Production cuts at Airbus show concerning state of commercial aviation amidst COVID-19 crisis

Following the announcement by Airbus that it will cut its commercial aircraft production in light of the commercial aviation crisis worsened by the COVID-19 outbreak;

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

“Cutting production of aircrafts across the board is a powerful move by Airbus. The company seems to have decided to employ any means necessary to mitigate the catastrophic impact of COVID-19 on commercial aviation. Jetliners represent 70% of Airbus revenues according to 2019 figures. Reducing production, even temporarily, of the best-selling A320, A330 and A350 families by 30% to 40%, as announced, is virtually renouncing to at least a quarter of its usual cash flow for the time being.

“The company arguably did not have much choice in the matter. Chief Executive Guillaume Faury rightly spoke of a ‘new reality’ regarding current postponing and the cancelations of orders. Airbus has already registered 29 A320/321 and 17 A350 cancelations so far in 2020. These figures are not as drastic as Boeing’s which saw a single cancelation of 75 B737 MAX from leasing company Avolon in early April. However, Boeing is also confronted with the current grounding of the MAX since two successive crashes last year.

“On paper, accumulating cancelations are more concerning for Airbus’ A320 than for Boeing’s B737 as they seem to indicate more fundamental issues. The single-aisle market, on which Airbus is comparatively more reliant than Boeing, is confronted to pressures on margins. In the meantime, twin-aisles sales are virtually frozen by the current crisis. Considering that defense and space represent less than 20% of Airbus’ revenues (against 34% for Boeing), sources of cash flow are starting to look meagre for the plane maker.”

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