Today, in light of a heavier-than-expected quarterly losses and a continuing lack of demand for new wide-body aircraft, European aircraft manufacturing conglomerate Airbus Industrie has announced it will cut production rates of its new flagship A350 widebody jets in an effort to save much needed cash during the second-half of FY20 as it awaits a recovery in the air travel market.
A British Airways Airbus A350-1000 departs London-Heathrow. Photo by Ervin Eslami | AeroNewsX
Airlines have been hit hard during the COVID-19 crisis which has crushed demand for air travel beginning in February 2020. Arguably, however, no businesses in the airline industry have been hit harder than major aircraft manufacturers Airbus, Boeing and Embraer who have all had to suddenly move from some of the highest aircraft production rates in history during late-2019 and into early-2020 to near zero demand for new aircraft in the more recent months of 2020, with a particularly minuscule amount of demand for wide-body aircraft. Many high profile customers such as Singapore Airlines, Cathay Pacific and Lufthansa locked in talks with Airbus about delaying aircraft deliveries until a later date, leaving the manufacturer in a very difficult financial position.
With this in mind, Airbus today announced it would be cutting production of its flagship Airbus A350 aircraft to near half its pre-COVID production rate. This would see the number of such widebody jets built a month drop from 9.5 to 5 aircraft per month. This move from Airbus appeared to follow yesterday's announcement from Boeing that they would also be cutting production rates of their flagship 777/777X aircraft, as well as their Boeing 787 Dreamliner and axing the famous Boeing 747 altogether.
According to Airbus CEO Guillaume Faury, long-haul demand may not fully return until 2023 to 2025 in the worst case scenario. Faury added that he expected "a long and slow recovery" for the airline industry, in particular the market for widebody aircraft. This slower than expected recovery of travel demand due to COVID-19 was today slated as the main reason for the cutting of Airbus A350 production rates.
On top of this announcement, Airbus Industrie also announced its quarterly financial results for the three months ending June 30th 2020, with the lower than expected travel demand clearly hitting the manufacturer's finances hard. The manufacturer's revenue slipped 55% during the second quarter of 2020, leaving the manufacturer with a slumped revenue of EUR8.317 billion, as well as a total operating loss for the quarter of EUR1.226 billion euro's. Previously, in order to try and curb increasing losses Airbus announced it would be embarking on a restructuring program costing between EUR1.2 billion and EUR1.6 billion and cutting 11,000 jobs over a variety of roles. Despite the high costs of the restructuring, it is expected to save the aircraft manufacturer much needed cash in the long run should the COVID-19 crisis drag out for longer than expected once again.
According to the CEO, the heavy losses can also be attributed to the EUR3.6 billion bribery fine charged jointly by the governments of the United Kingdom, USA and France. The bribery scandal was linked to bribes paid by Airbus to potential customers in nations as far apart as Indonesia, Taiwan and Ghana, apparently to ensure these companies purchased Airbus products over any of its competitors aircraft.
Despite what may seem like all 'doom and gloom' for the global aircraft manufacturer, financial analysts have actually today labelled the quarterly financial results "better than expected" due to extreme efforts by Airbus management to preserve funds and prevent outgoing cashflow. Analysts also state this better than expected result should keep investors interested in Airbus, as many other aviation related businesses struggle to stay afloat.
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