Adjusting production to demand is Airbus’ biggest COVID-19 challenge

Following today’s earning results of Airbus for Q1 2020.

Nicolas Jouan, Aerospace and Defense Analyst at GlobalData, a leading data and analytics company, offers his view on Airbus’ strategy;

“Airbus’ Q1 results have been partially impacted by the COVID-19 pandemic. Without surprise, commercial aircraft has been the worst impacted business with -24.7% in deliveries and -21.9% of revenues year-on-year. These results are based on the three first months of 2020, and are therefore only partly reflecting the effect of COVID-19. The first real impact was only felt by the company in February with the closure of Tianjin assembly lines.

“To really understand the impact of the COVID-19 pandemic, one must look at Airbus’ orders and cancellations. Q1 has seen solid gross order figures most notably for the A320 family, but also a noticeable amount of cancellations with 29 A320/21neo and 17 A350 erased from Airbus’ backlog. The month of February was also a blank month showing no new orders at all. Big clients such as Lufthansa and Kuwait Airways are openly speaking about slimming down their fleet to face the general slowdown of air travel. In the meantime, Air France-KLM receives state aids and British Airways plans to make 12,000 staff redundant, showing the dire state of the industry. These adjustments from Airbus’ main clients will likely be felt later in the year.

“Airbus’ commercial aircrafts’ order backlog is 90% composed of single-aisles in unit terms according to GlobalData, against approximately 80% for Boeing. This reliance on narrow-body might be a problem for the European plane maker. The A320 family built its recent success on fuel efficiency with the A320/21neo model. But the collapse of oil price is rendering this factor less relevant. Generally, lower margins make single-aisle more sensitive to economy of scale compared to bigger aircrafts such as the A350. Airbus’ reduction of production rate to 40 A320 per month instead of 60, reiterated during the earning presentation, is an attempt to adapt to this new reality. It also means a drop in revenues on the long-run for Airbus.”

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