Planeflyer
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Why isn't Airbus more profitable?

Mon Feb 05, 2018 4:46 pm

My investment thesis is that with the A350 development costs completed, EADS profits should rise substantially but given all the A32xx series being delivered it seems they should be earning more now.

Ideas would be appreciated.
Last edited by SQ22 on Mon Feb 05, 2018 6:05 pm, edited 1 time in total.
Reason: Title updated, EADS is history
 
mjoelnir
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Re: Why isn't EADS more profitable?

Mon Feb 05, 2018 4:51 pm

EADS is Airbus SE today.

Earning more compared to what?

Airbus can not defer the A350 and A320neo family ramp up cost. They have to write that off in real time. I would imagine ramp up cost for both programs are high last year and will be high this year.
 
jetblueguy22
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Re: Why isn't Airbus more profitable?

Mon Feb 05, 2018 7:41 pm

Margin boosts don't happen overnight. It takes time.
Look at sweatpants guy. This is a 90 million dollar aircraft, not a Tallahassee strip club
 
parapente
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Re: Why isn't Airbus more profitable?

Mon Feb 05, 2018 7:57 pm

Your investment thesis? More detail.....
What degree are you studying for?
 
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MrHMSH
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Re: Why isn't Airbus more profitable?

Mon Feb 05, 2018 10:34 pm

Other more qualified posters will be along I suspect, but I'll have a crack at answering.

The A350's development costs have been completed, but as usual with new aircraft, it takes a while for each aircraft to breakeven on its production costs, the A350 is expected to reach this point in 2019 I believe. From 2019 onwards each A350 will make a profit, and when the majority of the current orderbook has been delivered and paid for Airbus will make profits from it.

On the A32X: simply put, not enough have been delivered yet for there to have been a significant contribution to Airbus' profit. Most planes delivered in recent years have been A32Xceos, sold at lower price so the production gap was bridged, which means lower margins. Airbus commands a sizeable premium on A321neos in particular, once they are being delivered in large numbers the profits will grow. Similar story for the A330neo, but the A330neo doesn't have the premium compared to the A321neo.
 
Arion640
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Re: Why isn't Airbus more profitable?

Mon Feb 05, 2018 10:53 pm

While it's a genuine question, the why doesn't this or why does thread seems to be making a return to airliners.net.

To answer the question it takes time to see margins grow like mentioned above. How long did it take Boeing to breakeven on the 787 after all the mess ups?
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dc10lover
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Re: Why isn't Airbus more profitable?

Mon Feb 05, 2018 10:53 pm

I often wondered if Airbus didn't make the 4 - egine A340, how far advance would they be if they kept building twin engines instead.
Why endure the nightmare and congestion of LAX when BUR, LGB, ONT & SNA is so much easier to fly in and out of. Same with OAK & SJC when it comes to SFO.
 
Planeflyer
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Re: Why isn't Airbus more profitable?

Mon Feb 05, 2018 11:32 pm

Guys, I’m not talking about the 350 I’m talking about AB as a whole.

Compared to other large publicly traded aerospace companies AB is at the low end of profit and cash generation.

My thesis is both will improve now that the bulk of development costs for the 350 and 400 have benn completed but I’d like to see what others, especially those that closely follow the company, think.

Full disclosure, I’m an investor w a significant position in both Boeing and AB.

I’ve been thinking about increasing my position AB which is the reason behind my question.
 
Samrnpage
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Re: Why isn't Airbus more profitable?

Mon Feb 05, 2018 11:55 pm

Their cash flow is ridiculous, they are hardly broke. The Margins will get there in time.
 
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Lilienthal
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 12:01 am

PEK777 wrote:
-non-centralized workforce
-lazy workforce, extended vacation times which increase employee cost per hour and result in significant downtime
-high regulation. Economic suicide in the EU via global warming/ carbon tax scams
-high taxes on all citizens to pay for housing and benefits of Muslim 'refugees'



:lol: :lol:

watch out guys, we've got an expert over here...
 
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william
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 12:11 am

Boeing’s operating margin is 11%. What is Airbus’s?
 
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Revelation
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 12:17 am

MrHMSH wrote:
Other more qualified posters will be along I suspect, but I'll have a crack at answering.

The A350's development costs have been completed, but as usual with new aircraft, it takes a while for each aircraft to breakeven on its production costs, the A350 is expected to reach this point in 2019 I believe. From 2019 onwards each A350 will make a profit, and when the majority of the current orderbook has been delivered and paid for Airbus will make profits from it.

On the A32X: simply put, not enough have been delivered yet for there to have been a significant contribution to Airbus' profit. Most planes delivered in recent years have been A32Xceos, sold at lower price so the production gap was bridged, which means lower margins. Airbus commands a sizeable premium on A321neos in particular, once they are being delivered in large numbers the profits will grow. Similar story for the A330neo, but the A330neo doesn't have the premium compared to the A321neo.

