Airbus Lifts Profit Goal as It Presses Advantage Over Boeing

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(Bloomberg) — Airbus SE boosted its financial targets for the second time this year while confirming a production ramp-up that would cement the European planemaker’s advantage over Boeing Co.

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The shares rose as much as 3.2% Thursday after Airbus said adjusted operating profit will reach 4.5 billion euros ($5.2 billion) in 2021. The company reversed some of the charges it took for Covid-19 disruptions as it gains confidence the pandemic’s impact is fading.  

Airbus Lifts Profit Goal as It Presses Advantage Over Boeing
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During the crisis, Airbus extended its lead in the all-important narrow-body segment that’s now leading the demand comeback. Chief Executive Officer Guillaume Faury is seeking to rally suppliers, who are still hurting from the downturn, to back a further acceleration in output. He’s in talks with parts producers about plans to reach build rates of 70 and then 75 of the top-selling A320 series a month by 2025, he said.

Airbus Lifts Profit Goal as It Presses Advantage Over Boeing
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“We clearly see the demand for this level of production,” Faury said in a Bloomberg Television interview. “But we need to take into account the situation of the supply chain, the speed at which we can get there, and the sustainability of those rates.” 

The upbeat stance contrasts with Boeing, whose shares fell on Wednesday after it said production issues that halted 787 Dreamliner deliveries for most of this year could cost it $1 billion, while 737 Max handovers won’t resume in China until early next year

Airbus, based in Toulouse, France, gained 0.6% at 12:12 p.m. in Paris. The shares are up 23% this year, compared with a 3.5% drop for Boeing. 

The U.S. company currently builds 19 of the 737 Max model that competes with the A320 each month, with plans to reach 31 in early 2022, CEO Dave Calhoun said Wednesday. Regulatory approvals in countries like China will factor into any plans to lift output further.

Supplier Strains

As demand starts to rebound, the two planemakers are going head-to-head on major narrow-body orders, including for Air France-KLM and Qantas Airways Ltd. Faury confirmed Thursday that Airbus is trying to win a narrowbody order from IAG SA, which had initially signed a 200-jet letter of intent with Boeing at the 2019 Paris Air Show.  

On a conference call, Faury said the plans to boost output are driven by Airbus’s backlog and discussions it’s having with customers, “not speculating on what’s going to happen on the other side.”

Still, Airbus is grappling with supply-chain issues that have roiled manufacturers across the globe. The company stood by an earlier goal of delivering 600 jets this year.

Furlough programs have protected Airbus from labor shortages but the company is having difficulties with on-time deliveries from a small number of suppliers, which Faury blamed for disappointing deliveries during September.

Handovers in October are also likely to fall short of current output targets, Faury said on a conference call with journalists. 

Airbus Lifts Profit Goal as It Presses Advantage Over Boeing
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On Thursday, Airbus made some adjustments to its production plans, but Faury insisted there’s been “no change of substance” when it comes to the A320. 

He told Bloomberg TV “there’s no objection” from suppliers to the company’s plans for 2022 and 2023, and that he would take a decision next year on whether to commit to 75 A320-series jets a month by 2025. 

Aircraft lessors and enginemakers have pushed back against the longer-range plans, with Raytheon Technologies Corp. Chief Executive Officer Greg Hayes saying Tuesday that he wasn’t sure the market would support 75 a month.

Airbus will target a rate of 65 per month on the top-selling narrow-body program by summer 2023, versus a previous plan to reach 64 in the second quarter of that year. A planned ramp-up of the larger A350 will also come slightly later, with build rates now seen going from five a month to six in early 2023 rather than late 2022. 

The company also set a date to increase production of its A330 widebody, with plans to build almost three planes a month at the end of 2022 from two currently. German airline Condor ordered seven of the model in August.

Profit Forecast

Adjusted operating profit was previously seen at 4 billion euros for the year. Free cash flow before M&A and customer financing is expected to hit 2.5 billion euros, versus the earlier outlook for 2 billion euros, according to a rstatement Thursday.  

The company said the new forecasts assume no further disruptions to the world economy or air traffic. 

Airbus had boosted its financial targets in July, though analysts suggested then that they may be too cautious given the delivery goals for the year.

For the first nine months, adjusted earnings before interest and taxes reached 3.4 billion euros, on 35.2 billion euros in revenue. During the third quarter, the company said it released 400 million euros of Covid-related provisions. 

(Updates with TV interview from 3rd paragraph.)

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