the weak air cargo market has slowed sales of the jumbo jet freighter. Earnings fell to $1.22 billion, from $1.34 billion a year earlier, but first-quarter revenue increased 2 percent to $22.6 billion.
Boeing still forecasts that its full-year profit and revenue will match 2015 and it is confident that other parts of its business would make up for the added expenses. The defense business was better than last year’s first quarter. Chief Executive Officer Dennis Muilenburg said, “Higher year-over-year deliveries of military aircraft and continued solid operating performance on core production programs drove revenue growth and strong cash flow for Boeing in the first quarter.”
Boeing did not report a 787 charge and said the program’s deferred costs rose by only $141 million to $28.65 billion, less than prior quarterly increases, but still the hole deepens. Commercial Airplanes first-quarter revenue decreased to $14.399 billion on 4 percent lower delivery volume of 176 aircraft. First-quarter operating margin was 7.2 percent. In the previous year, revenue was $15.381 billion, and the operating margin was $10.5 percent.
Earnings from commercial operations fell 36 percent to $1.033 billion from last year’s $1.617 billion. Commercial Airplanes booked 121 net orders during the quarter. Backlog remains strong with over 5,700 airplanes valued at $424 billion. In the first quarter of 2015, Boeing sold 116 aircraft, so sales this year are still strong, but some of those new sales were order changes to different types, which allowed at least one customer to delay delivery. In January, Mr. Muilenburg said Boeing will build between 740 and 745 commercial jets this year, down 20 from the 762 delivered in 2015, and the high-value 747 and 777 wide-bodies will be most affected. Expected revenue and cash flow for the year will drop accordingly. Boeing will build several flight test 737 MAXs this year, as well as the first production versions that cannot be delivered to customers until certification in 2017.
Airbus A350 deliveries are also delayed due to shortages of cabin equipment, such as seats and toilets. There are at least six A350s parked and awaiting delivery in Toulouse. Airbus delivered four A350s in the first quarter, while its target for 2016 is more than 50 deliveries. The manufacturer intends to deliver approximately 650 airplanes this year and forecast that hopes to sell 700 new ones. So far, the A350 problem has not reached the same level as 787 delivery delays that strained Boeing’s finances, but the Airbus Group is expected to report a larger than usual seasonal outflow of cash in the first quarter due to comercial jet delays and problems with the A400M military airplane. One analyst predicts a cash drain of €3.2 billion in the first quarter, and a 23 percent drop in operating profit.
Airbus has a growing backlog of undelivered passenger jets crowding the tarmac outside its factories, which is putting pressure on its cash generation this year. More than two dozen A320neos are waiting for Pratt & Whitney engines to be installed, and some plane spotters say that Airbus is running out of room. Only five NEOs have been delivered and several airlines announced delays in taking their planes. Qatar Airways is so angry that it is talking about cancelling its whole order for 50 A320neos and replacing them with 737NGs immediately and 737 MAXs later.
Aviation analysts say that the problem could tie up around €1 billion ($1.14 billion) in cash this year. Boeing had the same problem with its early model 787s several years ago and is only now finding customers to take the planes. Airbus declined to comment except to say it remained confident of meeting its published delivery targets. Further, the output of the company’s assembly lines is not being disrupted, which means more engineless A320s in the near future.
Adding to its woes, several Airbus customers officially took delivery of A320ceo Family aircraft but the planes were flown to Spain for storage.
Airbus Increased its Average List Prices by 1.1 Percent across its product line. The new prices came into effect on January 1, 2016. The price increase was calculated according to Airbus’ standard escalation formula over the January 2015 to January 2016 period and takes into account the drop in materials and commo-dities prices. John Leahy, Airbus Chief Operating Officer, Customers, said, “Our new 2016 price increase reflects the strong appetite from customers around the globe for Airbus’ comprehensive, modern and innovative product range. We see demand for our aircraft contin-uing to grow across all size categories as our reliable, efficient product line enables custo-mers to grow their businesses profitably as well as being favored by passengers who want to travel in the most comfortable cabins.” Airbus has sold 16,307 aircraft to more than 380 customers worldwide, and 9,520 aircraft have been delivered.
Airbus Aircraft 2016 Average List Prices in Millions.
A318 $75.1, A319 $89.6, A319neo $98.5,
A320 $98.0, A320neo $107.3, A321 $114.9,
A321neo $125.7, A330-200 $231.5,
A330-800 $252.3, A330-200F $234.7,
A330-300 $256.4, A330-900 $287.7,
A350-800 $272.4, A350-900 $308.1,
A350-1000 $355.7, A380-800 $432.6
The prices depend on design weights, engine choices and level of selected customisation.