Ahhh, if only Europe wasn't so old fashioned and allowed program accounting, they'd be showing some really nice margins! :biggrin: :stirthepot:
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Ruscoe
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 1:21 am

I suggest you take a good look at the Airbus balance sheet, and try to interpret "between the lines".
Airbus has several problems, which are being made more obvious by Boeings ability to improve efficiency and margins.
In the big picture Airbus suffers severely because of the stockholding which effectively gives control to the French and German Govt's, with a bit for Spain also.
The overall effect of this is that Airbus has some social prerogatives that Boeing (for example) does not have. In the past more so but ongoing is the need for a company the public can identify with (although corruption has put an end to this), an employment vehicle in a skilled field, a symbol of national pride, the desire to be no1 in sales and production if not profit, which leads to one of their big problems,=.
They sell aircraft too cheaply. If you want to take the time to find it you will find that Airbus via high ranking officials, has said this many times. IMO these are the sounds of frustrated executives trying to send a message to the major shareholders via the public, because the executives are not allowed to run the company in a totally profit first above all else, manner. Enders is trying to do something about this (and corruption) and you know that story.
Back to the balance sheet. Airbus 2016 figures has the following Financial instruments
Bonds in various forms (some of which can be converted to Airbus shares) of 4.5 billion; liabilities to financial institutions (we would call them P & I loans) of 2.4 billion; but amazingly 19.5 billion in other forms of financing, including 7 billion in EGRA and 11 billion in Financial derivatives.
In addition it has 40 billion in advance customer payments. How much of this is in excess of already spent cost of production? Where is this money. Boeing has the same problem but we are talking about Airbus. I have heard it said, that Airbus must keep on selling aircraft to get the advance payments, to help fund operations.
What does the share market say?
What all this means in a practical sense is that Airbus does not have a lot of room to manoeuvre without getting concession from European Govt on the 7 billion EGRA, whilst by way of comparison, Boeing could launch a new program and finance it from the amount of capital it is using to buy back shares.
Then there are European labour laws!

Ruscoe
 
SXDFC
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 1:38 am

The reason why Airbus isn't more profitable is because they no longer have the tooling to make a narrowbody that is capable of flying TATL flights and carrying lots and lots of fish in the cargo hold... Ahhh wait.. wrong company!
 
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william
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 1:41 am

Route66 wrote:
Planeflyer wrote:
My investment thesis is that with the A350 development costs completed, EADS profits should rise substantially but given all the A32xx series being delivered it seems they should be earning more now.

Ideas would be appreciated.


To check some of the theories on why, it would be helpful to look at margins over the years and correlate them with other events in Airbus history.

MrHMSH wrote:
On the A32X: simply put, not enough have been delivered yet for there to have been a significant contribution to Airbus' profit. Most planes delivered in recent years have been A32Xceos, sold at lower price so the production gap was bridged, which means lower margins. Airbus commands a sizeable premium on A321neos in particular, once they are being delivered in large numbers the profits will grow. Similar story for the A330neo, but the A330neo doesn't have the premium compared to the A321neo.


I thought 50 narrow bodies/month was the cashcow that must be protected at all costs? I read that here constantly, or maybe that is just Boeing? But the $15 million or so premium per plane will be appreciated, I'm sure.

william wrote:
Boeing’s operating margin is 11%. What is Airbus’s?


Commercial, Defense, both? In fairness, defense should be separated.

PEK777 wrote:
-lazy workforce, extended vacation times which increase employee cost per hour and result in significant downtime


This is some truth to the productivity levels, if one were to compare the US with Europe in general. Americans work more days per year to start. But who builds more planes with the least people? Hard to tell with outsourcing.

Revelation wrote:
Ahhh, if only Europe wasn't so old fashioned and allowed program accounting, they'd be showing some really nice margins! :biggrin: :stirthepot:


I'm curious how much program accounting affects profit margins? Can you explain?


Include Commercial and Defense, Boeing does.
 
strfyr51
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 4:45 am

dc10lover wrote:
I often wondered if Airbus didn't make the 4 - egine A340, how far advance would they be if they kept building twin engines instead.


For some reason Airbus didn't think the ETOPS regime would fly iitially when the B767-200 first went ETOPS and they wound up wasting valuable time. And?
The ETOPS regulations were by the US FAA when they became internationally recognized they became EROPS. Then Boeing , Airbus and everybody else got on the Bandwagon. A Boeing exec said even boeing wasn't keen on Twin engine operations but they wanted to sell Airplanes and TWA had already done the initial proving of the concept.
 
Planeflyer
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 4:47 am

I'm not trying to compare AB to Boeing or USA to Europe. The question in front of me is will AB increase profits and cash flow in the next 5 years and by how much.

