william wrote:Bricktop wrote:keesje wrote:I think we have heard over the years many instances the strategies of
- "let's fix our current business first, before we do something new"
- "with the current backlog / market position, there is no need to invest even if airlines ask for it"
I think often those reasonable strategies were abused to reduce costs / investments, milk the portfolio, boast free cash flow, stock value and directly linked executive salaries.
We have seen that in the end you hit the wall. Because you drained the company & have no reserves for updating your portfolio / survive crisis.
At that time, the executives have retired & the Wall Street guys have left the room, loaded.
While the loyal, embedded, profit sharing executors lose their jobs.
A serious aerospace company has a 10-20 year planning horizon & isn't governed by today's stock price / market sentiments.
- You sail with the wind when possible, but put on the engine when required -
Unless you had to meet 3Q18 free cash flow expectations, so sold-leased back the engine to the equity fund.
Who used borrowed money, and pragmatically need 20% ROI for dividends / keep growing stock value
Most of this may appropriate as a critique of Boeing, but is totally irrelevant as to Airbus. The reminder is just bland, insipid, dewy-eyed straight-from-Business 101 boilerplate with no basis in current reality.
The A22V may in the past have even been looked by BBD and Airbus. I would be very surprised if it hadn't. Virtually everyone here has been acknowledging A's leadership in the NB market. Dominance in fact, and the numbers show it. Look at the backlog and it's silly not to. Heck, not only was the A2XN selling like hotcakes, the only competitor had its offering grounded! High fives all around. But that doesn't allow serious people to ignore real problems that Airbus has in actually getting those planes in customers hands, and they need to get planes and not pie in the sky. Having orders is great: There's no company without them, right BBD?. But as BBD found, even if you sell planes at an expected but "acceptable" loss to get that foot in the door, you need to actually build them and if that is more difficult/costly than originally thought, then it really isn't ???, profit. It's $$$, losses. And that's where Airbus is now with the A22X project. A22X "production line" is not like VW, it's like Aston Martin. Fulfilling the orders they ALREADY HAVE even at the most optimistic rate will take more than 6 years. Boosting that rate is going to cost serious capital, but Airbus can certainly do that where BBD couldn't. Maybe they will also pull a Boeing (heavens forfend!) and stick it to the suppliers.
So now let's have a look at Airbus's market dominant home-grown NB line. It consists of 2 products in reality, the A20N and the nonpareil A21N. Multiple thousands of real orders for each, sold out for years. But Airbus acknowledges there have been production difficulties in getting them out the door. Insurmountable? Of course not, but all the talk about going to rate 67 or whatever is right out the window isn't it? While I know that a focus on cash flow is scoffed at by many here, in the real world it matters. For that, deliveries have to happen, or there may be contract penalties tacked on too.
Now where does the A22V fit in to the product line? Oh wait, it nudges into the A20N's lane. So what's an Airbus exec to do? Imagine this pitch meeting.
Q: "You know the A220 is difficult to scale and expensive to build, right?" A: "I am a visionary. Practical considerations like that are below my pay grade.".
Q: "Is the A22V compatible with the 5-figure number of A320 family we have sold?" A: "No it isn't."
Q: "So now we're selling two incompatible products to our customers?" A: "Yes"
Q: "The -100 and -300 fit into niches below the A20N perfectly, but a -500 eats into it, correct?" A: "Err, it might"
Q: "So you want to make the A21N into a vitrual orphan?" A: "Not at all. Let me show you my Powerpoints of the A22N"
Sounds of breaking window on the 9th floor. (I did warn you )
Stop introducing reality into this fanciful discussion.
At this time I agree every study on the A22V is on hold.
But eventually, the lower cost per flight vs. A320N and ability to open up A321N slots will be of value.
But not in 2020 or 2021 (probably later, but let us see). There is a business case, but as noted, right now cash flow accounting must dominate.