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.


As worries about populism in Europe rise, investors bet on stock market volatility

Updated 6 sec ago
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As worries about populism in Europe rise, investors bet on stock market volatility

  • More than 350 million EU citizens will head to the polls between May 23 and 26 to elect a new Parliament
  • The vote will shape the future of the bloc amid a backlash against immigration and years of austerity

LONDON: Investors are betting on heightened political uncertainty and greater volatility in European stock markets ahead of European Parliament elections in May amid growing concerns about rising populism.
In one of the first concrete signs in financial markets that investors are bracing for political instability, VSTOXX futures , which reflect investor sentiment and economic uncertainty, have jumped in recent weeks.
While the classic gauge of fear — known as implied volatility, which tracks demand for options in European stocks — is currently at 15.68, futures that bet on the same thing over the coming months show a pronounced jump.
That’s because investors have piled on trades that bet on big swings in stocks as election day nears.
Implied volatility for futures contracts expiring in May show a pronounced jump to 16.8, compared with 15.35 in April. The contracts measure the 30-day implied volatility of the euro zone STOXX 50 index.
“We are seeing a bit of a kink around May when we have European elections and we have this wave of populism,” said Edmund Shing, head of equities and derivatives strategy at BNP Paribas.

Looming elections
More than 350 million EU citizens will head to the polls between May 23 and 26 to elect a new Parliament, a vote that will shape the future of the bloc amid a backlash against immigration and years of austerity.
Mainstream center-left and center-right lawmakers may lose control of the legislature for the first time, as euroskeptic and far-right candidates build support.
Herve Guyon, Societe Generale’s head of European equity derivatives flow strategy and solutions, said the rise of populism had triggered a recent flurry of speculative trades.
“Political uncertainty might be coming from the EU rather than the United States. We’ve seen investors doing very large trades to benefit from an increase in volatility around these events,” he said.
“We as a bank don’t expect the elections to be a massive game-changer. The populists won’t get enough to disrupt the political system, but we do note some investors did take some positions on this event.”
The implied volatility is still well below levels seen in late 2018 when global stock markets were routed amid worries about rising interest rates, slowing economic growth and the trade war between Beijing and Washington.
In late December, it shot to above 26, its highest since February.
But the flurry of activity suggests investors are seeking out new opportunities after a slide in implied volatility across major asset classes.
Edward Park, deputy chief investment officer at asset manager Brooks MacDonald, said some of the activity may also be due to persistent uncertainty about Britain’s exit from the European Union as the Brexit date of March 29 nears.
This year, volatility across currency, fixed income and stocks markets has plunged as the US Federal Reserve and European Central Bank have taken dovish policy stances.
The Deutsche Bank currency volatility indicator hit multi-year lows this week, while the proxy for fixed income volatility is languishing at all-time lows.
In stocks, the Cboe volatility index, Wall Street’s so-called “fear gauge,” fell to its weakest in six months this week.
“There’s been a cross-asset volatility crash — in euro-dollar, US rates and equities — in the aftermath of (ECB President Mario) Draghi’s and (Fed Chairman Jerome) Powell’s comments and the expectation of lower rates for longer,” said Guyon.