In my thinking AB has the following going for it:

350 and 400 development costs are over

350 deliveries will accelerate

321 NEO and LR should allow for significant upside in margins

So the question is can these programs overcome the the downside risks in space, defense and the 380 program.
 
astuteman
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 6:08 am

Planeflyer wrote:
Guys, I’m not talking about the 350 I’m talking about AB as a whole.

Compared to other large publicly traded aerospace companies AB is at the low end of profit and cash generation.


Ignore all the socio-economic bullshit - it's really easy.

After spending huge amounts in R+D right across the range, on the A380, A350 in various guises, the a320 and A330 NEO's and the A400M, which it hasn't hidden behind programme accounting, Airbus has really struggled to make its production ramp-ups - particularly last year, when every single product range suffered delays in production.

The A320NEO cash cow in particular was badly hit, but the A350 and A330NEO also suffered quite badly.
The effect on profitability, and in particular cashflow, has been dramatic, with huge quantities of WIP sitting around on the tarmac

The end of last year offered some evidence that things are now starting to turn around - A320NEO's started to get delivered in quantity, the A350 finally hit rate 8, and the A330NEO finally got engines that let it fly.

I anticipate that over the next few years Airbus profit and cashflow will rebound strongly

Airbus does suffer to some extent because it doesn't have the large scale of defence work that Boeing does, that in the USA is guaranteed to deliver not only double digint profit margins, but strongly positive cashflow, by an extremely generous US DOD, and its funding taxpayer.
Having worked on major defence programmes all my life, I can assure you that the US government takes an approach to its contractors that the rest of the worlds suppliers can only look on with envy. It is their choice, and it gives them a very strong defence industry.
If anyone tries to dismiss this, I have every GAO report on defence programmes for the last 30 years on my hard drive.
The sums that have been added to secure that double digit margin and positive cashlow dwarf any other figures we ever discuss.
There's a reason BAE systems went from being a UK supplier only, to becoming the US's 3rd biggest defence contractor.

I'll tell you what isn't happening

A lazy workforce :shakehead:
Poor efficiency :shakehead:
Arcane financial practices :shakehead:
Selling its planes too cheaply :shakehead:

Ignore those peddling these messages - they are spoilers. Nothing more.

Rgds
 
WIederling
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 9:01 am

Planeflyer wrote:
Guys, I’m not talking about the 350 I’m talking about AB as a whole.

Compared to other large publicly traded aerospace companies AB is at the low end of profit and cash generation.


One major differentiator is GAAP vs IFRS.

GAAP is US industry self designed and targeted at presenting corporate values in a nice soft rosy light.
Program accounting is one very special tool in that domain. not only via moving cost as asset into the future
but also for being able to account in a way item values to the summ of all outlay. IMU IFRS you could
never value a thing higher than the merchandisable value.

IFRS forces a conservative valuation.
not a bookkeeper but talking with largish customers the difference can be 5..10% That can move you from loss making
to profit making.
The drive for changing the US over to IFRS, though the need is seen, appears mired.
Murphy is an optimist
 
mjoelnir
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 9:55 am

Planeflyer wrote:
Guys, I’m not talking about the 350 I’m talking about AB as a whole.

Compared to other large publicly traded aerospace companies AB is at the low end of profit and cash generation.

My thesis is both will improve now that the bulk of development costs for the 350 and 400 have benn completed but I’d like to see what others, especially those that closely follow the company, think.

Full disclosure, I’m an investor w a significant position in both Boeing and AB.

I’ve been thinking about increasing my position AB which is the reason behind my question.


As there are not many public traded aerospace companies doing better than Airbus, GE for example is in a slump, I think you compare Airbus with Boeing. The difference is that Boeing just defers ramp up or early production cost and Airbus has to book them in real time. Regarding the 787 it was 27 billion USD that were deferred. So Boeing operates with inflated profits the last years. To that you can add that accounting to USGAAP instead of IFRS shows usually higher profits anyway. The other side of this equitation is, that after Airbus is done with the A350 ramp up, declared profits should go up nicely
 
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CARST
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 10:01 am

The main differences for me are...

a) Airbus is half the size of Boeing comparing the yearly revenue

...and...

b) Boeing making billions of dollars from military government contracts in the USA alone, plus many more billions from international sales, while Airbus is in the field of military aircraft and helicopters, too, but makes way less money in this area, due to the European countries spending way less on defence (USA: 3.3% of its GDP, European Union 1.5% of its GDP) and also Boeing having the way bigger line-up of products due to historical reasons.


Just comparing the civil areas of Airbus and Boeing, they are very close together.
 
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airmagnac
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 10:11 am

Planeflyer wrote:
My investment thesis is that with the A350 development costs completed, EADS profits should rise substantially but given all the A32xx series being delivered it seems they should be earning more now.

Ideas would be appreciated.


