April 30, 2019 / 11:55 AM / in 3 months

Breakingviews - Airbus struggles to profit from Boeing misery

An Airbus A321 neo flies during a flying display at the first day of the 52nd Paris Air Show at Le Bourget airport near Paris, France June 19, 2017. REUTERS/Pascal Rossignol

LONDON (Reuters Breakingviews) - Airbus looks reluctant to kick Boeing when it’s down. Beyond the indignity of exploiting crashes of its rival’s 737 MAX planes in which 346 people died, the 95 billion euro European planemaker will be wary of triggering a price war. And investing in costly new production without firm orders from airlines would squeeze already tight cash flow.

Presenting his first quarterly results as chief executive on Tuesday, Guillaume Faury said he had no plans to increase his monthly target of producing 63 A320neos, the mid-range counterpart to the 737 MAX, by 2021. That is despite Boeing cutting monthly production of the bestselling jet to 42 from 52 before the March 10 Ethiopian Airlines disaster. Any signs of aggressive encroachment might have prompted the U.S. company to respond with price cuts in the market for single-aisle jets, which Airbus reckons will be worth $3.5 trillion over the next 20 years.

Faury also has practical and financial reasons to play it safe. Airbus’s A320neo production lines are running flat out. Increasing output will cost billions of dollars and take years to bear fruit. Yet if Boeing’s software fix works out, the 737 MAX’s problems will be over in months.

And firm new orders from airlines are not yet flooding through Faury’s cockpit door. True, some, such as flydubai, have said they might switch to Airbus. But that may be a negotiating tactic to secure discounts from Boeing CEO Dennis Muilenburg. Airbus will be loath to fund investment on the basis of vague client interest given its free cash flow constraints: the company burnt through 4.4 billion euros in the first quarter, an even higher amount than in the same period a year earlier. This situation should improve as aircraft sales increase throughout the year, recovering from delays in engine deliveries a year ago. But it’s another reason that Airbus can’t afford to get nasty even if it were so inclined.

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