Last week, Airbus reported 2017 full-year financial results indicating the pan-European global aerospace company overachieved on all key performance indicators. Operational performance was especially noted in the final Q4 quarter. However, a repeat for 2018 now has a critical dependence on the two fuel-efficient aircraft engine suppliers., Pratt & Whitney and CFM International.
Financial performance highlights include:
- Total revenues of €66.8 billion, compared to £ 66.6 billion reported for 2016, essentially flat. Commercial aircraft revenues increased by 3.5 percent with record deliveries of 718 aircraft in 2017. (2016 commercial aircraft deliveries were 688 aircraft)
- Adjusted EBIT increased to £4.2 million compared to £ 4.0 billion in 2016. Commercial aircraft EBIT was reported as £ 3.6 million, higher than the £ 2.8 million reported for 2016.
- After EBIT adjustments, net income increased to £ 2.9 million compared with £ 995 million reported for 2016, a considerable increase. Free cash flow before M&A and customer financing reportedly doubled to nearly £ 3.0 million, supported by record aircraft deliveries.
- The net cash position at the end of 2017 was reported as £ 13.4 billion, an increase of £ 2.3 billion.
As Supply Chain Matters has noted in a prior commentary related to year-end operational performance, supply chain teams performed admirably during the year, overcoming a number of operational problems, especially in the Q4 quarter.
A total of 105 single-aisle aircraft, nearly twice the rate of October and November, were delivered in the month of December alone. Deliveries in the last month included 47 of the new engine option (neo) A320/A321 aircraft, an indicator of the “hockey stick” queue related to delivery of the new, more fuel-efficient Pratt & Whitney geared turbofan engines. Completed aircraft were literally parked during the month waiting for their designated engines.
Meanwhile, entering 2018, the collective Airbus supply chain ecosystem faces an overall multi-year backlog of 7,265 booked orders, with an aggressive goal to deliver 800 aircraft to commercial customers by the end of 2018. That happens to include a goal to ramp-up aircraft delivery cadence of single-aisle aircraft to 60 per month from the 50-pace experienced in 2017.
Outlook for Continued Operational Challenges
As we observed in our most recent Airbus blog commentary, Airbus and the European Safety Agency has warned operating airline operators of a more concerning problem related to the new Pratt GTF engines powering both the Airbus A320neo and A321neo aircraft. Until this latest engine performance can be addressed and resolved, supply chain teams will face even more challenges this quarter, and the coming quarters.
In its release of financial performance, the aerospace giant additional disclosed that neo model alternate engine provider CFM International experienced some “maturity issues” in 2017 on some lots of the LEAP-1A engine. Noted rather clearly: “The A320neo ramp-up remains challenging and requires that the engine suppliers deliver in line with commitments.” Thus, Airbus must now address two significant broken links in the existing product value-chain for its most popular selling single-aisle commercial aircraft.
The aerospace provider will also need to appoint a new Commercial Aircraft Chief Operating Officer, given the departure of Fabrice Bregier at the end of this month. Airbus CEO Tom Enders has further communicated his desires to not seek an extension of his employment contract beyond April 2019.
There is no doubt, at least by our Supply Chain Matters lens that Airbus’s operational and supply chain management teams will face rather difficult challenges in the coming months. The determinant of success rests squarely with designated aircraft engine suppliers and the day-to-day collaboration among product management, procurement, and supply chain operational and logistics teams.
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