Airbus sheds $1.4 billion owed to countries in new A380 aid deal
Published Feb 27, 2018 12:00 am
By Bloomberg
Airbus SE’s revised deal with the countries that helped fund the A380 superjumbo almost two decades ago will help save the European planemaker more than $1.4 billion, according to a regulatory filing.
Future obligations for refundable advances declined by about 17 percent to an estimated 5.9 billion euros ($7.3 billion), Airbus said in its annual financial statements published Wednesday. While the balance includes other items, the bulk of the discount came from revisions to the A380’s outlook and talks to restructure the agreement.
The manufacturer said last week it reached the long-sought deal easing repayments to the countries, including Germany, France and the UK, that loaned Airbus about 3.5 billion euros in 2000 to start the A380 program. Sales of the double-decker have been slow since its commercial introduction in 2007, and the program is unprofitable. As recently as Jan. 15, company executives were warning it could be killed if they couldn’t secure a vital new $16-billion order from its biggest customer, Emirates.
The reduced financial burden gives Airbus crucial breathing room to lower the production rate on the plane to six per year if necessary, from the eight it plans to build in 2019.
The accord “is beneficial to governments and certainly also to Airbus, and helps us to carry on with this very important program that the A380 is,” Chief Executive Officer Tom Enders told Bloomberg Television last week. “It is no secret we have government loans we are paying levies on that is quite a burden for the company going forward.”
The company hasn’t given details of the restructured Reimbursable Launch Investment agreement, beyond what’s in the filing. An Airbus spokesman said Thursday that the company won’t comment on “confidential contractual matters.”
The topic is sensitive because the A380 is part of a decades-long battle at the World Trade Organization between the US and European Union over state loans and tax breaks used by Airbus and rival Boeing Co. to develop new aircraft models. Airbus, based in Toulouse, France, counts the French and German governments as its top shareholders.
A person familiar with the matter said there was no reduction of any outstanding capital owed to the governments. The talks were under way for more than a year, with Airbus pushing for options like converting royalty payments due with each delivery to a one-time fee, according to a separate person who was involved in earlier discussions and asked not to be named.
Refundable advances from European governments finance Airbus research and development for certain projects on a risk-sharing basis. That means repayment is partly subject to the sales success of a program.
Officials in the French, German and UK governments declined to comment. Spain and a few other countries also provided aid.
The concessions coincide with a letter sent by Enders to the British government this month, committing the plane maker to staying in the UK “long into the future’’ amid questions over whether Brexit will cause Airbus work to go elsewhere. Enders talked about providing “planning stability’’ for thousands of employees working on the A380 program at Airbus facilities in Broughton, northern Wales, and Filton, near Bristol.
Airbus has said that while it aims to seal additional orders for the aircraft, it’s now able to move to the lower rate at a “reasonable efficiency.”
The program’s long-term survival was a key concern for Emirates as it considered the new order, as the Gulf airline didn’t want to be left with obsolete planes that wouldn’t hold their resale value. The airline said on Jan. 18 that it would move ahead with the transaction, ensuring the plane’s survival for the next decade.
Airbus SE’s revised deal with the countries that helped fund the A380 superjumbo almost two decades ago will help save the European planemaker more than $1.4 billion, according to a regulatory filing.
Future obligations for refundable advances declined by about 17 percent to an estimated 5.9 billion euros ($7.3 billion), Airbus said in its annual financial statements published Wednesday. While the balance includes other items, the bulk of the discount came from revisions to the A380’s outlook and talks to restructure the agreement.
The manufacturer said last week it reached the long-sought deal easing repayments to the countries, including Germany, France and the UK, that loaned Airbus about 3.5 billion euros in 2000 to start the A380 program. Sales of the double-decker have been slow since its commercial introduction in 2007, and the program is unprofitable. As recently as Jan. 15, company executives were warning it could be killed if they couldn’t secure a vital new $16-billion order from its biggest customer, Emirates.
The reduced financial burden gives Airbus crucial breathing room to lower the production rate on the plane to six per year if necessary, from the eight it plans to build in 2019.
The accord “is beneficial to governments and certainly also to Airbus, and helps us to carry on with this very important program that the A380 is,” Chief Executive Officer Tom Enders told Bloomberg Television last week. “It is no secret we have government loans we are paying levies on that is quite a burden for the company going forward.”
The company hasn’t given details of the restructured Reimbursable Launch Investment agreement, beyond what’s in the filing. An Airbus spokesman said Thursday that the company won’t comment on “confidential contractual matters.”
The topic is sensitive because the A380 is part of a decades-long battle at the World Trade Organization between the US and European Union over state loans and tax breaks used by Airbus and rival Boeing Co. to develop new aircraft models. Airbus, based in Toulouse, France, counts the French and German governments as its top shareholders.
A person familiar with the matter said there was no reduction of any outstanding capital owed to the governments. The talks were under way for more than a year, with Airbus pushing for options like converting royalty payments due with each delivery to a one-time fee, according to a separate person who was involved in earlier discussions and asked not to be named.
Refundable advances from European governments finance Airbus research and development for certain projects on a risk-sharing basis. That means repayment is partly subject to the sales success of a program.
Officials in the French, German and UK governments declined to comment. Spain and a few other countries also provided aid.
The concessions coincide with a letter sent by Enders to the British government this month, committing the plane maker to staying in the UK “long into the future’’ amid questions over whether Brexit will cause Airbus work to go elsewhere. Enders talked about providing “planning stability’’ for thousands of employees working on the A380 program at Airbus facilities in Broughton, northern Wales, and Filton, near Bristol.
Airbus has said that while it aims to seal additional orders for the aircraft, it’s now able to move to the lower rate at a “reasonable efficiency.”
The program’s long-term survival was a key concern for Emirates as it considered the new order, as the Gulf airline didn’t want to be left with obsolete planes that wouldn’t hold their resale value. The airline said on Jan. 18 that it would move ahead with the transaction, ensuring the plane’s survival for the next decade.