EADS earnings and Airbus A350, A380 updates

EADS reported its first quarter earnings and in the process reiterated plans to fly the Airbus A350 in June.

Speculation remains rampant that Airbus will fly the airplane in time for the Paris Air Show.

Meantime, sales for the giant A380 languish, with open delivery slots in 2015–the year Airbus has said the program will break even. Like the rival Boeing 747-8I, sales of the Very Large Aircraft have stagnated while sales of the Big Twin engined airplanes have flourished. Airbus, like Boeing on the 747-8, took a huge write off years ago on the A380 program.

Airbus is sticking with its 20 year forecast of 1,300 VLA Passenger sales for Airbus and Boeing, and officially expects to capture 50% of the market. We’ve believed the forecast to be, kindly, optimistic. But the A380 has nearly 90% of the VLAP market and we expect this to remain the case. Airbus might reach its goal of 650 sales over 20 years, but even this is likely to be generous. This are new sales on top of the 272 already sold.

In a lawsuit between Rolls-Royce and Pratt & Whitney a few years back, it was revealed Airbus expected 630-650 program sales, which means about 42% of the sales have already been reached. (It took Boeing nearly 40 years to reach 1,300 747 sales, and for a time the 747 held a monopoly in the “jumbo jet” market). No orders for the A380 have been booked so far this year.

NTSB briefing on 787 today

The National Transportation Board will have a briefing today at 2:30 ET. In advance of the briefing, NTSB issued this terse statement:

The following factual information has been developed about the battery: It consists of eight cells of 3.7 volts each. All eight cells had varying degrees of thermal damage. Six of eight cells have been CT scanned and have been disassembled to expose their electrodes. All electrode windings in the battery are in the process of being photo-documented and are undergoing microscopic examination. In the coming days, the remaining two cells will undergo the same examination. Additional information will be provided tomorrow.

Meanwhile, The Seattle Times has this story about the battery system.

The Wall Street Journal has this story about Boeing’s innovation for the 787.

Odds and Ends: Bombardier lands Delta’s RJ deal; 787 events in perspective; Airbus/China; Enders victory

Delta Air Lines: Bombardier, in a welcome development, landed a major order with Delta for 40+30 CRJ900s, beating out Embraer’s E-Jet proposal. Delta has a large, installed base of CRJs and EMB wasn’t too optimistic, in management-analysts meetings last week, according to research notes. But BBD liked its odds, considering the CRJ is more fuel efficient than the E-Jet (being a small airplane), even if the E-Jet is far more comfortable.

For BBD, the order is important for two reasons. First, the CRJ backlog is shrinking. Deliveries begin 2H2013, and this illustrates the point. Second, with BBD sucking up cash in advance of CSeries first flight in 1H2013, the deposits, progress payments and delivery payments are welcome, indeed.

The next face-off between the two OEMs is American Airlines, where both have large installed RJ fleets of aging aircraft.

Boeing 787 events: Airworthiness Directive. “Emergency” landing. AirInsight puts things into perspective.

Airbus lands China orders: Hmm. EU suspends plans to impose ETS tax. Airbus lands orders for 60 A320s and 10 A330s. What do you make of that…

Enders now 1-1, sort of: Tom Enders, CEO of EADS, lost his bid to acquire BAE Systems due to German government interference. The merger would have reduced government meddling, balanced EADS commercial and military business, put EADS on a more equal footing with Boeing and positioned EADS better for US DOD contract bids. But Enders has now won a corporate governance restructuring that ends government meddling in daily operations. He still hasn’t achieved his other goals, but this one is so huge that we rate Enders’ won-lost record 1-1.

EADS Investors Day–Analysts reports

EADS held an investors Day this week; here are takes from two who attended.

Airbus presentations may be found here.

Bernstein

EADS is holding its annual Global Investor Forum. We describe key themes from Day 1, which focused on EADS overall and Airbus. A key message we took away was that EADS is headed toward governance changes that should make it a more normal company.

We now expect reduced government involvement with independent directors becoming the majority on the board. The free float is planned to rise from 49% to 70%. Although the sale of shares may depress the stock in the near term, long term it is positive.

Margin upside remains the key value driver for EADS, with higher margins likely on A320 and A330 from cost reduction and pricing. A380 performance appears to be improving. We see the main risk as the A350 production ramp in H2 2013.

First flyable Airbus 350 rolls out of the factory. Airbus photo.

