July 31, 2019 / 4:46 AM / a month ago

Brexit and subsidy row cloud strong Airbus profits

PARIS (Reuters) - Airbus urged European governments to step up plans for a “likely” no-deal Brexit and settle a long-running subsidy dispute with the United States to help limit trade risks for Europe’s largest planemaker.

The twin concerns surrounding Airbus’s cross-border factory network prompted Chief Executive Guillaume Faury to issue a warning about rising trade tensions even as he unveiled stronger than expected second-quarter profits, driving up Airbus shares.

Airbus builds wings for commercial aircraft in Britain, where new Prime Minister Boris Johnson has promised to lead the country out of the European Union on Oct. 31 whether he has secured a negotiated departure or not, fuelling speculation in currency markets of a disorderly Brexit.

“It is now obvious that ‘no deal’ is likely and we want all governments to be prepared for that, which was not the case by end of March,” Faury told reporters, referring to Britain’s originally planned exit date from the EU.

His comments echo those of Britain’s employers’ group, which says the EU is less prepared for a no-deal Brexit than Britain.

The European Commission says it has published almost 100 preparedness notices including several on aviation and overseen dozens of other legal steps to be ready for a no-deal Brexit.

Airbus has built a stockpile of about one month’s supply of aircraft parts as a buffer to cope with Britain leaving the EU without a transitional deal, Faury said. That contributed to a heavy drain on cash in the first half of the year.

Plane parts are exempt from default World Trade Organization (WTO) tariffs under a 1980 pact signed by both the EU and Britain in its own right. But Airbus is worried extra red tape could slow supply chains and hamper the movement of engineers.

Faury also sounded a broader alarm about rising global tensions and in particular recent U.S. threats to impose sanctions on European planes and other goods following WTO rulings against European government subsidies to Airbus.

The French CEO called for a settlement in the long-running dispute, while Airbus included a warning in its results for the first time of damage to deliveries and finances if the punitive tariffs go ahead. The EU is gearing up to impose counter-tariffs after the WTO ruled separately against U.S. subsidies to Boeing.

“It’s important that there is a resolution at a given point, a settlement before tariffs are applied,” Faury said.

“We see the trade wars around the world growing and we don’t believe this is something ... industry can benefit from and citizens can benefit from,” he said.

PROFIT BEAT

Europe’s largest aerospace group said second-quarter adjusted operating profit rose 72% to 1.98 billion euros ($2.2 billion), led by strong demand for jetliners. Revenues rose 23% to 18.32 billion euros.

Analysts were on average forecasting adjusted quarterly operating income of 1.77 billion euros on revenues of 17.82 billion, according to a company-compiled consensus.

Shares in Airbus opened up 1.2% against a flat market.

Airbus is trying to overcome industrial delays at a newly expanded plant in Hamburg, Germany, which has been struggling with enhanced cabins for the in-demand A321neo single-aisle.

Airbus kept annual delivery and financial targets, but said it was studying how to increase the share of the A321neo within the wider A320neo family, with more details expected in months.

Airbus is nonetheless on course to be the world’s largest planemaker in 2019 as U.S. rival Boeing faces a longer-than-expected grounding of its 737 MAX, ordered by worldwide regulators in March in the wake of two fatal accidents.

Boeing last week posted its largest-ever quarterly loss due to the crisis.

Airbus took 75 million euros in new charges in the second quarter related to the cost of winding down its A380 superjumbo program after deciding to scrap output due to weak demand.

Air France-KLM on Tuesday announced plans to retire the world’s largest jetliner to concentrate on smaller models like the A350, which Airbus said was on track to break even this year after progress in curbing costs.

Airbus took 90 million euros in other charges including compliance costs as it pursues a four-year-old investigation into the use of middlemen in aircraft and other sales.

FILE PHOTO: An Airbus A350-1000 performs during the 53rd International Paris Air Show at Le Bourget Airport near Paris, France June 18, 2019. REUTERS/Pascal Rossignol/File Photo

People familiar with the matter have said Airbus hopes to submit the results of its own internal probe to UK and French investigators around the end of the year - a step toward what it hopes will result in a fine rather than criminal charges.

Faury declined detailed to comment on the probe.

“It’s going in the right direction, it’s progressing, but I’m unable to tell you when it will come to an end,” he said.

Reporting by Tim Hepher; Editing by Richard Lough and Mark Potter

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