Quite a few conjectural factors came together in 2017 regarding product status :
  • On-going major devleopment & flight test : A350-1000 ; H160 ; A330NEO ; OneWeb satellites ; Ariane 6
  • In early manufacturing phases (learning phase) and ramp-up : A350-900, A320NEO ; OneWeb satellites. These are actually the most costly phases in an aircraft program, due to the high recurring cost per aircraft produced, compounded in the case of A350+A320NEO by various supply issues resulting in lots of cash outlay & inventory costs without corresponding income.
  • Legacy aircraft (i.e. good margins) ramping down/ramped down: A320CEO, A330CEO


Other conjectural issues at corporate level :
  • A major group re-organisation (HQ, strategy, central research function) was carried out, and this can be costly (laid-off or relocated employees get compensations, for example)
  • Various export financing mechanisms from france/Germany/UK were put on hold following the opening of investigations
  • Dip in the helicopter market + H225 legal issues and reputation hit following a 2016 accident
  • A400M never-ending story with significant one-off cash outlays (hopefully that one is conjectural, but I'm starting to wonder...)


On the structural side, Airbus Defense side is not a significant cash contributor to the group, which is unlike many other Aerospace companies benefiting from a high-margin cash flow from government contracts.

But moving forward, the company's position is sound. All above developments & ramp-ups should be ending this year or by 2020 ; the product lines are fairly well positioned overall and should not require major developments (>5B$) any time soon ; CivAircraft backlogs are full, and there is huge potential in services. As with most of the fashionable "digital transformations", there should also be quite some potential to cut costs through a streamlining of operations (manufacturing, support), and adapting them to a "digital" world, but this may require some up-front investments
The main downside is the possibility of major fines due to the various legal investigations - but that should be a one-time impact.

So despite the somewhat weak operational efficiency of Airbus in 2017, one might expect profitability to rise in the next few years.
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airmagnac
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 10:20 am

WIederling wrote:
One major differentiator is GAAP vs IFRS

mjoelnir wrote:
Boeing operates with inflated profits the last years


While I agree on the general effect of program accounting/deferred costs on profits & loss calculation, I'm not so sure it has that big of an effect on the particular year 2017...although I will admit to not having time to check Boeing financial statements.
Currently, only the MAX is in an early production phase with a potential to cost more than average, but I doubt that MAX overcosts are very significant in the grand scheme of things
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WIederling
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 11:07 am

airmagnac wrote:
Currently, only the MAX is in an early production phase with a potential to cost more than average, but I doubt that MAX overcosts are very significant in the grand scheme of things


Program accounting is the "specialty" Boeing has over other GAAP accounted entities.
GAAP vs IFRS is another distinct difference.
Murphy is an optimist
 
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airmagnac
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 11:35 am

WIederling wrote:
airmagnac wrote:
Currently, only the MAX is in an early production phase with a potential to cost more than average, but I doubt that MAX overcosts are very significant in the grand scheme of things


Program accounting is the "specialty" Boeing has over other GAAP accounted entities.
GAAP vs IFRS is another distinct difference.


You're right, there are 2 separate topics (program accounting and GAAP vs IFRS). My bad.
Still, I strongly doubt either one has significant impact on the relative EBIT difference between A and B for 2017.
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r2rho
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 12:23 pm

I do believe that profit margins at Airbus will increase over the next years, as there are barely any new development costs anymore (no new aircraft programs), the worst of the A400M has passed, production break-even for the A350 will kick in, etc etc.

But A&B are not Apple and Google, and will never be. Aerospace is a very high capital cost industry, with returns on investment over a VERY long period of time - an aircraft program runs for some 20 years. You spend a lot of money upfront, only to recover it very little by little over the coming decade or so - assuming you built (and certified!) a good aircraft design in the first place, which is no small feat (see the highly advanced Japanese industry struggling to certify a regional jet).

If you're looking for high margins, let alone the unreasonably high margins that many investors ask for these days, this is the wrong industry. OTOH, if you are looking for long-term sustainable, healthy margins, without looking at quarterly results, then it's a good place.
 
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Revelation
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 12:28 pm

astuteman wrote:
I anticipate that over the next few years Airbus profit and cashflow will rebound strongly

airmagnac wrote:
But moving forward, the company's position is sound. All above developments & ramp-ups should be ending this year or by 2020 ; the product lines are fairly well positioned overall and should not require major developments (>5B$) any time soon ; CivAircraft backlogs are full, and there is huge potential in services. As with most of the fashionable "digital transformations", there should also be quite some potential to cut costs through a streamlining of operations (manufacturing, support), and adapting them to a "digital" world, but this may require some up-front investments
The main downside is the possibility of major fines due to the various legal investigations - but that should be a one-time impact.

So despite the somewhat weak operational efficiency of Airbus in 2017, one might expect profitability to rise in the next few years.

