Airbus Announces Additional €1B in Financial Charges for A400M
Correction: A previous version of this story mislabeled a monetary amount. Airbus' Defence and Space division recorded an additional net charge of "€1,026 million," or €1.026 billion.
PARIS — Airbus reported Wednesday a further €1 billion (US $1.1 billion) of financial charges on the A400M and warned there could be more “significant” hurt from revised deliveries of the military airlifter due to fixing technical problems on the engines and fuselage.
The €1.026 billion charge, announced in the first half results, adds to €5 billion of charges already incurred in development and building the airlifter.
Airbus said in a statement that “as a result of the review, including an updated assumption of export orders during the launch contract phase," the Defence and Space division recorded an additional net charge of €1.026 billion.
“Commercial negotiations with OCCAR and the nations are yet to take place with regard to the revised delivery schedule and its implications,” the company said. “As of today, the outcome of these negotiations cannot be reliably estimated. The potential impacts on the financial statements could be significant.”
OCCAR is the European procurement agency that negotiates on behalf of client nations.
Airbus Looks To the US in Search of A400M Buyers
The review referred to a revised program for the TP400-6 engine from EPI, replacing aluminium alloy cracking on the fuselage, and “some delays, escalation and cost overruns,” Airbus said.
The European Aviation Safety Agency has certified an interim fix to the engine propeller gearbox, which once available will allow air forces at least 650 flight hours before inspections of the propeller gearbox, Airbus said. Previously, inspections were held every 20 flight hours due to check for cracks on the gearbox.
Airbus Defence and Space expects a long-term solution of a new gearbox from the suppliers Avio and General Electric, its parent company, next year.
Airbus is behind on the program timetable and struggling to catch up on delivering capabilities, but there are also positive signs.
The A400M from Airbus Defence and Space is a multinational, four-engine turboprop military transport aircraft designed as a tactical airlifter to replace older transport aircraft. Lars Schwetje/Staff
“Industrial efficiency and the stepwise introduction of the A400M’s military functionalities are still lagging behind schedule and remain challenging,” Tom Enders, Airbus chairman, said in a statement.
“But we are making good progress and the A400M, servicing already five air forces with its impressive performance, proves more and more to be an exceptional aircraft,” he said.
Once the engine fixes and contracted capabilities are delivered, Airbus can expect foreign sales, an analyst said.
“The sooner the engine issues are resolved and the retrofit work required is complete, together with any other remaining issues having been sorted, I still believe that this excellent aircraft could go on to enjoy much deserved export success,” said Howard Wheeldon of Wheeldon Strategic Advisory.
A major step was taken with certification and delivery in June of the ninth A400M to France, as the aircraft met requirements on the “mission capability road map,” Airbus said. That aircraft was a “tactical” version, equipped with a protected cabin and a self-defense system to protect the aircrew and aircraft flying over hostile Islamic State militants in Africa.
The A400M problems and rescheduling of deliveries make it hard for Airbus to deliver its forecast stable 2016 free cash flow, the company said.
Airbus also announced a financial charge of €385 million on its A350 airliner program, bringing total charges to €1.4 billion.
Airbus reported a 4 percent fall in second quarter core earnings to €1.18 billion, from €1.23 billion a year ago, on sales of €16.57 billion, down from €16.86 billion.
Defense sales in the first half slipped 3 percent to €4.72 billion, down from €4.87 billion.