Airbus cautious on 2021 after cementing cash flow turnaround

Airbus SE generated 4.9 billion euros ($5.9 billion) in cash during the fourth quarter, while issuing cautious guidance on the pace of its recovery from aviation’s worst-ever crisis.

The European planemaker rode a late flurry of jet deliveries to beat its target to break even for a second straight quarter, based on adjusted free cash flow. Yet jet handovers are forecast to stay at 2020’s depressed levels this year, even as the European planemaker plans to ramp up production in the second half.

“It is hard to reconcile the full-year 2021 guidance with what we saw in the third quarter of 2020 and what we think unfolded in the fourth quarter,” Jefferies analyst Sandy Morris wrote in a note. “We remain cautious about the pace at which the airline industry can rebuild its balance sheet to the point where aircraft demand rises significantly.”

The uncertain outlook confirms Airbus has yet to break free from the Covid-19 crisis that’s pummeled manufacturers and airlines alike for the past year. Air travel remains challenging, with countries tightening borders despite vaccine rollouts. Since January, when the planemaker slowed a plan to increase output, customers have pared back flight schedules and dragged out aircraft deliveries further.

Delivery Plan

Airbus shares fell as much as 4.6%, and were down 3.7% to 90.45 euros as of 9:03 a.m. in Paris.

The Toulouse, France-based company reported earnings before interest and taxes of 1.83 billion euros for the fourth quarter, a 35% drop, as revenue slid 19% to 19.8 billion euros.

Airbus expects jet handovers this year to match the 566 delivered in 2020, it said Thursday in a statement. The goal for adjusted free cash flow—which excludes the impact of M&A and customer financing—is breakeven, while EBIT is forecast at 2 billion euros.

“Last year proved to be a challenging one for Airbus and the aerospace industry,” Airbus Chief Executive Officer Guillaume Faury said on a conference call. “As we enter 2021, its clear that the crisis is not over and it will likely continue to be our reality throughout the year.”

Airbus said last month that output of its top-selling A320-series narrow-body will rise gradually to 45 per month through the fourth quarter. It had previously targeted a faster jump, to 47 monthly by July from the current rate of 40 planes.

Cash Flows

On the call, Faury said the guidance on deliveries doesn’t contradict the production schedule, only that it reflects a very uncertain environment. The targets represent what Airbus believes it can reasonably achieve, he said.

Faury reiterated his expectation that the commercial-aircaft market won’t return to pre-Covid levels until sometime between 2023 and 2025.

In the meantime, airlines’ shaky finances will ripple back to Airbus. The planemaker’s cash flows will feel the impact from lower pre-delivery payments from customers, as well as a greater requirement to help finance plane purchases, Chief Financial Officer Dominik Asam said on the call.

The company may be required to finance 1 billion euros or more for its customers, though it hopes export credit programs will help to fill the gap.

“It’s not our intention to do more than we need to do,” Asam said. “We’re not a bank, we’re an aircraft manufacturer.”

Backlog Drop

The value of Airbus’s order backlog fell by 98 billion euros to 373 billion euros at year-end, reflecting in part the longer-term damage wrought by the coronavirus pandemic on the health of the aerospace industry.

Around 10% of the drop in value is down to cancellations and the coronavirus impact on the backlog, Faury said.

While case counts are coming down, new virus strains have created uncertainty about the timing of a global travel recovery. Passenger traffic may improve by only 13% in 2021 in a worst-case scenario, the International Air Transport Association said this month. That compares with an official forecast of a 50% rebound issued in December.