FRANKFURT—Airbus CEO Guillaume Faury gave a dramatic warning to employees that heralds potentially deeper production cuts than initially planned.
“The survival of Airbus is in question if we don’t act now,” he wrote in a letter to staff sent on April 24. Airbus was “bleeding cash at an unprecedented speed,” Faury said. “We must now act urgently to reduce our cash-out, restore our financial balance and, ultimately, to regain control of our destiny.”
The comments come three weeks after Airbus decided to cut production by around one-third across the board. The company had decided on April 8 to reduce monthly A320/A320neo family output to 40 aircraft, A330/A330neo to two per month and the A350 to six per month.
At the time, Faury said it was possible Airbus might resume growth from that level already in 2021. The OEM was previously on its way to boosting narrowbody output to 67 aircraft per month and planned to build around three A330s and between nine and 10 A350s monthly through 2020.
Now, the initial cut may no longer hold. “In just a couple of weeks we have lost roughly one-third of our business,” Faury wrote. “And, frankly, that’s not even the worst-case scenario we could face.” He added that “our challenge at Airbus is now to adapt to this new reality as fast as possible and limit the scale of the damage.”
Agency Partners analyst Sash Tusa wrote to clients that “our calculations ... suggest that the proposed cuts will not be enough.” Tusa believes instead that “Airbus will have to make an additional cut totaling another 30%.”
Tusa predicts that Airbus production will decline from 863 aircraft in 2019 to 603 in 2020 and only 355 next year, the low point in the forecast horizon. Production is predicted to climb up to around 700 aircraft by 2027, still around 20% below the 2019 peak.
Airbus narrowbody output will fall from 642 aircraft to just 278, and then climb to 568 in 2027 according to the analyst’s projections. A330/A330neo production is forecast to stay below 30 aircraft per year throughout the period. The number of A350s produced is projected to go from 112 in 2019 to just 32 in 2021, and then rise back to 70 in 2027.
According to Faury, Airbus does not want to make the decision about future production just yet. Instead, it wants to watch market developments to determine whether the recovery is relatively quick or much longer than initially expected. Airbus has been faced with almost no customers taking delivery of aircraft since around mid-March. Most big carriers are saying they cannot survive without state aid.
Faury wrote that “we are working closely with all our airline and lessor customers to better understand their individual circumstances and their delivery requirements over the short- and medium-term. At the same time, we are assessing the longer-term market for new airplanes. We are collecting all kinds of data to feed forward-looking simulations and models as we try to estimate the shape and speed of the recovery in passenger traffic.”
“The aviation industry will emerge into this new world very much weaker and more vulnerable than [how] we went into it,” Faury wrote. While he did not go into potential staff reductions in detail, insiders believe Airbus is preparing a major cost savings program that may be similar to the 2008 “Power 8” project when it cut 10,000 jobs.
“We may now need to plan for more far-reaching measures,” Faury stated. “That is because of the sheer magnitude of this crisis and its likely duration ... We are living through one of the largest economic shocks in history, so we must consider all options.”
Airbus is also understood to be talking to its home country governments about potential financial support. It had recently expanded credit lines to around €30 billion ($32.5 billion), an exercise that has given it “time to adapt and resize.” Airbus, like Boeing, will publish its financial results for the first quarter on April 29.
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