After having my fun, I'll thank you both for the strong posts. I share the positive outlook of Airbus's future strong financial results.

One question it raises for me: if defense is not likely to become a strong contributor (relative to commercial and/or competitor's defense business) why is Airbus integrating it deeper into their company (EADS becomes Airbus and executives now operate across commercial and defense) rather than keeping it more isolated and positioning it for a potential spin off in the future?
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Revelation
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 12:33 pm

r2rho wrote:
I do believe that profit margins at Airbus will increase over the next years, as there are barely any new development costs anymore (no new aircraft programs), the worst of the A400M has passed, production break-even for the A350 will kick in, etc etc.

But A&B are not Apple and Google, and will never be. Aerospace is a very high capital cost industry, with returns on investment over a VERY long period of time - an aircraft program runs for some 20 years. You spend a lot of money upfront, only to recover it very little by little over the coming decade or so - assuming you built (and certified!) a good aircraft design in the first place, which is no small feat (see the highly advanced Japanese industry struggling to certify a regional jet).

If you're looking for high margins, let alone the unreasonably high margins that many investors ask for these days, this is the wrong industry. OTOH, if you are looking for long-term sustainable, healthy margins, without looking at quarterly results, then it's a good place.

True. One thing I found interesting above is that the industry is just now speaking of "digital transformation" -- isn't that what the rest of us have been doing for quite a while now? It shows how the aviation industry has to move with such caution.
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william
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 12:47 pm

When will Airbus release their 2017 results? I can google Boeing’s but not Airbus’s.
 
mjoelnir
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 12:48 pm

In regards to IFRS against GAAP. The USA delegation was a very big driver behind the strict standards of the IFRS. When it than came to adopting the IFRS in the USA the industries protested and implementation was put on hold, when it was discovered that accounting according to IFRS would cut declared profits compared to accounting to USGAAP standards. One has also to look at the point, that under USGAAP several industries have grandfathered somewhat obscure specialized practices, that the IFRS would not accept.
I am always astonished, that here on a.net accounts by international firms done according to IFRS are looked at critical, but the murky accounting practices according to USGAAP, look for example at GE, are accepted without questioning.
 
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EPA001
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 12:58 pm

astuteman wrote:
I anticipate that over the next few years Airbus profit and cashflow will rebound strongly

I'll tell you what isn't happening

A lazy workforce :shakehead:
Poor efficiency :shakehead:
Arcane financial practices :shakehead:
Selling its planes too cheaply :shakehead:

Ignore those peddling these messages - they are spoilers. Nothing more.

Rgds


That sums it up quite nicely. And even though they have taken some hits, they are still a very profitable company. Which numbers will improve over the coming years for the exact reasons you have explained here.
 
mjoelnir
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 1:05 pm

Revelation wrote:
[

One question it raises for me: if defense is not likely to become a strong contributor (relative to commercial and/or competitor's defense business) why is Airbus integrating it deeper into their company (EADS becomes Airbus and executives now operate across commercial and defense) rather than keeping it more isolated and positioning it for a potential spin off in the future?


They just took some extra level out of the corporate structure and cleaned it up. Few recognized EADS, but most know about Airbus, a higher Name recognition. The structure done away with was the Airbus group. Airbus Defense and Space and Airbus Helicopters are still separate divisions.
Airbus Defense and Space is small compared to Boeing, but the helicopter division is the biggest producer of helicopters. Bigger than Boeing, Sikorsky or Leonardo (former AugustaWestland). But the helicopter business is in a bit of a slump all over.
 
SC430
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 1:48 pm

Selling it planes too cheaply !!!
 
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airmagnac
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 2:05 pm

Revelation wrote:
why is Airbus integrating it [Defense] deeper into their company?


As mentioned above, from an administrative point of view, Defense & Space is a business unit of Airbus, so the former Cassidian is still distinguishable (to some extent)
More importantly, the main business of Airbus Defense these days is in transport aircraft, and UAVs. So there should be strong synergies with the rest of Airbus. And even if the business turnover is relatively small, government-sponsored military contracts can still be interesting proving grounds for new ideas/new tech, as the customer seems more likely than a for-profit airline to have some patience till a system actually works (observing most recent military procurements !)

Revelation wrote:
the industry is just now speaking of "digital transformation"

[going a bit off topic here]
"digital transformation" is a buzzword, like "lean", "agile" or "disruptive innovation" before it. Everyone seems to be speaking of it !
But I think everyone has actually been doing it for 20-30 years already, in the sense that we moved from physical paper to digital-paper (word and pdf...and ppts ! :evil: )
In aerospace there have been multiple steps, including 3D design and CFD since the 80s, maintenance data browsers, troubleshooting systems (which are an early form of big data). But most communication between knowledge centers (like aerodynamics to structures, structures to systems, etc...) remained document-centric, with a whole bunch of memos, technical reports etc...

