Airbus is demanding new concessions from government customers to help cap losses on its troublesome A400M military transport aircraft after it was forced to take a €2.2bn hit to 2016 profits to cover the costs of further delays and technical problems.
Tom Enders, who in 2010 threatened to cancel the aircraft if governments did not contribute to a bailout after costly engine problems, said that new measures were needed to “stop the bleeding and de-risk the programme”.
The chief executive’s comments came as the European aerospace group’s unadjusted earnings before interest and tax tumbled 44 per cent to €2.3bn, on revenues 3 per cent higher at €66.6bn. Stripping out the impact of the charges, ebit fell 4 per cent to €4bn.
Mr Enders called for a fresh round of negotiations with the launch customers — Germany, the UK, France, Spain, Belgium, Luxembourg and Turkey — to help allay penalties and damages being imposed because of delivery delays, technical problems and capability shortfalls in the aircraft.
Some of the A400M partner nations indicated to the Financial Times that they would be open to discussions with Airbus on negotiating conditions on the contract.
Mr Enders insisted that the European aerospace group was not asking for a repeat of the €3.5bn bailout agreed by governments in 2010.
“We are not looking at . . . additional funding,” he said. “But we are operating in an environment that is heavily penalising us. Customers keep cash back. Some put liquidated damages on top because we have delays in delivery. All that adds to a serious financial burden.”
With the latest €1.2bn charge in the fourth quarter, added to the €1bn taken in the first half, Airbus has taken a total hit to profits of about €7bn over the past decade on a fixed price contract originally set at €20bn.
Mr Enders said the group was still paying for the “original sin” of signing a commercial contract for a military aircraft, in which customers “make the rules” and the company took on all the risk.
“We need to work much closer together and we need to re-engage in negotiations to mitigate the situation,” he said.
He added that the European engine consortium, Europrop International — made up of the UK’s Rolls-Royce, Germany’s MTU, the French Safran and Spain’s ITP — would be expected to make “a big contribution” to capping the extra costs.
The A400M was an ambitious programme, opting to develop one of the world’s most powerful turboprop engines and designed to carry more payload than older transport aircraft such as the C130, while landing on any terrain.
However, problems first emerged in 2009 with the engine’s software, sparking the customer bailout. In 2014, the group signalled new setbacks in the final assembly line in Spain, and in May of that year an A400M crashed outside Seville while on a test flight, killing four crew members.
In the past year, new problems emerged with the propeller gearbox, forcing such frequent maintenance that the aircraft could not be used to its full capability.
Harald Wilhelm, finance director, said that barring unforeseen circumstances, the group was not expecting further charges for the programme in 2017.
Sandy Morris, aerospace analyst at Jefferies investment bank, said it was “an unsatisfactory programme with an equally unsatisfactory contract attached. Little wonder management has been mandated by the board to cap the remaining exposure. If Europe now wishes to prove its commitment to Nato, a resolution of A400M might be a good place to start.”
The A400M’s troubles overshadowed the rest of the group’s performance, where the overall result was ahead of expectations. The group set a target for “mid-single digit percentage growth” in earnings, while free cash flow would be stable.
For 2016, Airbus reported free cash flow before one-off gains from disposals and excluding customer financing of €1.4bn, up from €1.3bn last time.
Earnings adjusted for one-off charges improved 2 per cent in the civil aircraft division, accounting for two-thirds of revenues, but the helicopter unit saw an 18 per cent fall. The defence and space division suffered a 5 per cent drop in adjusted earnings.
Fabrice Brégier, chief operating officer and head of civil aircraft, highlighted continuing challenges with the Pratt & Whitney engine that powers the new version of the A320 single aisle.
However, Airbus was sticking to its target to triple deliveries of the aircraft this year. On the A350 wide body, where deliveries had been held back by problems in the supply of business seats and toilets, he said there had been improvements and the group was holding its target of accelerating production to 10 a month by 2018.
The dividend was increased from €1.30 to €1.35. Unadjusted earnings per share fell 62 per cent to €1.29.
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