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Pratt & Whitney in hot seat as Airbus profits fall
July 27, 2017 / 5:26 AM / 4 months ago

Pratt & Whitney in hot seat as Airbus profits fall

PARIS (Reuters) - Airbus turned up the heat on engine maker Pratt & Whitney over delays that have disrupted its biggest production line, after reporting a sharp drop in mid-year profits on Thursday.

An Airbus A380, the world's largest jetliner, takes part in flying display, during the 52nd Paris Air Show at Le Bourget Airport near Paris, France June 25, 2017. REUTERS/Pascal Rossignol

The European planemaker also said it would cut output of the A380, the world’s biggest jetliner, to just eight from 2019, putting on life support a project that has been undercut by a generation of nimbler, fuel-efficient long-haul planes.

Airbus’s (AIR.PA) shares fell as much as 4.6 percent as investors contrasted its fortunes with those of U.S. arch-rival Boeing (BA.N), whose stock hit a record high on Wednesday after its quarterly profit and cashflow beat estimates.

Airbus Chief Executive Tom Enders challenged Pratt & Whitney, whose fuel-saving Geared Turbofan (GTF) engine is tied to thousands of orders for small A320neo jetliners, to “work harder” to fix delays and reliability problems.

In an unusual public split with a major supplier, he said the engine maker had failed to meet earlier commitments and took issue with confidence over deliveries voiced by Pratt parent United Technologies (UTX.N).

“You can assume that Airbus is fully in the picture and knows what it is talking about,” he told reporters, asked about the difference in tone accompanying their respective forecasts.

“If there is a difference in messaging and perception, then there is a difference, but our picture is the picture we have at Airbus and ... the situation is unsatisfactory,” he said.

Pratt & Whitney had no immediate comment.

United Technologies this week said it was “confident” about building a total of 350-400 GTFs this year.

Airbus reiterated its own delivery goal but added a proviso, saying it depended on engine makers meeting commitments.

Jefferies analyst Howard Rubel wrote that only 300 GTF engines may qualify as paid customer deliveries in 2017.

Delays in A320neo deliveries helped slice a third off Airbus first-half profit on flat revenue. Its shares fell despite progress on the ramp-up of the wide-body A350 jet and confirmation of financial targets.

United Technologies shares fell 1.3 percent.

A380 OUTPUT CUT

Enders confirmed Airbus had delivered “around 15” Pratt-powered A320neo twin-engined aircraft in the first half compared with around 100 planned for that variant in 2017.

Asked how this squared with the 134 engines that Pratt says it delivered in the first half, Enders said deliveries of aircraft depended on customer acceptance.

Industry sources say some airlines have been refusing to take Pratt-powered jets because of the lack of available spares.

India, whose airlines have ordered hundreds of Pratt-powered A320neos, said Pratt had told its regulators it would address delays affecting GoAir and IndiGo. Air India has also had delays in getting jets with CFM engines, a minister said.

The A320neo is one of several challenges as Airbus tries to accelerate output of new jetliners, fix glitches on its A400M military plane and squeeze costs out of the slow-selling A380.

Airbus said it would cut output of the double-decker jet to eight in 2019, a move that insiders said was designed to stretch the dwindling order backlog into the next decade while Airbus tries to convince Emirates, IAG and others to place new orders.

That compares with 15 this year and 12 in 2018 and means production will continue at what Airbus calls a marginal loss.

Enders said Airbus was working on sales campaigns but the probability of immediate success was “not ... necessarily high”.

The second output cut in a year puts off any decision on whether to close the iconic A380, which would force the company to pay redundancies and writedowns but also ease some pressure on its balance sheet from project debts to European governments.

Enders said Airbus was in “constructive talks” with Qatar Airways over a recent cancellation of four A350s, adding, “I think we will find a way out” of the issue.

Airbus’ second quarter operating profit fell 27 percent to 859 million euros on revenues of 15.27 billion.

That fell short of the 910 million euros on revenue of 15.82 billion expected by analysts polled by Reuters.

Reporting by Tim Hepher, Cyril Altmeyer, Victoria Bryan, Aditi Shah; Editing by Mark Potter and Susan Fenton

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