Airbus reviews space division as CEO puts all options on table

Airbus SE has initiated a wholesale review of its ailing space business, with Chief Executive Officer Guillaume Faury saying he’s weighing all possibilities about the future of the subsidiary after it racked up close to $1 billion in charges in the first half. 

The company has one major program within its space business left to analyze as part of a review that will last several months, meaning it can’t rule out additional charges, Faury said as Airbus reported quarterly earnings. The latest costs contributed to a steep drop in second-quarter earnings, which fell by more than half, Airbus said on Tuesday. 

The issues at the space business, where Airbus has already switched management to oversee the turnaround, add to troubles at the planemaker as it also grapples with supply-chain constraints holding back output at its civil aviation business. Airbus was forced to downgrade its 2024 financial outlook last month, and it booked a €989-million ($1.1 billion) charge at the space business in the first half, a bigger amount than previously guided that underscores the mounting cost of the review.

“We are addressing the given programs and the root cause of the issues through a transformation plan,” Faury said on a call with reporters. Regarding the future of the business within Airbus, he said “we are reviewing all options, and by definition, all options mean all options.”

In the second quarter, adjusted earnings before interest and taxes fell 56% to €814 million. Airbus reiterated that it expects adjusted earnings before interest and tax of €5.5 billion this year, down from a previous goal of as much as €7 billion. Free cash flow before customer financing will come in at about €3.5 billion. 

The charges relate to so-called estimates at completion for certain critical communications, navigation and observation programs, according to Airbus. Airbus has faced charges at the subsidiary in the past, and Faury said that some of the managers it has switched out have meanwhile left the company.

Going forward, Airbus will be more selective in bidding for contracts, Faury said.

Besides the space issues, Airbus has faced a situation where it can’t build aircraft fast enough to satisfy demand for fuel-efficient jets. That’s even prompted the European planemaker to turn down some prospective customers because its most popular models are sold out into the next decade. 

Rival Boeing Co. is also constrained because it has slowed output to improve manufacturing quality, leaving the global aviation industry severely constrained at a time when demand for travel remains strong. The US company reports earnings on Wednesday.

The European company is grappling with a shortage of parts ranging from engines to cabin interiors that’s forced it to cut its annual delivery target to 770 units and push back the planned monthly build rate of the popular A320neo jets by a year. 

Airbus expects to deliveries in 2024 to geared toward the second half of the year, with a strong fourth quarter in particular, Faury said on the call. The CEO said CFM International, one of the two engine makers for the A320neo jet, faces short-term difficulties with production of its Leap engines, and the “jury is out” if the company can get output back on the required trajectory by year end.

Bloomberg News reported last week that an unusually high number of non-conforming high-pressure turbine blades was creating a shortage of the component for new CFM Leap engines.

Despite its latest setbacks, Airbus still commands an order book that stretches out more than 8,000 aircraft. That means that the A321neo model is now sold out until 2031 and the long-haul A350 plane is unavailable until 2030. 

The planemaker has initiated a savings plan called Project Lead in response to the tougher environment. As part of the measures, Airbus has clamped down on internal travel and events, and individual departments are looking for means to trim costs, Bloomberg News reported this week. 

“Lead is a short-term cost containment program,” Faury said. “It’s a program to be cost efficient with what we do.”