The new trend is just to get rid of this old document-based system to a data-centric system. So if you want to know the exact wing span of the A320NEO, instead of looking for the latest version of the pdf "External dimensions of A320NEO, ref XYZ-123", there is a database somewhere with the data, which you can access directly or via a dedicated application. Should make things easier in day-to-day life, but remember that all data in the industry must be tracked and validated, which was a problem
The other trend is to move away from bloated projects aiming to achieve giant leaps, then suffer spec creep, and finally deliver next to nothing. And instead introduce "agile" techniques, taking one small step after another while concurrently refining digital models of the end-product, and showing the models to the end-users on a regular basis.
Great in theory. Reality is something else...which is why I mentioned there could be some expenses to support such a change.
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Planeflyer
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 2:15 pm

Astuteman, thanks for the information. Very helpful.

I agree that AB has the commercial part of their business moving strongly in the right direction but do you have any worries that the defense side could become a money pit?

I realize it is not a significant portion of their revenues but these programs are large enough that they can consume a huge portion of profits and cash flows. Ariane for example is resourced for roughly 50% of the commercial launch market despite all the signals pointing to a significant loss of share over the next few years.

Assuming this is correct can they shift resources out of space and defense to commercial to right size the business?
 
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bikerthai
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 2:54 pm

As a long time Boeing Employee, I can put in my two following observation.

1) Boeing's margins have not been this good in the past. Historically when I started with the company up until recently, Boeing's profit have not been in the double digits. I am not sure why Boeing have been doing so well lately. It could just be the up-tick in the cycle, or Boeing have finally benefit from the reduction of domestic aircraft production. Or maybe they have finally figured how to improve efficiency in their production line.

2) I'm am an immigrant to the US. From what I hear from my countrymen who live in Europe, it is much more difficult for immigrants to establish themselves in the professional field there. Why does this matter? As I can attest, Boeing's population of non-native workers from Engineering down to the factory Mechanics are relatively high. Their contribution to the the success of the company can not be underestimated. And no, their addition do not reduce the wages (thanks to the Unions), but rather I believe the work ethics (these immigrants are more willing to work overtime) and fresh perspective from design to processes have help Boeing significantly in the last few decades.

Just my opinion.

bt
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frmrCapCadet
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 4:00 pm

A note or two:
Airbus was established, in part, by government to build great planes. It was not just another company that was suppose to produce ever better quarterly reports to investors. And it has succeeded spectacularly. Corporations do not exist just to make money, governments gave them special privileges because it was of benefit to society.

Boeing also reports its results on a cash basis. The company has been incredibly profitable, along with program accounting. It does not give high dividends and stock buy-backs by illegally printing money in a secret cave under Mt Rainier. Some of us think the company should spend more for future products. And also that Boeing reaps all the success of being a corporation, and at the same time is benefiting society less than it ought to. But that is a problem with corporations in general.
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 5:09 pm

bikerthai wrote:
1) Boeing's margins have not been this good in the past. Historically when I started with the company up until recently, Boeing's profit have not been in the double digits. I am not sure why Boeing have been doing so well lately.

Not to rain on your parade, serious answer . . .
How about:
3) Boeing's deferred cost have never been this high in the past --> (partly) enabling your number 1).
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 5:45 pm

frmrCapCadet wrote:
A note or two:
Airbus was established, in part, by government to build great planes. It was not just another company that was suppose to produce ever better quarterly reports to investors. And it has succeeded spectacularly. Corporations do not exist just to make money, governments gave them special privileges because it was of benefit to society.

Boeing also reports its results on a cash basis. The company has been incredibly profitable, along with program accounting. It does not give high dividends and stock buy-backs by illegally printing money in a secret cave under Mt Rainier. Some of us think the company should spend more for future products. And also that Boeing reaps all the success of being a corporation, and at the same time is benefiting society less than it ought to. But that is a problem with corporations in general.


You can not report results on a cash basis. You can look at the cash flow of a company and there on different parts of the cash flow and see if a company is liquid or not, but when you want to talk about results and look if a company is profitable, you have to look at earnings aka net income aka profit. Some people seem to not understand that the word profitable is related to profits not cash flow.
Boeing has only been incredible profitable if you disregard 27 billion deferred cost, that you can also call deferred loss. Boeing has moved profits from the future forward and losses to the future. So every time you compare Boeing to any other company you have to take into account the deferred cost.
Boeing has no equity, the difference between assets and liabilities, if you than look at that part of their assets is an inventory of deferred cost to the tune of 27 billion.

Why do people try to compare companies, one that accounts to the murky USGAAP with the grandfathered program for cost accounting added on top, with a company doing their books according to the stringent standards of the IRFS, without calculating the differences due to the used accounting methods?
 
