The United States has Facebook, Google, Amazon and Tesla. Europe has no comparable tech giants. But it has Airbus.
Last year, Airbus displaced Boeing as the world’s biggest maker of passenger jets and seemed unstoppable. It had exploited the series of mishaps at its arch-rival, which had grounded Boeing’s 737 Max jet after two fatal crashes that shattered confidence in the American aerospace giant.
That left the Airbus A320 family of single-aisle jets as the preferred choice among airlines around the world. Orders took off – as did the shares. In European trading, Airbus rose by more than half between October and January. Then the shares crashed as the COVID-19 crisis grounded airlines everywhere. On Thursday, they were worth €58 ($88.42), down 52 per cent in the past 12 months.
Today, Airbus is cutting production and capital spending and laying off thousands of employees as it tries to adjust to the suddenly shrunken market. Airlines have no use for the thousands of new planes that were rolling off the production lines of Airbus, Boeing, Embraer, Mitsubishi and other manufacturers.
On Wednesday, when Airbus reported first-quarter results, CEO Guillaume Faury said “We are now in the midst of the gravest crisis the aerospace industry has ever known.” Earlier in the week, he even suggested that Airbus’s ability to survive was in doubt. In an e-mail to its 136,000 employees, he said the company was “bleeding cash at an unprecedented rate which may threaten our existence.”
Airbus’s reversal of fortune was stunning. In the three months to the end of March, the company reported negative free cash flow of €8-billion, though €3.6-billion of that amount went to settle corruption investigations. The outflow reduced Airbus’s net cash to €3.6-billion, down from €12.5-billion at the end of 2019.
Mr. Faury is now obsessed with “cash containment.” Aircraft production has already been cut by a third, thousands of employees have been sent home and more reductions are likely as the quarantines that have paralyzed most of the western economies are lifted only slowly. Certainly, the notion of a V-shaped recovery in the aerospace industry now seems unlikely. Mr. Faury said it would take three to five years before passenger travel goes back to precrisis levels. His counterpart at Boeing, David Calhoun, was only slightly more optimistic; he said airline travel won’t return to 2019 levels for two or three years.
But Mr. Faury’s warnings of an existential crisis at Airbus seem premature. Airbus is a cherished European project – the governments of France, Germany and Spain are minority shareholders – and a rare example of a European business with a powerful global presence. It is hard to imagine that the governments who back the company and cherish its highly skilled workers would allow it to go under.
Airbus’s roots go back to the 1970s. It was formed bit by bit over the decades as it consolidated the European aerospace industry. Its debut product was the A300, the world’s first twin-engined, wide-body jet, which went into service with Air France in 1974 (a variant of this plane, the A310, is used by prime minister Justin Trudeau). Its biggest jet is the double-decker A380, a poor seller that is going out of production. The company’s hottest products are the A320 family of jets, whose output could not keep up with demand after the Boeing 737 Max debacle.
The company still has a lot going for it. In spite of its hefty cash burn, the company has ample liquidity – €30-billion at last count – that can buy it a fair amount of time before it has to hit the panic button and go begging for a bailout. Moody’s said that a 40-per-cent fall in Airbus aircraft deliveries this year would produce €8-billion in negative free cash flow in 2020. If the firm falls apart, it won’t be this year.
Airbus has one big advantage over Boeing, other than its rival being temporarily sidelined in the single-aisle aircraft market. Airbus this year took full control of the A220, the small jet that was developed by Bombardier under the C Series nameplate. Boeing used all its political and market might to try to kill the C Series, only to see it snatched up by Airbus.
The plane is the most modern and fuel-efficient piece of equipment in its class and should sell well in the 100- to 150-seat market as airlines adjust to thinned-out passenger traffic in the postcoronavirus world. Small planes will be easier to fill. The A220 and A320 will give Airbus a virtual lock on the single-aisle jet market. Boeing is a far bigger player in the wide-body market. But the question is whether those big jets will fall out of favour, as the A380 did. Big may no longer be beautiful in the era of postcoronavirus aviation.
To be sure, Airbus will struggle a lot in the next two years or so and thousands of its employees will soon be looking for other work. Airbus is unlikely to collapse – it has enormous political support, more so than Boeing. It appears to have the right mix of aircraft for a world that will see fewer planes in the air. Airbus devoted decades to surpass Boeing and it will not give up its lead easily.