PARIS — Airbus has reported a 2017 charge of €1.3 billion (U.S. $1.6 billion) on the A400M military airlifter and restated its expectation that further heavy financial damage was limited on the program.
That charge was based on a detailed review in the 2017 fourth quarter on changes of “schedule, capabilities and retrofit” on the A400M, Airbus said Thursday in a statement with 2017 financial results.
That provision brought total charges on the A400M to €8.5 billion. The charges reflect the cost of late delivery, while Airbus seeks to fit tactical capabilities on the turboprop plane.
“With a clear road map in place, Airbus’ remaining exposure going forward is expected to be more limited,” the company said, reiterating a statement made Feb. 7 on negotiations for a new schedule with OCCAR, the European defense agency, and the seven client nations.
“The charge was actually less than feared,” said Sash Tusa, an analyst with equity research firm Agency Partners, which had thought it could be as high as €2 billion. “If this now ring-fences the entire A400M issue, it’s very good news indeed.”
Parties have effectively agreed to a rescheduling of delivery; what remains to be settled is a timetable for fitting capabilities on the aircraft. “It is an unrealistic expectation to have 100 percent capability on Day One,” he said.
Airbus delivered 19 A400M units last year, up from 17 in 2016. That delivery rate reflected a slowdown in production, stemming from the repair of the propeller gearbox on the TP400-D6 turboprop engine.
A reduced production rate is expected over the next two years, an Airbus spokesman said. The company had slowed assembly in Seville, southern Spain, to avoid a buildup of completed aircraft on the tarmac, waiting for delivery to the clients.
That slowed delivery allowed time to fit “matured” capabilities, as some clients preferred to wait for aircraft fitted with military equipment rather than take delivery on time and then send the plane back for retrofit.
There was also less prospect of a buildup of aircraft while Airbus sought export sales, which have been slower than expected.
Airbus also booked a charge of €117 million following settlement with German authorities on an inquiry into alleged corruption in the sale of the Eurofighter Typhoon to Austria. That charge included legal costs for investigations.
The total €1.3 billion charge included €1.1 billion booked in the fourth quarter.
"On A400M, we made progress on the industrial and capabilities front and agreed a re-baselining with government customers, which will significantly reduce the remaining program risks," Airbus CEO Tom Enders said. "This is reflected in a substantial one-off charge."
Airbus reported an 8 percent increase in adjusted 2017 operating profit of €4.6 billion on steady sales of €66.8 billion.
Airbus shares soared 10 percent on better-than-expected free cash flow of €3 billion, up from €1.4 billion.
A Feb. 7 declaration of intent on the A400M “represents an important step towards reaching a contractually binding agreement also mitigating the commercial exposure while satisfying customer needs with regard to capabilities and availability of the aircraft,” Airbus said.
The clients are Belgium, Britain, France, Germany, Luxembourg, Spain and Turkey.