Airbus cuts A330 output, first-quarter profit capped by engine delays

People celebrate near an Airbus A330neo aircraft after its maiden flight event in Colomiers near Toulouse, France on October 19, 2017. (Reuters)
Updated 27 April 2018
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Airbus cuts A330 output, first-quarter profit capped by engine delays

  • Europe’s largest aerospace group said it was reducing deliveries of the 250-300-seater A330 aircraft to around 50 in 2019
  • Analysts were on average expecting a €23.9 million operating loss on revenues of €10.209 billion

PARIS: Airbus bowed to weak demand for its A330 passenger jet on Friday, announcing a cut in production for 2019 after a series of bruising defeats to Boeing in contests for wide-body jets.
Europe’s largest aerospace group said it was reducing deliveries of the 250-300-seater to around 50 aircraft in 2019, without giving a figure for its previous plans.
Airbus delivered 67 of the jets in 2017, implying a cut of as much as 25 percent in output based on steady volumes this year — though some analysts see production starting to dip as early as this year as orders dry up.
The production came as Airbus posted a slender — though better than expected — core profit in the first quarter after delays in engine deliveries for its smaller A320neo.
Together the A320 and A330 families, which feature updated versions of its most successful airframes, generate most of the cash and income needed to support future developments and other activities within the maker of airplanes, rockets and fighters.
While the narrowbody A320neo remains a best-seller, with Airbus recently unable to produce the jets fast enough due to engine supply problems, the upgraded A330neo has been losing ground to the newer Boeing 787 at carriers like American Airlines and Hawaiian Airlines.
“We knew (the first quarter) was going to be grisly – and it is,” said Jefferies analyst Sandy Morris in a note.
“The A330 going down to 50 (a year) is overtly bad news, but we have suspected for some time the A330’s slow sales could mean A350 production moves up at some point,” he added.
Airbus reported an adjusted quarterly operating profit of €14 million, compared with a restated year-earlier loss of 19 million. Revenues fell 12 percent to €10.119 billion. Airbus reaffirmed financial forecasts, however.
Analysts were on average expecting a €23.9 million operating loss on revenues of €10.209 billion, according to a Reuters poll.
Airbus has said it expects deliveries to be once again heavily weighted toward the latter part of the year, as industrial problems felt by engine makers Pratt & Whitney and to a lesser extent CFM International start to ease.
The earnings statement did not refer to plans to increase A320neo output further than planned in 2019, to 63 aircraft a month from a previous target of 60, as disclosed earlier this week.
The head of French engine maker Safran, a partner in CFM alongside General Electric, expressed caution over the plans on Wednesday, saying it was too early to commit to higher output as suppliers work through what is already a record production ramp-up to meet air travel demand.


Gulf exporters to reap oil dividend as battle for Asia market share heats up

Updated 33 min 47 sec ago
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Gulf exporters to reap oil dividend as battle for Asia market share heats up

  • Chinese exports to US fall
  • IEA ups demand forecast

LONDON: China is expected to buy more oil from Saudi Arabia and other Gulf producers as it seeks to replace US supply amid a worsening trade war with Washington.
Although China last week omitted US crude from a list of a retaliatory tariffs, analysts told Arab News that the Chinese were cutting forward orders for US oil in case the trade war escalates.
Richard Mallinson, co-founder of London consultancy Energy Aspects, said: “Chinese buyers, anticipating that crude and LNG could go on the list if tensions escalate further, are looking to alternative sources.”
Mallinson said that Chinese buyers wanted to avoid having significant amounts of US oil sitting on tankers in the middle of the ocean, which would be hit with tariffs when unloaded at Chinese ports.
“There is definitely an opportunity for Middle East producers here, and particularly the biggest, Saudi Arabia,” he said.
Andrew Critchlow, head of energy news (EMEA) at S&P Global Platts, told Arab News that there was every likelihood of more demand from China for non-US oil and “Saudi Arabia and other Gulf Cooperation Council countries were the place to get it.”
OPEC already provides 56 percent of China’s oil imports, according to the International Energy Agency (IEA). The US has also been exporting increasing levels to the Asia powerhouse.
A report by the Houston Chronicle on Aug. 13, said that US crude exports to China surged from about 22,000 barrels per day (bpd) in 2016 to almost 400,000 bpd last year and early in 2018, accounting for about 20 percent of all US crude shipments.
This summer, those volumes fell below 200,000 barrels daily, said the report.
Critchlow said that the Kingdom was currently producing about
10.5 million bpd with spare capacity of around 2 million bpd, although the closer you get to that number, the more difficult it was to extract and process, he said.
Russia could also ramp up production, but not as much as KSA, said Critchlow.
“We now have the IEA upping its demand forecast for 2019. They have increased their OPEC barrels estimate by a few hundred thousand barrels a day and by half a million a day by 2019 (for the OPEC 15),”
he said.
But the scope for increased global export potential from the Gulf was also being driven by anticipated tighter supply after the reimposition of US sanctions against Iran later this year.
Still, there was a danger of demand erosion the longer the trade wars continued, and especially if there was further escalation.
Shakil Begg, head of Thomson Reuters oil research in London, warned that by the second half of 2019, global GDP could be cut if world trade levels contracted.
That would lead to a sharp fall in the price of crude, and even herald a US recession that could spill into Europe, he told Arab News.
But Critchlow made the crucial point that the big competition in the oil market today “is to win a bigger share of the Chinese and Asian market, including India.”
He said: “That’s where the battle for market share will take place over the next decade. Also, as Iranian barrels are lost, customers in nations such as China, South Korea, India and Japan will look to the GCC and others to step in.”
US exporters will still be a big force to be reckoned with, he said. The IEA has predicted that the US will overtake KSA and Russia as the largest producer by as early as 2019.
Mallinson said: “At the end of this year and the beginning of next, the market is going to get extremely tight. And the Saudis will have to pump at much higher levels.
“When you’ve got buyers restricted from where they go, it does create alternatives to move upwards,” said Mallinson.
But he warned that if the trade war worsens, it could hobble economic growth.
“These are the two largest economies in the world and it is not good news for them getting into a conflict like this.
“But even with a severe economic slowdown, we still see a tight oil market next year. Iran and sanctions are the biggest driver.”
Mallinson said that there were two other constraints: Underinvestment in capital projects outside the US, and infrastructure bottlenecks
in America.
“Those factors are big enough on the supply side to outweigh the possibility of a sharp slowdown of growth on the demand side,” he said.