Double hit brings Airbus shares down to earth

An Airbus A320neo in Toulouse

Airbus on Wednesday delivered a double dose of bad news, as it reined in earnings expectations for 2016 and postponed the eagerly awaited delivery of its newest passenger jet.

The European aerospace and defence group said earnings before interest and tax and one-off items would be flat in 2016, compared with analysts’ consensus expectations for 6 per cent growth.

Tom Enders, Airbus’ chief executive, said in an interview with the Financial Times that 2016 would be “a challenge as far as cash flow is concerned”, given the acceleration in the rate of production of the A350XWB wide-body passenger jet and in the A400M military transport aircraft. However he said that a disposal programme announced earlier this year would “support our earnings per share growth”.

His comments, delivered on the sidelines of Airbus’ global investor day in London, came just hours after the group revealed that delivery of its new A350 jet to its first customer Qatar Airways had been delayed at the last minute.

The double hit pushed Airbus shares down almost 10 per cent to €43.18, leaving them 23 per cent lower than at the start of the year.

However, Mr Enders sought to play down concerns about the risks of costly delays to aircraft programmes at a time of heavy investment, saying: “We are in control of programme execution.”

Analysts were less sanguine. Group margins appeared to be suffering more than expected from the consequences of launching new, re-engined models of its most popular aircraft — the narrow-body A320 and the wide-body A330 — some suggested. Older aircraft — known as Ceos or current engine options — were having to be heavily discounted, while the new models — called Neos, or new engine options — were being marketed.

“As Airbus has clarified today, the transition from the Ceos to Neos is a bigger drag on earnings than previously expected,” said Robert Stallard, analyst at RBC Capital Markets.

Mr Enders acknowledged difficulties in wooing customers for the older versions of the aircraft. However, he said that 2016 would be the nadir.

“In the trough year of the transition from Ceo to Neo, in 2016, our [earnings before interest and tax] will not decrease but stay neutral,” said Mr Enders.

Airbus in September said it would streamline its defence and space division, and sell businesses with some €2bn in revenue. It has also begun to sell down its 46 per cent stake in Dassault, the French fighter jet maker.

In an attempt to reassure shareholders, Harald Wilhelm, finance director, said Airbus would continue to pay dividends next year even if cash flow turned negative.

The market appeared less concerned about the delay in delivery of the A350 to Qatar Airways, which was due to take place on Saturday.

People close to the situation said the two sides were engaged in last-minute negotiations, implying the carrier was looking for a discount.

As a launch customer Qatar had already received a significant reduction on the list price of more than $240m.

Qatar earlier this year rejected delivery of Airbus’ A380 superjumbo, complaining that the cabins were not of high enough quality. The A380 was finally delivered in September.

Airbus said it was “working very closely with Qatar Airways to meet our common goal to deliver their first A350 very soon”.