Airbus eyes slower, more feasible recovery after supply snags

[February 16, 2023]  By Tim Hepher

PARIS (Reuters) -Airbus said on Thursday it was slowing the production ramp-up of its top-selling model as it tries to build a more robust platform for serving resurgent jet demand following supply disruptions.

The world's largest planemaker also announced a second attempt to reach 720 total annual deliveries, after abandoning the goal last year, but raised output ambitions for its long-range A350 model as long-haul routes join the travel recovery.

Chief Executive Guillaume Faury said Airbus "lost a year" from the previous lowering of delivery targets and had a better understanding of supply disruption, which had moved beyond a standoff with overstretched engine makers seen in 2022.

Global supply chains have "stopped degrading" from COVID-19 but Airbus has built ongoing disruption into 2023, he added.

Shares in the France-based group rose 3% after it posted a stronger-than-expected 5.63 billion euro ($6.02 billion) core profit for last year, up 16%, partly due to one-offs, and predicted 6 billion in 2023.

The new targets for single-aisle jets confirm a shallower trajectory disclosed by industry sources last month, with the goal of 65 A320neo-family jets a month slipping to end-2024 and the rate of 75 slipping to 2026 from "middle of the decade".

However, Airbus still has the lion's share of the ramp-up ahead of it, with industry sources pointing to a current rate of 45 a month and a plan to exit the year at a fraction below 60 a month - a one-third hike rarely seen in aerospace.

Faury moved to reassure investors that the shallower production increase, as well as the plan to reach 720 deliveries in two years instead of one as it had hoped, was credible.

"We really believe that is feasible in the current environment," he told analysts.

Revenues rose 13% to 58.76 billion euros, buoyed by higher deliveries compared to the previous year and a strong dollar.

Airbus delivered 661 jets last year, up 8%, but well below its original target of 720, which was later trimmed to 700 and ultimately abandoned weeks before end-year.

PRODUCTION OVERLAP

In January, Reuters reported that Airbus was tempering the pace of production increases and cited a senior industry source saying the delivery goal may not significantly exceed 720 jets.

 A350 passenger aircraft are seen parked at the Airbus factory in Blagnac near Toulouse in France, June 18, 2020. REUTERS/Stephane Mahe

In an internal call last week, Faury deplored weaker than expected January deliveries and warned executives Airbus must not deliver fewer jets this year than it had targeted in 2022.

Faury confirmed he was unhappy with January's performance.

Airbus, though, confirmed plans floated earlier this week to raise A330neo output to four a month in 2024 from about 3 now.

In a surprise move, it also announced plans to hike A350 output to nine a month "at the end of 2025" from around six now after selling 40 of the jets to Air India

The decision to push towards pre-COVID levels reflects demand for widebody jets, Faury said. Previous plans had called for A350 output to remain steady at six a month throughout 2024 and 2025, up from 5.6 a month in 2023, industry sources said. The Wall Street Journal reported higher output on Tuesday.

Because of lead times, the new targets pointed to an overlap in production increases for small and large jets.

Air India said on Tuesday it would start taking most of its 470 new Airbus and Boeing jets from mid-2025. For a new client, large cabins - one of the hotspots still causing some supply difficulties, according to sources - need an 18-month lead time.

In other business, Airbus took a fresh charge for its A400M troop plane, bringing the 2022 hit to 477 million euros. The loss of two imaging satellites in the December failure of Italy's Vega C rocket weighed on defence and space profits.

Airbus' net cash rose to 9.4 billion euros, closing in on a threshold previously identified for potential share buybacks.

Faury told investors in September he would discuss buybacks with the board "as soon as we hit the 10 billion euros mark" but on Thursday he said this was more likely to be a topic for 2024.

($1 = 0.9344 euros)

(Reporting by Tim Hepher;Editing by Sudip Kar-Gupta and Mark Potter)

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