Airbus defense unit freezes capex

An Airbus A400M aircraft flies over the Paris Air Show at Le Bourget airport. Airbus has warned of continued cash pressures from the troubled A400M military aircraft program. (Reuters)
Updated 06 October 2017
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Airbus defense unit freezes capex

PARIS: Airbus Defense and Space has frozen capital spending and urged its 34,000 staff to take “drastic measures” to save cash as it faces the prospect of missing 2017 cash targets by hundreds of millions of euros, according to a memo seen by Reuters.
“With the risk of missing our full-year cash targets by hundreds of millions, we need to do something extraordinary together,” divisional finance chief Julian Whitehead told an internal forum, according to a summary distributed to staff.
Airbus has said it expects 2017 group-wide free cashflow to be similar to 2016, before mergers and acquisitions and customer financing. It does not publish cash targets for divisions. Due to the bumpy patterns of cashflows in aerospace, it often faces a dash to meet targets in the fourth quarter.
Airbus Defense & Space, which has warned of continued cash pressures from the troubled A400M military aircraft program, plans to set up a “Cash Crisis” team to improve the situation by end-year, with all its programs expected to participate.
Until those plans become clear, all capital expenditure is being frozen with immediate effect across all the division’s activities and across all its subsidiaries, the memo said.
Airbus shares stumbled from record highs and fell as much as 1.6 percent.
Airbus’ stock price remains up around 30 percent since the start of 2017 on buoyant demand for passenger jets, although rival Boeing’s shares are up 64 percent.
Asked to comment on the memo, an Airbus spokesman said: “We are currently in the traditional year-end race in the commercial and government business.”
He added: “It is key to remind our troops at this important time of a business year on the importance of meeting our cash objectives. That’s the current ongoing effort at Airbus and it is rather standard procedure to achieve our quarterly and yearly divisional targets at Airbus Defense and Space without deviation.”
Another person close to the group said the language used in the memo was typical of the purely internal battle cry used by managers at this time of year to focus on reaching targets.
On Wednesday, however, Airbus reminded European governments that the delayed A400M would continue to “weigh significantly” on cashflow in 2017 and 2018, especially.
It has been squeezed as Germany withholds some 15 percent in cash owed for the transport plane because of what it regards as systems failing to do what Airbus had promised. The company earlier this year entered talks with buyer nations to try to ease the penalties and get a new agreement on schedules.
At a group level, cash and profits have further been hampered by delays in delivering A320neo jetliners because of delays in receiving engines from US supplier Pratt & Whitney.
Late deliveries delay payments from airlines and prevent workers learning through experience as quickly as planned, which drives up cost and eats up cash for inventory on assembly lines.
Airbus as a whole had €7.9 billion of net cash at end-June, down from €11.1 billion at the end of 2016.
While freezing spending, Airbus Defense & Space is also in the midst of a strategy overhaul that has involved selling its electronics activity and now puts faith in the growth of digital services to help it grow faster than the rest of the industry.


Apple Watch, FitBit could feel cost of US tariffs

Updated 20 July 2018
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Apple Watch, FitBit could feel cost of US tariffs

SAN FRANCISCO: The latest round of US tariffs on $200 billion of Chinese goods could hit the Apple Watch, health trackers, streaming music speakers and other accessories assembled in China, government rulings on tariffs show.
The rulings name Apple Inc’s watch, several Fitbit Inc. activity trackers and connected speakers from Sonos Inc. While consumer technology’s biggest sellers such as mobile phones and laptops so far have faced little danger of import duties, the rulings show that gadget makers are unlikely to be spared altogether and may have to consider price hikes on products that millions of consumers use every day.
The devices have all been determined by US Customs and Border Patrol officials to fall under an obscure subheading of data transmission machines in the sprawling list of US tariff codes. And that particular subheading is included in the more than 6,000 such codes in President Donald Trump’s most recent round of proposed tariffs released earlier this month.
That $200 billion list of tariffs is in a public comment period. But if the list goes into effect this fall, the products from Apple, Fitbit and Sonos could face a 10 percent tariff.
The specific products listed in customs rulings are the original Apple Watch; Fitbit’s Charge, Charge HR and Surge models; and Sonos’s Play:3, Play:5 and SUB speakers.
All three companies declined to comment on the proposed tariff list. But in its filing earlier this month to become a publicly traded company, Sonos said that “the imposition of tariffs and other trade barriers, as well as retaliatory trade measures, could require us to raise the prices of our products and harm our sales.”
The New York Times has reported that Trump told Apple CEO Tim Cook during a meeting in May that the US government would not levy tariffs on iPhones assembled in China, citing a person familiar with the meeting.
“The way the president has been using his trade authority, you have direct examples of him using his authority to target specific products and companies,” said Sage Chandler, vice president for international trade policy at the Consumer Technology Association.
The toll from tariffs on the gadget world’s smaller product lines could be significant. Sonos and Fitbit do not break out individual product sales, but collectively they had $2.6 billion in revenue last year. Bernstein analyst Toni Sacconaghi estimates that the Apple Watch alone will bring in $9.9 billion in sales this year, though that estimate includes sales outside the United States that the tariff would not touch.
It is possible that the products from Apple, Fitbit and Sonos no longer fall under tariff codes in the $200 billion list, trade experts said. The codes applied to specific products are only public knowledge because their makers asked regulators to rule on their proper classification. And some of the products have been replaced by newer models that could be classified differently.
But if companies have products whose tariff codes are on the list, they have three options, experts said: Advocate to get the code dropped from the list during the public comment period, apply for an exclusion once tariffs go into effect, or try to have their products classified under a different code not on the list.
The last option could prove difficult due to the thousands of codes covered, said one former US trade official.