Airbus and Boeing results show COVID19 pain is here to stay

Airbus and Boeing – two of world’s largest aircraft manufacturers declared their half yearly results over the last two days. On expected lines, both have declared losses.

Boeing saw a drop of 26% in revenues in the first half of 2020 over the same period last year. The drop was 39% for Airbus. For Boeing, Commercial Airplanes second-quarter revenue and operating margin decreased reflecting lower delivery volume, partially offset by a lower 737 MAX customer consideration charge of $551 million in the quarter compared to a $5.6 billion charge in the same period last year. Second-quarter operating margin was also negatively impacted by $712 million of abnormal production costs related to the 737 program, $468 million of severance expense and $133 million of abnormal production costs from the temporary suspension of operations in response to COVID-19.

Airbus saw its revenues decrease to € 18.9 billion (H1 2019: € 30.9 billion), driven by the difficult market environment impacting the commercial aircraft business with around 50% fewer deliveries year-on-year. Airbus’ EBIT Adjusted of € -1,307 million (H1 2019: € 2,193 million) mainly reflected the reduced commercial aircraft deliveries and lower cost efficiency.

Production Cuts

Boeing delivered 70 aircraft in the first half of 2020, down 71% from the 239 it did in a similar period last year. Airbus delivered 196 commercial aircraft in the first half of 2020, while the company had delivered 389 aircraft in the first six months of 2019.

Boeing expects the B737 MAX production rates to 31 per month by the beginning of 2022. The 787 production rate will be reduced to 6 per month in 2021. The 777/777X combined production rate will be gradually reduced to 2 per month in 2021, with 777X first delivery targeted for 2022. At this time, production rate assumptions have not changed on the 767 and 747 programs. Boeing will end the B747 program in 2022.

For Airbus, the production cuts were announced earlier and it has adjusted the rate of production for A350 from 6 to 5 aircraft a month. On the A220, the Final Assembly Line (FAL) in Mirabel, Canada, is expected to progressively return to pre-COVID levels at rate 4 while the new FAL in Mobile, US, opened as planned in May. At the end of June, around 145 commercial aircraft could not be delivered due to COVID-19.

Boeing has said that results were significantly impacted due to COVID19 and grounding of B737MAX. The last three months saw the company re-start production of the B737 MAX in limited numbers and resume production across key sites. Boeing also completed the FAA certification flight tests.

Tail Note

IATA estimates that the air traffic will be back to pre-covid level only by 2024. WIth existing aircraft grounding and availability of newer aircraft in the market, the aircraft manufacturers will be under pressure to crack deals. COVID19 has not been a typical downturn with stimulus coming in from governments and travel resuming. Being a health emergency, a vaccine and its potency is what will dictate when travel can return again.

While Airbus continues to be bullish about the A220 and the A350, Boeing seems to be cautious across the board with its core B737 MAX still grounded without a firm visibility in sight for the return date.

 

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