Airbus to hike jet output as profits rise

TOULOUSE, France Wed Feb 26, 2014 12:11pm EST

1 of 2. The logo of Airbus Group, Europe's largest aerospace group, is pictured in front of the company headquarters building in Ottobrunn, near Munich February 26, 2014.

Credit: Reuters/Michaela Rehle

TOULOUSE, France (Reuters) - Airbus (AIR.PA) announced a hike in jetliner production on Wednesday, echoing plans by arch-rival Boeing (BA.N) as they battle to meet record demand for more fuel-efficient planes.

The news came as Europe's largest aerospace group, previously known as EADS, unveiled higher 2013 profits, but also cautious forecasts for this year and fresh charges for its newest A350 model.

Airbus said it would raise output of its A320 family of small jets to 46 aircraft a month by the second quarter of 2016 from 42 now. Boeing's rival jet aims to hit 47 a month by 2017.

Planemakers' order books are bulging after a surge in demand for latest fuel economies, pointing to rising revenues from mid-decade but also putting unprecedented demands on a global network of suppliers.

The increase means Airbus will be producing an A320 family jet, worth around $100 million at list prices, every seven working hours.

The ramp-up to 46 appeared at least partly to reflect already announced additions to capacity as a new assembly plant in the U.S. state of Alabama prepares to come on stream.

Airbus has said it plans to start delivering jets from Mobile, Alabama from 2016, rising eventually to four a month. Those plans had not previously been included in Airbus's main production target.

"Mobile is the next place where we will ramp up and we will start producing aircraft there in 2015, first deliveries should happen in 2016. Everything is according to plan and we are training our first American colleagues in Hamburg," Airbus Group chief executive Tom Enders told Reuters.

His comments appeared to confirm that Airbus would not cut output in Europe to make way for the new U.S. plant.

"We looked for this step as this will help to boost organic growth," DZ Bank analyst Markus Turnwald said in a note. "We see a rate of 48 in 2017 thanks to the new U.S. factory."

In order to avoid bottlenecks in its supply chain, Airbus has previously taken measures such as buying up a smaller supplier and reshuffling management at Premium Aerotec, one of its main in-house suppliers.

Airbus said it had carried out a "comprehensive assessment" of its suppliers before taking the decision to produce more.

POSITIVE COMMERCIAL ENVIRONMENT

For 2014, Airbus Group forecast flat revenues and "moderate" growth in operating margin, which it still expects to reach 7-8 percent in 2015 compared with 6 percent in 2013.

From January 1, Airbus Group changed its name from EADS and reorganized itself into three divisions by merging its defense and space units alongside the Airbus jet and helicopters units.

It had already reported that its Airbus planemaking subsidiary had beaten its gross order target of 1,200 planes with orders of 1,619 aircraft in 2013, outselling Boeing but failing to catch up in terms of jets delivered.

"We do expect, particularly with the better growth numbers forecasted for Europe, America, that the commercial environment will stay positive," Enders told journalists.

Airbus, which is heavily dependent on recently unsettled emerging markets, said it was assuming "no major disruptions" to the world economy but outlined what some analysts described as lukewarm forecasts for 2014.

Shares in the group were down 0.6 percent to 52.78 euros at 5.30 a.m. ET, broadly in line with France's CAC 40 index .FCHI.

Airbus predicted 2014 deliveries in line with those of 2013, meaning it looks set to remain in second place behind Boeing on production this year, and reaffirmed it would deliver its first A350 to Qatar Airways by the end of 2014.

"We are not planning any new adventures for 2014 - the focus is on execution, execution, execution," Enders said.

Gross commercial aircraft orders should remain above the level of deliveries, Airbus said.

"There is maybe a slight disappointment with 2014 margin guidance but investors will be more focused on next year and 2016," said Societe Generale analyst Zafar Khan.

However, several analysts said cashflow was surprisingly strong and noted a more wary European corporate context.

Airbus shares have risen around 49 percent in the past 12 months, beating a 19 percent gain in the CAC 40 index. But in the past month it has lagged the index by slipping 3 percent.

A350 CHARGE

Airbus Group's widely watched operating profit before one-off items rose 21 percent to 3.6 billion euros ($4.9 billion) in 2013, better than expectations for 3.52 billion in a Reuters poll. Revenue rose 5 percent to 59.3 billion.

Net profit also rose 22 percent to 1.5 billion euros after charges of 434 million related to higher costs on its newest widebody jet, the A350, and 292 million driven mainly by restructuring of defense and space activities.

The results come two weeks after UK engine maker Rolls-Royce (RR.L) rocked the aerospace sector by warning defense spending cuts would halt its profit growth in 2014.

In January, Boeing posted strong fourth-quarter profits but sent its shares sliding with more cautious-than-expected profit and cashflow forecasts for 2014.

With its traditional defense customers in Europe reducing spending, Enders said the group would have to look more at export opportunities, and adapting its products accordingly.

"They are over-sophisticated, and that comes with additional costs, so there's a job to adapt our product to demand from non-European markets," he said.

However, the chances of selling the Eurofighter jet to other nations were not so good, he said.

(Additional reporting by Tim Hepher and Victoria Bryan; Editing by James Regan and Mark Potter)

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