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Airbus raises order goal but doubts grow over A380 output

By Tim Hepher and Cyril Altmeyer

PARIS (Reuters) - Airbus parent EADS (PAR:EAD) posted higher profits and raised its forecast for new aircraft orders and deliveries on Thursday but doubts grew over production rates for its flagship A380 as recession softens demand for the world's biggest jetliner.

Europe's largest aerospace group posted a 22 percent increase in its underlying nine-month operating profit to 2.3 billion euros ($3.1 billion), in line with market forecasts.

Strong demand for most types of passenger jet pushed operating profit at the main Airbus division up 85 percent, more than offsetting a slower performance at Eurocopter, the world's largest commercial helicopter manufacturer.

But EADS confirmed it faced the possibility of cutting production of the double-decker A380 unless it could find buyers for a "handful" of unsold production slots in 2015 -- raising the possibility that a target for reaching break-even on the plane might also slip.

Such a decision would have little impact on EADS's broad finances but could affect its traditionally volatile cashflow, which was already weaker than expected in the third quarter, with the result that it now sees an outflow of cash this year.

Shares in EADS were down 1.4 percent at 51.07 euros by 1045 GMT.

Finance Director Harald Wilhelm said EADS is sticking to plans to have reached break-even on the A380 project in 2015, based on 30 deliveries that year, but told reporters that a small shortfall compared with these goals "would not be a financial disaster".

Airbus will freeze its plans at the end of the year and decide then whether any changes in A380 production are needed as it tries to fill production slots for 2015, he said.

Reuters reported last month that Airbus was preparing to review strategy and output for the A380 at the end of the year after a recent dearth of orders, and could cut production to avoid having unsold jets sitting on the tarmac.

Parts for the 525-seat plane have to be ordered up to two years in advance, meaning the deadline is fast approaching.

Airbus is however working to finalise a tentative order from Doric Lease Corp for 20 of the superjumbos as well as other unspecified deals, Wilhelm said.

He was speaking days before the November 17-21 Dubai Airshow where Airbus and Boeing compete for new order announcements, but declined to predict the number of deals Airbus might win.

"A380 activity has been slow to materialise, but I can assure you that it remains a priority to sell 2015 open slots and beyond," Wilhelm said.

CASHFLOW TARGET CUT

Emirates, the largest A380 buyer, has defended the plane and has consistently said it would like to order up to 30 more once it can unlock capacity in its Dubai hub for handling the world's largest passenger plane. It has so far ordered 90.

EADS said Airbus expected more than 1,200 commercial jet orders and up to 620 deliveries in 2013, up from previous targets, but warned it faced "significant challenges" on cash generation and the development of its new A350 jetliner.

EADS had previously forecast more than 1,000 Airbus orders and 600-610 deliveries in 2013. It has already reached the new order target with 1,265 gross orders by end-October

So far this year it is ahead of rival Boeing on orders but lags behind its arch-rival on deliveries.

Meanwhile Airbus is in the midst of flight tests ahead of first deliveries of the A350 scheduled for the second half of 2014 and EADS said it now expected negative free cash flow of 1.5 billion euros in 2013, having previously planned to break even on cashflow.

"This reflects the company's investment into production ramp-up and development programmes as well as recent government customer budgetary constraints," it said in a statement.

Wilhelm said about one third of the shortfall in cashflow compared with the previous target was due to budget constraints among unidentified government customers of EADS, which also supplies defence and space equipment.

The company is planning to cut jobs while merging its defence and space activities as part of a reorganisation that will also see EADS change its name to Airbus from next year.

Wilhelm said Chief Executive Tom Enders would brief unions and investors on the details in early December.

Airbus is developing the A350 to compete with Boeing's (NYS:BA) 787 Dreamliner and proposed new 777X.

Both companies are entering a delicate phase of ramping up production of their latest jets amid pressure on an increasingly stretched global supply chain.

Workers at Boeing on Wednesday rejected a proposed new eight-year labour contract, overshadowing plans to launch the 777X at next week's Dubai Airshow.

The U.S. company had last month posted a 12 percent rise in its third-quarter profit and raised its full-year forecast on soaring commercial aircraft production and margins.

(Editing by James Regan, Greg Mahlich)

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