Airbus warned of continuing global trade tensions and potential Brexit-related supply chain and logistical disruptions in its commercial airplanes division as the U.S. amplifies tariff threats and the UK prepares to leave the EU by the end of October. Speaking during the company’s first-half 2019 earnings call on Wednesday morning, Airbus CEO Guillaume Faury also highlighted the continued “challenges” associated with production of the Airbus Cabin Flex (ACF) version of the A321neo, deliveries of which have proved slower than anticipated due to what the Airbus boss called the “complexities” of the design.
Faury raised an alarm about a so-called no-deal Brexit despite Airbus’s early preparations for a UK exit from the EU in March, by which time former UK prime minister Theresa May had hoped to have reached a deal for an orderly departure. Now, new UK prime minister Boris Johnson promises to leave the EU by October 31, raising the likelihood of an abrupt and disorderly Brexit.
The Airbus CEO reported that although Airbus has stockpiled a month worth of parts inventory from a majority of its suppliers, logistics involving parts transfer remains a worry. “We are preparing again,” said Faury. “It is not fully bulletproof…but with the no-deal Brexit being more likely we see far more willingness by governments to prepare for this scenario, which basically means for us the inability to move parts. For the other risks or problems with Brexit we think we have done the appropriate preparation with the supply chain, but the most risky part is the logistics basically.”
Nevertheless, Faury added the eventuality would not affect Airbus’s 2019 financial guidance but rather presents a risk for 2020.
As for the tariff threats leveled by the Trump administration over recent World Trade Organization findings that certain elements of EU support for Airbus commercial aircraft programs contravened subsidy rules, Airbus CFO Dominik Asam explained that the manufacturer “of course” has collected all needed data about the ultimate destination of each aircraft and how that might affect deliveries. He added, however, that the company’s “key focus” centers on an effort to avert the situation. “We are doing everything we can to make sure the aircraft that we can deliver to our U.S. customers are there,” he noted.
Asam added that because the customers pay the tariffs, they would determine whether or not they ultimately take deliveries of the airplanes. Given no one yet knows the extent of the tariffs, he said, he cannot predict the ultimate effect on Airbus. “We don’t want to speculate on what our customers will do under such a scenario,” explained Asam. “There is also [a question of the factory in Mobile, Alabama]; to Mobile we send kits…and from there we deliver to U.S. customers…so everything is still in the making and hard to predict.”
While Airbus believes the trade tensions won’t become a financial issue until next year, the A321neo ACF presents a more immediate concern, as the company maintains it intends to meet a delivery goal of 880 to 890 airplanes in 2019. Last week A321neo ACF customer JetBlue expressed “disappointment” in resulting delivery delays that forced the New York-based airline to adjust its schedules in 2020 to reflect 2 percent lower capacity growth than originally planned. Speaking during the airline’s second-quarter earnings call with securities analysts, JetBlue CFO Steve Priest reported that of 13 A321neos expected to arrive this year, the airline would take just six. For 2020, a revised schedule now calls for delivery of 14 A321neos rather than 15, leaving JetBlue with seven fewer of the model at the end of 2020 than projected during last October’s Investor Day.
First delivered to Turkish Airlines about a year ago, the A321neo ACF encompasses modifications including a new rear section and a modification in which designers removed the door located forward of the wing and introduced new overwing emergency exits in the center section. Airbus plans to make the ACF configuration standard for all A321neos some time next year.
“There’s a lot happening and we are making progress,” insisted Faury about the ACF. “It has been a very successful program from a commercial standpoint, and the initial ramp-up of the ACF proved to be more difficult than what we anticipated. So it’s the speed at ramping up the ACF is slower than what we had in the plan, and this is what we had to adjust. The complexity comes from the complexity of the plane itself…And you know that we had our issues in 2018 that took a lot of energy [and] focus to solve the consequences of the engine crisis we had in the beginning and middle of last year. Therefore, overall we have lost time in preparing for ACF.”
- Air Transport