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 6:10 pm

There are no $27 billion loans
There is no magic printer of dollars under the mountain

Boeing has been a cash machine
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bigjku
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 6:13 pm

Personally I find program accounting appropriate for the sector and think it makes a lot of sense if one wants to compare profits quarter to quarter to establish a useful trend without having to have intimate knowledge of exactly what is going on each quarter for the builder. In my view it makes the profit number on a quarterly basis more useful as a trend analysis number.

Where appropriate people demanded more transparency on the 787 portion of things and got it. One can find extensive analysis of it numerous places online from numbers given by Boeing. It could very well be abused but by most estimates (and it has been written about to death by numerous parties) it isn’t and is fairly well understood by the big equity market players.

I have Airbus stock in my holdings along with Boeing. My only stance on Airbus is that at some point it needs to generate its own cash. I believe it will do this over the next 12-18 months but if it doesn’t then it may have to get more serious about cost cutting on some levels.
 
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 6:24 pm

program accounting munges bookkeeping and its snapshot as a report with projections into the future.
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mjoelnir
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 7:53 pm

frmrCapCadet wrote:
There are no $27 billion loans
There is no magic printer of dollars under the mountain

Boeing has been a cash machine


As Boeing accounts Q4 2017 page 10, show total equity is 412 million USD out of total liabilities of 92,333 million USD. Everything what is not equity is on loan. That means about 92 billion USD. Not on loan per definition are the 412 million USD equity, that is left when you weigh assets against liabilities.
 
frmrCapCadet
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 8:42 pm

Which is why their stock has crashed. Plants closing. And workers running for the hills. And analysts advising sell
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Re: Why isn't Airbus more profitable?

Tue Feb 06, 2018 9:33 pm

airmagnac wrote:
As mentioned above, from an administrative point of view, Defense & Space is a business unit of Airbus, so the former Cassidian is still distinguishable (to some extent)
More importantly, the main business of Airbus Defense these days is in transport aircraft, and UAVs. So there should be strong synergies with the rest of Airbus. And even if the business turnover is relatively small, government-sponsored military contracts can still be interesting proving grounds for new ideas/new tech, as the customer seems more likely than a for-profit airline to have some patience till a system actually works (observing most recent military procurements !)

Thanks. Keeping it as a separate business unit makes it easy to achieve the goals I was thinking of.

airmagnac wrote:
[going a bit off topic here]
"digital transformation" is a buzzword, like "lean", "agile" or "disruptive innovation" before it. Everyone seems to be speaking of it !
But I think everyone has actually been doing it for 20-30 years already, in the sense that we moved from physical paper to digital-paper (word and pdf...and ppts ! :evil: )
In aerospace there have been multiple steps, including 3D design and CFD since the 80s, maintenance data browsers, troubleshooting systems (which are an early form of big data). But most communication between knowledge centers (like aerodynamics to structures, structures to systems, etc...) remained document-centric, with a whole bunch of memos, technical reports etc...

The new trend is just to get rid of this old document-based system to a data-centric system. So if you want to know the exact wing span of the A320NEO, instead of looking for the latest version of the pdf "External dimensions of A320NEO, ref XYZ-123", there is a database somewhere with the data, which you can access directly or via a dedicated application. Should make things easier in day-to-day life, but remember that all data in the industry must be tracked and validated, which was a problem
The other trend is to move away from bloated projects aiming to achieve giant leaps, then suffer spec creep, and finally deliver next to nothing. And instead introduce "agile" techniques, taking one small step after another while concurrently refining digital models of the end-product, and showing the models to the end-users on a regular basis.
Great in theory. Reality is something else...which is why I mentioned there could be some expenses to support such a change.

I'm also not a fan of agile. Having taken a few rounds of agile training and having experienced agile programs, the issue that managers miss is that agile works only when you (a) take all of it rather than pick and choose the parts you like and (b) only works when the problems you work on have tools that allow for things to work in an agile way i.e. support rapid refactoring. Clearly aviation with its many rigid interfaces doesn't fit that model very well.

As for "data transformation", yes, aviation has been an early use of digital technology. I tend to think of the "transformation" happening with warehouse scale computing and big data. As you point out, tracking and validating seems to be something the big data world is less concerned with. In big data the details merge. In many problem spaces the details need to remain, well, detailed.
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strfyr51
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Re: Why isn't Airbus more profitable?

Wed Feb 07, 2018 4:55 am

I'm actually Dying to know, What makes you think they're doing poorly?
 
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kitplane01
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Re: Why isn't Airbus more profitable?

Wed Feb 07, 2018 5:01 am

Ruscoe wrote:
They sell aircraft too cheaply.
Ruscoe


They sell aircraft at competitive prices with Boeing. Both sides complain about being undercut, but in the end the prices are pretty much what is needed to make the market 50-50.
 
Jetport
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Re: Why isn't Airbus more profitable?

