AtlBill
Topic Author
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Joined: Tue Jan 03, 2006 11:23 am

Airbus's Perfect Storm

Thu Nov 30, 2006 9:18 pm

Well this may be a perfect storm scenario for Airbus. Significant interest bearing loans from the governments for the A380, a huge hit to cash flow from the A380 delay, a huge hit on costs from the delay, a huge dip in stock price, and now a record high Euro. Also, with the WTO case coming to head next year, government bailout loans may not be an option. This really explains the dilemma that is facing Airbus/EADS in funding the A350 (a plane they have to build). Originally, Airbus was requesting 1-2 Billion Euros from the EU, however the A380 has affected their cash flows to the tune of 8-10B, which happens to be the lower end estimate of the A350 program. If anyone is wondering why the November board meeting at EADS was delayed, wonder no more. Airbus does not have the cash.

This also explains why Airbus has floated the idea of a longer development cycle on the A350. This may not be a bad thing for a number of reasons.

1. Cash flow is greatest at the end of the development cycle. So, a longer development cycle delays most of the cash expenditures until the A380 program is on its way.

2. The extra time would be used to do the research and development on technologies like composites.

3. Being late to market is not all that bad. Keep in mind Boeing beat Airbus to the market by many years with the 767 and 737. So being late to market can be overcome with a damn good plane. Airbus has proven with the A330 and A320 programs that its better to get the right plane to market vs getting a plane to market on time.

This is the only logical solution I see for Airbus. Comments or Thoughts? Does anyone else see other options? How would you handle this perfect storm?
 
flysherwood
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RE: Airbus's Perfect Storm

Fri Dec 01, 2006 2:06 am

I believe that the first step to turning this around is to consolidate the office of CEO at Airbus. Having two (2) heads will only make things worse. Second, quit letting the salesman create production havoc. Having 150 different options as far as PTV's (exaggeration  Wink ) are concerned should never have been allowed. I understand that options are what really got the sales going on this frame, however they let Leahy loose and got stuck with a 2 year delay. Finally, quit acting like everything will just be fine with time. MD acted like that and look where they are now!
 
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Stitch
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RE: Airbus's Perfect Storm

Fri Dec 01, 2006 2:54 am

Quoting AtlBill (Thread starter):
Well this may be a perfect storm scenario for Airbus...

I just don't see the situation being as dark as many believe. Airbus is selling a boatload of A320s and the A330 is enjoying sales that could be deemed "strong" in the face of the 787-8's and 787-9's imminent arrival. Even the A340 is finding some buyers and two large A388 customers have re-committed to the model with additional option conversions and LoIs.

Quote:
Significant interest bearing loans from the governments for the A380, a huge hit to cash flow from the A380 delay, a huge hit on costs from the delay, a huge dip in stock price, and now a record high Euro.

Airbus still has a decade to pay back the loans, so it's not like the entire amount is due in the next year or two. And while the next few years will see a large earnings hit, it's important to remember that is deferred earnings, not lost ones. Those billions will be coming in, just years later then expected. And the Euro is still trading around 1999 levels, and Airbus continues to hedge, if not as aggressively.

Quote:
Also, with the WTO case coming to head next year, government bailout loans may not be an option.

Even if the WTO rules the loans illegal, that doesn't mean the EU can't give them to Airbus. Boeing continued to take advantage of US tax law ruled illegal by the WTO for some time, before the EU formally threatened sanctions. And, of course, nothing is stopping the EU from giving the loans ahead of any ruling, even if such an action was perceived as ensuring the WTO ruling them illegal as that ruling would only apply going forward (I believe).

Quote:
This really explains the dilemma that is facing Airbus/EADS in funding the A350...This also explains why Airbus has floated the idea of a longer development cycle on the A350. This may not be a bad thing for a number of reasons.

The longer Airbus waits, the better it is for Boeing because the 777 family is the only replacement for existing A340s and 777s for most operators. And every new 777 Boeing sells is one less A350XWB order that can be landed in the 2010s. And it is also one more opportunity to sell a Y3 in the 2020s.

Quoting Flysherwood (Reply 1):
I believe that the first step to turning this around is to consolidate the office of CEO at Airbus. Having two (2) heads will only make things worse. Second, quit letting the salesman create production havoc...I understand that options are what really got the sales going on this frame, however they let Leahy loose and got stuck with a 2 year delay.

While customer IFE has been the source of the issues, if Airbus had not lost configuration and design control, it never would have been an issue. Many airlines have very fancy IFE packages on their current Airbus and Boeing planes and it is not an issue, after all. So I don't believe you can pin this one on Mr. Leahy.  Smile
 
Poitin
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RE: Airbus's Perfect Storm

Fri Dec 01, 2006 3:52 am

Quoting Stitch (Reply 2):
Airbus still has a decade to pay back the loans, so it's not like the entire amount is due in the next year or two. And while the next few years will see a large earnings hit, it's important to remember that is deferred earnings, not lost ones.

Cancelled A 380's are lost earnings. While we have only heard from Fed Ex, Virgin, Thai, and several others are muttering. We will have to see what really happens, but don't be surprised if the cancellations start coming in.
Now so, have ye time fer a pint?
 
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Stitch
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RE: Airbus's Perfect Storm

Fri Dec 01, 2006 4:34 am

Quoting Poitin (Reply 3):
Cancelled A 380's are lost earnings. While we have only heard from Fed Ex, Virgin, Thai, and several others are muttering. We will have to see what really happens, but don't be surprised if the cancellations start coming in.

True, but some of those cancellations are being offset by add-ons by SQ and QF. I also expect LH to add-on.