Business

Military plane cost hits Airbus profits

The A400M in flight Image copyright Getty Images

Aircraft manufacturer Airbus reported a drop in 2016 profits, mainly because of a charge on the A400M military plane.

Its net income fell by 63% to 995m euros (£838m), although revenue went up 3% to 66.5bn euros (£56bn).

The results are the first since Airbus started simplifying the company by mixing its European business with the parent company, previously called EADS.

Chief executive Tom Enders said: "We've delivered on the commitments we gave a year ago."

He added: "We achieved our guidance and objectives, with one exception, the A400M, where we had to take another significant charge totalling 2.2bn euros (£1.85bn) in 2016.

The A400M has suffered a number for setbacks over the years.

Earlier this month, one A400M broke down on the ground while carrying German Defence Minister Ursula von der Leyen.

Image copyright AFP
Image caption German Defence Minister Ursula von der Leyen before boarding the plane which flew from Germany to Lithuania but then broke down

Another crashed on a test flight in Spain in 2015, leading to the deaths of the four crew members.

"De-risking the programme and strengthening programme execution are our top priorities for this aircraft in 2017," Mr Enders said.

A late surge in deliveries of civil planes boosted overall profits at Airbus - analysts had been expecting a 7% fall.

The company said its helicopter division had performed well "despite a difficult market environment".

In 2017 it expects the world economy and air traffic to grow in line with current independent forecasts, assuming there are no major disruptions.

Analysis by BBC Business news reporter Theo Leggett

Airbus delivered a record number of aircraft last year and its order book is bulging, but it certainly hasn't been plain sailing for the aerospace giant.

It met its production target for the new A350 jetliner, despite problems with suppliers - but only after putting workers on overtime through the summer. Deliveries of the A320neo, a new version of its short-haul workhorse, were held up by teething troubles with its new engines.

Image copyright AP

These issues are minor, though, compared with the problems affecting its flagship military project - the A400M.

The ambitious programme has faced years of delays and has struggled to find customers beyond a core group of Nato members in Europe.

The company says that a recent problem with propeller gearboxes has been fixed, but further issues were encountered in making the new plane fit for military use. It also admits that challenges remain in terms of meeting contractual capabilities, securing export orders and keeping down costs.

Airbus wants its managers to talk to customers in an attempt to keep its losses on the programme under control, but those talks are unlikely to be easy.

It also expects to deliver more than 700 commercial planes during the year. Robert Wall, senior aerospace and aviation editor at the Wall Street Journal, told the BBC's World Business Report that was the key to their business.

"The A400M is an important programme for them, but really Airbus is all about the commercial airliner delivery market," he said.

"They delivered strongly last year on aircraft and airliner deliveries, and this year, there should be more than 700. They seem to be executing other key programmes reasonably well, but this is another challenging year for them, as they will admit.

"The outlook for them is good on that side, but if you keep having to pay these big charges on one or two programmes, that's obviously not something management can stomach."

Gervais Williams, managing director of Miton Asset Management, told the BBC: "They're looking forward to getting more deliveries on the A320 and the A330, but at the moment, they've got the new models coming in.

"From that point of view, they have got to work on selling the old model before the new model arrives and not many airlines want to buy the old model.

"They are taking a marginal hit to get the sales at the moment and next year, when the new models come on, we will get a strong recovery."

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