PARIS (Reuters) - European planemaker Airbus
In a letter to staff, Chief Executive Guillaume Faury said Airbus was "bleeding cash at an unprecedented speed" and that a recent drop of a third or more in production rates did not reflect the worst-case scenario and would be kept under review.
Airbus said it did not comment on internal communications.
The letter was sent to employees late on Friday, days before the company is due to give first-quarter results overshadowed by a pandemic that has left airlines struggling to survive and virtually halted jet deliveries since mid-March.
Airbus has begun implementing government-assisted furlough schemes starting with 3,000 workers in France, "but we may now need to plan for more far-reaching measures," Faury said.
"The survival of Airbus is in question if we don't act now," he added.
Industry sources have said a new restructuring plan similar to its 2007 Power8 which saw 10,000 job cuts could be launched in the summer, but Faury indicated the company was already exploring "all options" while waiting for clarity on demand.
People familiar with the matter say Airbus is also in active discussions with European governments about tapping schemes to assist struggling industries, including state-guaranteed loans.
It has already expanded commercial credit lines with banks, buying what Faury described as "time to adapt and resize".
PRODUCTION CUTS
To stem the outflow of cash, Airbus this month said it would slash benchmark narrow-body jet production by a third to 40 jets a month. It also issued targets for wide-body jets implying cuts up to 42% compared with previously published rates.
"In other words, in just a couple of weeks we have lost roughly one-third of our business," Faury wrote in the letter, which was earlier reported by Bloomberg News. "And, frankly, that's not even the worst-case scenario we could face".
Reuters reported on April 3 that Airbus was looking at scenarios involving output cuts of up to a half, and analysts say Boeing is expected to unveil comparable cuts along with lay-offs this week, lowering monthly 787 output to as low as 6 jets.
Faury said Airbus's new production plan would remain for as long as it took to make a more thorough assessment of demand, adding this would probably be between two and three months.
He said it was too early to judge the shape and pace of a recovery, but mentioned scenarios including a short and deep crisis with a fast rebound or a longer and more painful downturn with previous demand levels only returning after 5 or 10 years.
Analysts and airlines have so far mostly spoken of a downturn lasting no more than 3-4 years.
Rival Boeing
"Unfortunately, the aviation industry will emerge into this new world very much weaker and more vulnerable than we went into it," Faury wrote.
Credit: Airbus
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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