RPT-Fitch: Farnborough Announcements Positive for European Civil Aerospace
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July 24 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings says the Farnborough International Airshow's announcements signal positive momentum in European civil aerospace companies, in particular Airbus.
The air-show saw record orders for Airbus, with contracts signed on 496 aircraft worth USD75.3bn. Airbus received firm orders on 358 aircraft, worth USD38.4bn, with Memoranda of Understanding on a further 138 aircraft totalling USD36.9bn.
The new orders were primarily from aircraft lessors, enabling Airbus to diversify away from middle-eastern airlines. The latter currently form a significant component of Airbus's order book but were notable in their absence from its Farnborough orders, particularly after Emirates' cancellation of 70 A350 aircraft worth USD16bn last month.
The official launch of Airbus's A330neo is another positive development. The aircraft is a re-engining of the A330, along similar lines to the A320neo. It will be fitted exclusively with Rolls-Royce Trent 7000 engines, a derivative of the Trent 1000 engines used on Boeing's 787. As an extension of a mature development programme, the margins for the A330neo are high, contributing to cash generation in the medium term. Airbus has adequate financial flexibility to absorb the short term development costs. Execution risk is present but is far reduced in redeveloping an existing programme as opposed to starting a new one.
The same is true for Rolls-Royce, with the company having the financial flexibility to cover development costs and any potential exclusivity payments or programme buy-ins. The move also reinforces its ambitions to increase its dominance in the wide-body market, particularly given the lack of Rolls-Royce engine option on the new Boeing 777X.
The updated engines, wing improvements and cabin layout target fuel savings of around 14% per seat versus current generation A330s, and first deliveries are targeted for late 2017. The programme is expected to cost up to USD2bn, to be incurred between 2015 and 2017, which is guided to have an impact of around 70 basis points on Airbus group's 2015 return on sales target. This compares with projected development cost of around USD15bn for the all new, slightly larger A350, due to enter into service later this year.
Airbus aims to target potential Boeing 787 customers, citing lower capital costs and predictable maintenance as the A330neo aircraft will be based on a mature platform. In doing so, Airbus is also cannibalising some of its own sales. The smallest of the A350 family, the A350-800 will no longer be developed, with the 34 existing orders (less than 10% of the A350 order book) expected to convert to either the A330neo or larger A350-900.
Boeing's orders at the air-show were lower than Airbus's, with total orders and commitments for 201 aircraft at list prices totalling USD40.2bn, though this difference largely reflects the significant 777X orders received in late 2013.
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