AIR Airbus SE

By Robert Wall 

TOULOUSE, France -- Shares in Airbus SE soared 11% after the European plane maker signaled it was starting to cash in on higher plane production and joined rival Boeing Co. in promising to build even more airliners.

The world's two biggest plane makers have benefited from a surge in demand for commercial planes, with global economic growth lifting passenger numbers, filling aircraft, and driving airlines' appetite for expansion.

That has led to yearslong order backlogs at both companies and burgeoning demand was underscored in earnings from Airbus on Thursday.

Airbus delivered a record 718 planes in 2017, with both net and underlying profit rising sharply. Investors were particular cheered by a better-than-expected EUR2.95 billion ($3.68 billion) in free cash flow before mergers, acquisitions and customer financing. It had targeted about EUR1.4 billion, on par with the year-earlier period. The rise signals Airbus is starting to turn higher plane deliveries into stronger cash flow at a time when output is rising.

To meet demand Airbus said it was raising output to around 800 airliners this year.

Airbus had already announced plans to boost single-aisle plane production to 60 aircraft a month next year, from around 50 in 2017, and Chief Executive Tom Enders said demand could potentially support production of more than 70 A320 type planes a month, though the company hasn't yet committed to that output level.

Boeing last month said it planned to lift production to 810 to 815 planes this year from 763.

Boosting plane production hasn't been without its challenges for Airbus. The company has been struggling with the supply of engines on its popular A320neo plane and that has slowed deliveries. Last week, Airbus said problems with one of the engines, made by United Technologies Corp., were delaying some planes and put a hold on deliveries. Airbus said it was still assessing the impact of the problem on deliveries.

Rival engine supplier CFM International, a joint venture between General Electric Co. and France's Safran SA, also has been behind schedule on delivering its equipment.

Airbus said net profit rose sharply to EUR2.87 billion, compared with EUR995 million last year, when earnings were hit by foreign exchange and plane program accounting charges. Airbus's operating earnings, which strip out some one-time items, were EUR4.25 billion, compared with EUR3.96 billion a year earlier.

Net profit was dented, though, by continued problems on the beleaguered A400M military transport plane where Airbus has been running behind. The company took a EUR1.3 billion charge on the program, raising to more than EUR8 billion the combined charges the company has taken on the project that has struggled with delays and technical problems.

Mr. Enders said a recent agreement with governments to adjust delivery timelines and technical content on the plane "significantly reduce the remaining program risks."

The Toulouse-based company reported EUR66.8 billion in sales, little changed from a year earlier, with stronger commercial airliner revenue offset by weaker helicopter and defense and space activities. Airbus also plans to increase it dividend by 11%.

Airbus also is wrestling with other issues. The company faces regulatory probes in multiple jurisdictions, including the U.S., about the improper use of middlemen to win military contracts. Airbus said it is cooperating with the probes.

Airbus said U.S. authorities have asked for information on French and British probes about the use of unauthorized sales agents to win commercial plane deals, widening the scope of the U.S. investigation.

Airbus has warned any financial impact could be "material," though it was too early to judge what the consequences of the investigations could be.

The investigations caused Airbus, almost two years ago, to lose access to export credit financing support, which can be critical to support deliveries to financially weaker customers. Chief Financial Officer Harald Wilhelm said that under an agreement with European governments limited customer financing backing would resume this year.

Even so, Airbus is forecasting adjusted earnings this year to increase 20% and said cash generation should be similar to 2017. The engine disruptions mean, though, that Airbus faces another year where it likely will have to rush to meet plane delivery and earnings targets in the last few weeks of the year.

Write to Robert Wall at robert.wall@wsj.com

(END) Dow Jones Newswires

February 15, 2018 07:11 ET (12:11 GMT)

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