The Strategist

Defence and Space division brought down Airbus profits

02/22/2017 - 12:50

European aerospace group Airbus announced that its annual profit for 2016 amounted to € 995 million, which is 63% less than the year before. Such a sharp decline in profits is explained by higher costs of the military transport aircraft A400M programme. For the whole year, the group spent€ 2,2 bln on correcting defects and associated alterations in the programme.

As reported in Airbus’ statements, the total revenue of the group for 2016 numbered € 66.5 billion, which is 3% higher than a year earlier. Revenue from defense operations decreased by 4% to € 11,1 bln. Net annual profit amounted to € 995 million, which is 63% less than the year before. Airbus’ civil aircraft division brought annual revenues of € 49.2 billion, which is 7% higher than a year earlier, and helicopters division earned € 6,6 billion, which is 2% down compared to the previous year. Profit from the civilian aircraft was € 2.8 billion, 2% higher than a year earlier, helicopters brought € 350 million, 18% less than in 2015. Profit from defense operations was € 1 billion, or 5% less than the year before.

After publication of statements for the fourth quarter and full 2016, shares of Airbus fell by 2% as investors were displeased with such a sharp decline in annual profit and growth in the military program costs associated with production of military transport aircraft A400M.

Airbus said that the group delivered 17 aircraft under the A400M program in 2016 (11 - in 2015). Two aircraft have already been delivered in 2017. It is reported that the problems earlier identified in the gearbox of the propeller was solved in the second half of the year. Last spring, the group’s engineers identified problems of overheating and failure of the gearbox’s individual elements, as well as the appearance of metal shavings in its oil system. Airbus had to make changes in design and correct errors in already delivered aircraft, which, in turn, led to such a sharp increase in costs on the A400M programme. Overall, the sum amounted to € 2,2 billion for 2016, of which € 1,2 billion were spent in the fourth quarter.

Past year was difficult for the company. Last spring, Airbus warned of serious problems in engines for military aircraft A400M, which affected their production and supply. The main problems with the operation of the rotor were feasible. Yet, CFO of Airbus Group Harald Wilhelm warned that the group had difficulty with delivery of 20 aircraft scheduled for the year. The most popular model of the A320 also caused serious difficulties as its turbojet engines were occasionally overheating after upgrade. Because of this, Qatar Airways has canceled its order for the A320. A manufacturer of new engines, company Pratt & Whitney, solved this problem by mid-year, so supply of this model, too, lagged behind 2015. And delivery of the A350 was delayed due to the fact that suppliers did a poor job of delivering volume of orders for production of cabin interior.