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Here’s Why Airbus Just Took Another $1.2 Billion Hit

February 22, 2017

A French military Airbus A400M flies next to French elite acrobatic flying team "Patrouille de France" (PAF) Alphajet (R) on June 12, 2015.ERIC PIERMONT/AFP/Getty Images

European aerospace group Airbus (EADSY) took a new 1.2 billion euro ($1.2 billion) charge for its troubled A400M military aircraft program and called for new talks with European buyer nations to limit further financial damage, despite posting higher than expected core earnings and revenues for 2016.

The fresh charge for the A400M troop carrier brings the total for last year to 2.2 billion and the total since Europe’s largest defense project was launched over a decade ago to more than 6 billion, due to persistent delays and cost overruns.

The company, reporting for the first time as Airbus and with a new financial format after ditching the Airbus Group brand in a revamp that recognizes the dominance of its civil business, said “adjusted” operating income fell 4% to 3.955 billion euros on revenues which rose 3% to 66.581 billion.

A last-minute surge in civil jetliner deliveries last year, compensated for weaker helicopter and defense markets.

Analysts were on average expecting a 7.3% drop in full-year operating earnings before one-offs to 3.83 billion euros on sales up 0.7% to 64.919 billion.

The A400M program has weathered repeated industrial mishaps including the recent discovery of problems in an engine gearbox built by an Italian subsidiary of General Electric (GE).

Airbus signaled a downgrade in its expectations for exports of the aircraft, which so far has only one buyer, Malaysia, beyond a bloc of seven European NATO nations led by Germany.

It also called for new talks with customer nations to limit further losses after receiving a 3.5-billion-euro bailout in 2010.

“The board of Airbus has ordered management to re-engage with customers to cap the remaining exposure,” a statement on Wednesday said.

The A400M is one of several pressing industrial and organizational issues facing Europe’s largest aerospace group as it completes a sensitive reorganization expected to cut 1,000 headquarters jobs.

On two broadly successful civil projects which have seen delays creep into the schedule in the past year, Airbus said the production ramp-up of its A350 and A320 neo jets remained “challenging” but that bottlenecks in the A350 supply chain had improved and output targets remained on track.

Airbus said it expected more than 700 jetliner deliveries in 2017, up from 688 in 2016.

It did not give a target for orders but executives have said they will trail behind deliveries for the first time since 2009 as the aircraft market slows, following a multi-year order boom.