Wells Fargo

Summary. We attended the EADS Global Investor Forum in the UK. Given that Airbus is the primary competitor to Boeing in manufacturing large commercial aircraft, its outlook is important to the suppliers in our coverage universe. Overall, we believe the key highlights of the forum on day 1 were 1) demand for airplanes remains strong as Airbus now says 2014 is overbooked for A320 2) the A350 and A320neo developments remain on track 3) Airbus has about 300 A320 current engine option airplane slots to sell in 2016-2017 that could see some pricing pressure and 4) Airbus is intently focused on reducing its costs which could lead to some pricing pressure for suppliers. In particular, Airbus highlighted Spirit Aerosystems as a supplier that has been challenged on the A350. For the suppliers in our coverage universe, we believe the positive commentary on a stronger 2014 and the order backlog should give investors increased confidence in Boeing and Airbus production ramp ups despite recent economic weakness. In addition, while Airbus has focused on reducing costs, we believe pricing pressure has been continuous for the suppliers in our coverage universe and do not expect substantial changes in the profitability of work for Airbus. We continue to be positive on the commercial aerospace suppliers based on the OEM upturn.
A350XWB. Airbus confirmed its schedule on the aircraft with first flight in mid-2013 and entry into service in H2 2014. We do not know how many aircraft Airbus plans to deliver in 2014, but the company did say that one of its two launch customers, Singapore Airlines, has shifted its planned aircraft deliveries into 2015 leaving only Cathay Pacific to receive the aircraft in 2014.

A320neo. Airbus continues to highlight its re-engined narrow body A320neo as superior to Boeing’s 737MAX. The company believes that its larger fan size allows total cash operating costs to be 3.3% better than the 737MAX. Boeing of course calculates different economics and can show its offering is superior to the A320neo. Airbus said it has about 300 open delivery slots for the current generation A320 aircraft before production transitions to the A320neo in 2017. Not surprisingly, most of these appear to be at the end of A320ceo production in 2016-2017. The company said that its 2013 and 2014 delivery slots are now fully booked (and 2015 is nearly so), an improvement from the company’s Q3 earnings conference call when there were still 2014 delivery slots available.

Backlog Growth in 2013. Airbus has about 7.5 years worth of production at planned rates (similar to Boeing’s production in backlog). Management thinks this long backlog has reduced the cyclicality of the airplane manufacturing business since 2004. On the other hand, Boeing has said it desires to reduce its backlog such that it can deliver airplanes on a more timely basis to customers.

Focus On Cost Reduction Could Mean Pricing Pressures For Suppliers. Airbus is targeting a 10% EBIT margin by 2015 (excluding A350 losses and the impact of a weaker Euro) and is aggressively looking to take out costs. As part of its cost reduction efforts, Airbus will have reorganized its plant management process beginning in January 2013. The new structure empowers plant managers with increased authority to manage production problems. At the same time, Airbus has implemented a single procurement organization to more effectively and efficiently manage the costs of the supply chain.

Odds and Ends: Cargolux, Qatar to split; P-8A and MAX; More on Sequestration; Dodging that depth charge

Cargolux, Qatar Airways to split: Several news stories report that Qatar Airways is going to dump its 35% stake in Cargolux. The stories indicate a disagreement in the direction of Cargolux. This story is the most detailed, although it’s now a month old  and out-of-date.

The day before the news broke last week, we were told that Qatar wanted to set up a Cargolux hub in Doha and decline more deliveries of Boeing 747-8Fs to Cargolux in favor of using Qatar Airways’ Boeing 777Fs. This tracks similarly with the month-old story linked above. Cargolux has eight 748Fs on order.

There is a general softness in global air cargo traffic that is causing some cargo airlines to consider deferring 748Fs as well, complicating Cargolux’s viability.

We were also told there are sharp personality differences between the Qatar and Cargolux board members that aggravated relations between the two companies.

P-8A and MAX: Bloomberg has this story that looks at an angle about the Boeing 737 MAX that hasn’t been discussed before: Boeing will stick with the NG-based P-8A Poseidon and not shift to the MAX.

Sequestration: We had a recent think piece on how sequestration might not be a bad thing in the long run because it would force the Pentagon to truly re-think its global defense strategy. This piece in Defense News, an authoritative trade publication, picks up a similar theme.

Dodging that depth charge: EADS wanted to merge with BAE Systems. BAE is the prime contractor of the UK’s nuclear submarine fleet. Read this story about the HMS Astute. EADS may well have dodged that bullet–er, depth charge.