(Updates throughout after conference call, refiled to remove
repetitious wording in second paragraph)
* Airbus Group says cancellations linked to overbooking
* CEO says aerospace cycle not heading lower
* CEO sees net increase in order backlog in 2014
* Airbus says focusing on Dassault stake sale
* Shares rise 4 percent
By Tim Hepher
PARIS, July 30 Airbus Group moved to
allay concerns over a wave of order cancellations on Wednesday,
sparking a rally in its shares helped by better than expected
Chief Executive Tom Enders said global aircraft markets
remained strong despite worries about an overheating in
Southeast Asia and a number of order cancellations which have
concerned investors since this month's Farnborough Airshow.
"We are not approaching the end of the cycle or a
precipice," Enders said. "The commercial aircraft market is
still very strong - certain regional weak spots notwithstanding,
but we can deal with that".
Lifting the veil on a growing but little-publicised part of
the $100 billion market, Enders said about half of the
underlying cancellations seen so far this year resulted from
conversions to orders for different aircraft and 'overbooking'.
Most of the cancellations involve narrowbody jets, the
busiest part of the market where Airbus and rival Boeing
are offering upgraded models such as the Airbus A320neo.
Just as most airlines overbook flights in anticipation of
no-shows, planemakers sell more narrowbody models than they can
make, knowing that some in the cut-throat airline industry will
not take delivery.
That means they have to juggle orders in the year of
delivery, pushing the less robust orders out to later dates.
Now that the new A320 is close to being delivered from 2015,
buyers of the older model are being encouraged to take the new
one instead, Enders said. This triggers a cancellation offset by
a new order. Of the 225 cancellations in the first half, 65
happened in this way.
Enders said he expected to see more such cancellations and
predicted Boeing would see the same issue when it gets close to
introducing the 737 MAX, its own upgraded shorthaul jet.
But he denied this represented a downturn in the market.
The reshuffle nonetheless marks a change of policy by Airbus
whose sales chief had said "virtually nothing" would be sold at
the expense of existing business when launching the A320neo.
Still, in a change of emphasis, Airbus toughened its target
for 2014 orders to a "net" total after cancellations, rather
than aiming for a gross figure that ignores such conversions.
Analysts say Airbus appeared to have soothed nerves about
demand for now, but could face a bigger challenge in plugging a
gap between old and new models when it comes to the upgrade of
the larger A330, launched at this month's Farnborough Airshow.
Even then, some bankers insist the jet market has peaked.
Airbus shares were up 4.25 percent at 45.56 euros by 1258
GMT, having fallen around 8 percent since the Farnborough show
on fears that the commercial aerospace business cycle may be
weakening or that Airbus may have to slow A330 production.
Enders predicted a "little bit of a dip" in record A330
output of 10 jets a month during the 2015-2017 changeover.
"Airbus has done a good job filling orders in the production
gap. They will have a seamless transition on the A320 but the
A330 will be much harder," said Sash Tusa, aerospace and defence
analyst at UK-based Edison Investment Research.
First-half results that included a 10 percent increase in
core operating profit and 6 percent rise in revenue led by
airplane and helicopter sales made the company's restated
guidance for 2014 look "comfortably conservative," Tusa said.
Airbus said it was confident of finding buyers for two A380s
left without homes after it revoked a sale to Japan's Skymark
Airlines because of the airline's inability to pay.
But it declined to say what would happen to 10 A380s from
Hong Kong Airlines which industry sources say are in the process
of being cancelled, except to say that not all A380s sold would
Airbus meanwhile gave the strongest signal yet that it is
gearing up to sell its 46 percent stake in Dassault Aviation
, ending an increasingly uncomfortable arrangement to
warehouse the stake on behalf of the French government.
It inherited the stake from former state-owned Aerospatiale,
along with a Paris headquarters overlooking a racecourse - whose
recent sale also boosted Airbus's half-year earnings.
Activist hedge fund TCI last year called the holding in
Dassault "a poor use of capital" and urged Airbus to sell it
due to a lack of synergies. Dassault makes the Rafale combat
jet, a rival to the Airbus-affiliated Eurofighter Typhoon, as
well as Falcon business jets and the stake has a current market
value of 5 billion euros.
Enders said the sale was now "not a question of if but ...
when," but declined to comment when asked about the timing.
People familiar with the matter said Airbus was in advanced
talks with the French state and Dassault family, whose holding
owns 50.6 percent, and a deal could take shape later this year.
Scenarios may include selling part of the stake to the
Dassault family, placing all or part of it in the market or
finding an investor interested in Dassault's profitable Falcon
jet business, or a combination of these, Paris analysts said.
The French state has a right of 'first offer' over any sale.
(Editing by James Regan and Greg Mahlich)