While Airbus Group SE (PA:AIR) has continued to maintain guidance for FY17, the demands to deliver in Q4 are clear. Although A320neo engine issues keep the pressure on the production schedule, the company is making good progress on its other programmes. A resumption of EPS growth in FY18 remains the main support for the investment case.
Programme issues persist
Continuing the trend from H1, Q3 results demonstrated a stable top line and a step down in adjusted EBIT. Reported adjusted EBIT of €1,796m represented a 25% decline on the first nine months of 2016. While the Q317 figure of €697m was just 4% down on Q316 (€729m), it did demonstrate an improvement in both the Commercial Aircraft and Helicopters divisions. Investment in innovation at company HQ does explain some of the decline. The engine issues continued to constrain A320neo production. While 90 aircraft were delivered to 19 customers in Q3, new engine availability and allocation between the OEM and spare pools will reduce the FY delivery total to slightly below the 200 targeted. Although full year free cash flow is expected to be similar to 2016 before M&A and customer financing, there has clearly been an impact on cash performance from inventory build for the production ramp-up and engine delays on neo with a negative working capital move of €4.5bn ytd. In addition to the ongoing UK Serious Fraud Office (SFO) and France’s Parquet National Financier (PNF) investigations, the company has discovered and declared certain inaccuracies with filings with the US Department of State relating to part 130 of ITAR. Importantly, FY guidance for the group has been maintained.
All to deliver in Q4
December is always Airbus’s busiest month for deliveries. Since 2008 it has shipped between 10-16% of its total annual deliveries in December. As described, the A320neo delivery profile is very much loaded into Q4. Moving into 2018, the A320 neo should account for more than half of single-aisle deliveries for the group. In addition, the A350 ramp-up is making good progress towards break-even by the end of the decade and the A330neo maiden flight was a successful milestone.
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