Airbus's 957b-euro order book doesn't guarantee success: Gadfly commentary

[FRANKFURT] Building commercial and military aircraft is a fiendishly tricky and time-consuming business. Fortunately, explaining what went wrong with Airbus's first-quarter earnings isn't.

The European manufacturer has almost 957 billion euros (S$1.46 trillion) worth of planes in its order book. That counts for little if you can't actually deliver the aircraft to your customers on time. Airbus is struggling.

Earnings per share slumped by half compared to a year ago amid a cornucopia of production problems spanning the A320neo narrow-body jet, the A350 wide-body and the A400M military transporter.

The company delivered nine fewer planes than the same quarter a year ago. That matters because customers pay most of the sticker price when aircraft are handed over. Airbus's working capital ballooned by 2.8 billion euros because aircraft are sitting unfinished at factories rather than pulling up at the departure gate.

In fairness, many problems lie with suppliers: for example, Pratt & Whitney's engines for the A320neo and Zodiac's cabin equipment for the A350. But customers tend not to be bothered about who's at fault. Airlines just want their planes and if they can't get them they'll consider taking their business elsewhere.

Airbus had guided the market to expect a back-end loaded year in terms of deliveries and profit. Nobody was expecting the first quarter to be a knock-out. The decades-long development and production programs in commercial aircraft also make it inadvisable to draw too many conclusions from a single quarter.

Still, the past three months were uniquely unpleasant for Airbus ("challenging" in the words of CEO Tom Enders.) Almost every key financial metric was worse. This makes its goal to deliver more than 650 aircraft in 2016 and achieve stable profit before special items seem ambitious, to say the least.

Airbus warned the new propeller gearbox troubles on the A400m could have a "significant" financial impact, but it's not yet in a position to say how much, which is concerning.

In case that wasn't enough, Airbus commercial aircraft sales have hit turbulence too. Following several cancellations, it booked just 10 net orders during the quarter. The start of the year tends to be slow but in the same period a year ago Airbus took 101 orders.

Even currency markets have turned hostile. A weaker euro made its planes more competitive versus Boeing but in the first quarter the currency gained more than 4 per cent versus the greenback.

Airbus shares trade at a premium to Boeing's (17.2 versus 16.2 times estimated 2016 earnings), in part because of its success selling planes. After today, investors will reflect that sales performance no longer looks so assured and that, in any case, building aircraft is much more important than a signature and a handshake.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

BLOOMBERG