Wed Feb 07, 2018 6:34 am

Let’s get back to the original question by looking at the data. Free cash flow is the best possible gauge of profitability, virtually every other financial metric is subject to accounting manipulation. Free cash flow in billions of US dollars for the last 2 year is listed below. EADSY has not yet reported Q4 17 so I included Q4 15 for Airbus. Program accounting has absolutely no impact on free cash flow for those of you who constantly use that as an explanation for BA’s superior profitability vs. EADSY.

Boeing:
Q4 17 = 2.47
Q3 17 = 2.30
Q2 17 = 4.38
Q1 17 = 1.63
Q4 16 = 2.23
Q3 16 = 2.60
Q2 16 = 2.52
Q1 16 = 0.53

EADS:
Q4 17 = NA
Q3 17 = -1.75
Q2 17 = -1.32
Q1 17 = -1.96
Q4 16 = 5.94
Q3 16 = -1.50
Q2 16 = 0.15
Q1 16 = -3.14
Q4 15 = 2.39

Last 8 Quarters BA = $18.6 Billion
Last 8 Quarters EADSY = -1.2 Billion

Currently Boeing is far more profitable than EADSY, and has been for a very long time if you go back much further in time. The only explanation I have is that BA is just a better managed company than EADS is.
 
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Re: Why isn't Airbus more profitable?

Wed Feb 07, 2018 8:05 am

Jetport wrote:
Let’s get back to the original question by looking at the data. Free cash flow is the best possible gauge of profitability, virtually every other financial metric is subject to accounting manipulation. Free cash flow in billions of US dollars for the last 2 year is listed below. EADSY has not yet reported Q4 17 so I included Q4 15 for Airbus. Program accounting has absolutely no impact on free cash flow for those of you who constantly use that as an explanation for BA’s superior profitability vs. EADSY.

Boeing:
Q4 17 = 2.47
Q3 17 = 2.30
Q2 17 = 4.38
Q1 17 = 1.63
Q4 16 = 2.23
Q3 16 = 2.60
Q2 16 = 2.52
Q1 16 = 0.53

EADS:
Q4 17 = NA
Q3 17 = -1.75
Q2 17 = -1.32
Q1 17 = -1.96
Q4 16 = 5.94
Q3 16 = -1.50
Q2 16 = 0.15
Q1 16 = -3.14
Q4 15 = 2.39

Last 8 Quarters BA = $18.6 Billion
Last 8 Quarters EADSY = -1.2 Billion

Currently Boeing is far more profitable than EADSY, and has been for a very long time if you go back much further in time. The only explanation I have is that BA is just a better managed company than EADS is.


Free Cash Flow can be calculated in several different ways - it is not an absolute measure as you imply.

That said this period does cover the worst from an Airbus perspective because it covers the ramp up period of the A350 and we all know this is notoriously the worst time in a jets life cycle for cash consumption.

Also we do know Boeing has been both aggressively squeezing suppliers with later payments and reduced prices whilst also encouraging more up front payments from customers. Both of these actions can seem to increase cash in the short term.
 
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airmagnac
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Re: Why isn't Airbus more profitable?

Wed Feb 07, 2018 9:12 am

Jetport wrote:
Currently Boeing is far more profitable than EADSY, and has been for a very long time if you go back much further in time. The only explanation I have is that BA is just a better managed company than EADS is.


Well then, please explain snippets like this (first google hit I found in a 2s search)
http://www.cnbc.com/2016/12/19/boeing-p ... yoffs.html
(December 2016)
"To successfully compete and win new orders that will fund future product development and growth requires us to achieve much better performance," Conner and McAllister said in a memo to Boeing Commercial Airplane employees on Monday.

Boeing "will need to do more in 2017" to lower costs and make its planes more affordable, the memo said.



Anyway, your view of free cash flow is objectionable, but whatever. Your post would seem to indicate that you can't be bothered to read the thread : the numbers you provide are quite coherent with what has been posted already. Just to repeat :

On Airbus side, since 2015 :
  • negative cash flow throughout the group due to multiple developments + corporate re-structuring
  • significant negative cash outflow to procure parts for A320NEOs and A350s, which is not balanced by a cash inflow on delivery, because most aircraft are stuck before delivery due to supply chain issues.
  • the exception is the month of december, which in the past few years has seen a huge peak in deliveries and cash intake due to a last-minute rush
  • This variation directly shows in the group cash flow as civil airliners make up the largest part of the financial values

On Boeing side
  • all airliner programs are in stable states, between the end of production ramp-up for 787 and the beginning of the ramp-up for 737MAX + production of 777X
  • this is augmented by a stable, reliable inflow from the military contracts

If you wish to say that Airbus could better manage its production flows, and avoid the December rush, then yes
If you wish to say that for the moment, Boeing is reliably taking in cash without spending too much, then yes
But let's call your sweeping general statements for what they are : bull shit.
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