Airbus builds $32 billion buffer to contain coronavirus fallout

Airbus SE extended credit lines and clamped down on cash outlays to give it access to 30 billion euros ($32 billion), taking steps to protect liquidity after the coronavirus pandemic pushed its airline customers to halt flights and stop ordering planes.

The European manufacturer also withheld its dividend and tore up earnings guidance for the year on Monday, while pushing governments to support carriers and its vast supplier network. The company itself isn’t at the moment seeking a bailout, but is open to aid as a fall-back, its CEO said.

Airbus is erecting a credit safety net as the virus leaves the aviation industry struggling for viability following a collapse in travel. Chief Executive Officer Guillaume Faury said the company entered the crisis in better shape than rivals, and held out the prospect of boosting market share if it survives intact, especially in the narrow-body plane sector where it has left Boeing Co. trailing.

“These are indeed exceptional times,” Faury said in a telephone briefing, adding that the fortification of funding is aimed at “safeguarding our business to protect the future of Airbus and to ensure we can return to efficient operations once the situation recovers.”

Airlines are pushing back against taking existing deliveries, let alone purchasing extra jets. The CEO said that Airbus plans to continue production for the moment but that the wide-body market in particular will be depressed and that “operational scenarios” could be activated depending on the spread and duration of the virus.

The company is meanwhile looking at possibilities for storing finished aircraft, according to Faury, who said there should be a return to a higher number of handovers sometime in the second half, while side-stepping questions on whether build rates will be cut in the near term.

Airbus shares fell as much as 14% and were trading 7.4% lower at 59.05 euros as of 10:08 a.m. in Paris, taking the stock’s decline this year to 55% and valuing the company at 46 billion euros.

As part of the drive to boost liquidity, or cash available, by 50%, Airbus canned a shareholder dividend that would have cost it 1.4 billion euros and has converted a credit facility of about 5 billion euros into a new line amounting to 15 billion euros.

Belt and Braces

The Toulouse, France-based company, which has an existing 3 billion-euro credit and a further 12 billion euros in financial assets, will also suspend a top-up in pension funding.

Jefferies International analyst Sandy Morris said the measures were as anticipated and provide the “belt” of efforts to stabilize Airbus, while suggesting the company will still likely need “the braces” of government support.

Airbus fell into line with most other businesses in dropping outlook guidance. The group had aimed to hand over about 880 jets this year, up from 863 in 2019, which was already a record, and had targeted free cash flow of 4 billion euros, a 500 million-euro increase.

Boeing Crunch

Airbus moved to shore up its finances without immediate recourse to state support as arch-rival Boeing edges closer to a government bailout. The U.S. company was in crisis even before the coronavirus outbreak, with its 737 Max plane grounded for a year after two fatal crashes, leading to a dearth in orders and billions of dollars in charges.

Airbus could still be among the first firms to receive French state support, according to people familiar with the matter, and the company said it “highly welcomes” governmental efforts to stabilize the industry. Both the French and the German states already hold stakes in the manufacturer.

Facilities in France and Spain that were shuttered last week for cleaning and to separate workers into smaller groups were due to reopen Monday, while the same measures are being implemented at a Hamburg site, which closed on Friday. The company said it’s taking all practical steps to ensure the safety of staff, and that workstations will close where that can’t be 100% guaranteed.

Faury said managers are “very actively” speaking with airline customers, and that the wide-body jet market in particular may be badly impacted as the pandemic hurts demand. At the same time an extensive single-aisle backlog should help protect the business.

China may provide the best guide to the speed industry will recover, the CEO said, adding that the Asian nation, where the virus is now receding, has kept supply chains running and that 99% of people involved are now back working.