Airbus chops output by a third in grim measure of virus hit

Airbus SE slashed its aircraft output by a third in a stark concession to the coronavirus pandemic that’s upended the aviation industry.

The world’s biggest commercial aircraft manufacturer now plans to produce about 48 planes a month across its A320, A330 and A350 programs, it said Wednesday in a statement. It had gone into the year with a goal of handing over about 880 planes, or an average of 73 per month.

The rapid spread of the virus has caused unprecedented dislocation in the aviation market, with planes grounded worldwide and cash-strapped airlines deferring jet deliveries while seeking bailouts to survive. The demand drop, along with parts shortages and health concerns, has forced Airbus and its U.S. rival Boeing Co. to pause production at some plants while sizing up the longer-term damage.

Airbus will produce about 40 of its top-selling A320 narrow-body each month, it said, while reducing rates on the advanced A350 wide-body to six a month. The slower-selling A330 will limp along at two a month, raising a question about whether the program can remain viable. The company plans to assess production on a monthly basis, Chief Executive Officer Guillaume Faury said on a call with reporters.

“Don’t expect orders to be the name of the game for the next six, nine, 12 months,” Faury said. “We’re managing for the moment, using all the flexibility we have.”

The planemaker said it was still assessing demand for the smaller A220 narrow-body, its newest jet series, and that it wouldn’t alter its plan to wind down the A380 super-jumbo program.

Rapid Reversal

Just months ago, Airbus was aiming for record jetliner deliveries in 2020 and looking at how to speed up its assembly line to clear a large backlog of orders. Now, the situation has reversed with production targets slashed and airlines asking to defer handovers.

Faury said that over-booking was no longer an issue, and that Airbus is mobilizing to deal with supply-chain issues and deferral requests. The company faces a delicate balancing act to offer its airline customers the flexibility they need while also not cutting off income vital to its subcontractors.

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Adjusting production was “the right thing to do,” the CEO said, as the company seeks to take a realistic view of what’s likely to be a long-lasting crisis. Airbus will defer capital expenditures and reduce its cost structure, though Faury ruled out closing factories in the short-term.

The European manufacturer also released order and delivery figures for March, highlighting the scale of the challenge the industry faces. Net orders totaled 16 aircraft in March, Airbus said, after 44 cancellations. It managed to deliver 36 planes during the month, as airlines shut down fleets in Europe and North America.

The A220, a fuel-efficient single-aisle that had been selling well since Airbus took over the program from Bombardier Inc., and the A350, a large long-hauler whose appeal has been diminished by the cutback in international flights, felt the brunt of the reductions. Riyadh-based SaudiGulf let go of an order for 16 A220s after switching to the A320 last year, in a move unrelated to the coronavirus, according to Airbus. Chile’s Latam shed a commitment for 10 A350s.

More cancellations are inevitable as airlines hunker down to conserve cash, with some seeking to delay the acceptance of new planes and others are unlikely to bridge the gap to better times.

Consultants at Roland Berger have estimated that aircraft demand would decline by about half, or 10,460 jets, through 2030 in a worst case scenario with global travel restrictions persisting for six months.

Deutsche Lufthansa AG, one of Europe’s biggest airlines and a large customer, this week said it planned to slash its fleet, retiring more than 40 planes, most of them wide-bodies. It entered 2020 expecting to receive dozens of new aircraft.

At discounter EasyJet Plc, disgruntled founder Stelios Haji-Ionnaou has mounted an increasingly fervent activist campaign to persuade the carrier to cancel Airbus orders worth 4.5 billion pounds.

“We have no insight into what Airbus assumed when arriving at the lower production rates,” said Sandy Morris, an analyst with Jefferies. “We remain wary production could fall further, absent support from governments to support demand.”

Airbus advanced 4.6% as of 9:08 a.m. Thursday in Paris. The shares have declined 52% this year.

More evidence of the industry’s damage is expected next week, when Boeing reports its monthly figures. Aircraft lessor Avolon Holdings Ltd. has already scaled back a big order for its grounded 737 Max narrow-body by 75 planes.

The fundamentals could worsen in April as the full impact of lockdowns and travel stoppages is felt across Europe. The airline industry is set to burn through as much as $61 billion globally in the second quarter, according to the industry group IATA, which warned that some carriers could run out of cash.

“What will matter for us is the shape and speed of the recovery, in particular the single aisle in 2021 and beyond,” Faury said. “Whether it’s a V-shaped recovery or an L-shaped recovery.”