EADS Assesses Financial Damage of A380 Wing Defect
EADS incurred a further charge of €158 million ($202 million) during this year’s first quarter due to higher-than-expected costs associated with retrofit repairs to cracks in wing rib feet of Airbus A380s. First discovered in January by Airbus engineers engaged in repairing a Qantas A380 that suffered an uncontained engine failure near Singapore Changi Airport, the cracks prompted the EASA to issue an AD that calls for a detailed visual inspection of certain wing rib feet. Airbus has said the condition does not pose a safety threat, and the EASA stopped short of grounding any of the airplanes.
Airbus managed to deliver just four A380s during the first three months of the year, raising the program’s total to 71 aircraft taken by seven operators at the end of March. Still, the company hasn’t changed its delivery target of 30 A380s for the year, although it acknowledges that a consequently more “back-loaded” delivery pattern will make the goal more difficult to achieve.
EADS added that Airbus has found a permanent solution to the wing bracket problem. However, it said, the application of the final fix into production will temporarily generate “headwind” against the A380’s anticipated earnings improvements this year and next to account for non-recurring costs and delivery adjustments. Although EADS said general discussions with customers continue, it added that the costs associated with implementing the fix shouldn’t affect the program’s ability to break even by the start of 2015.
Despite the one-time charge the cracking problem forced EADS to take, the financial performance of Airbus’s commercial aircraft business helped generate better-than-expected results for the consortium during the first quarter. During the period Airbus raised the production rate of the A320 series to 40 a month from 38 and increased revenues by 13 percent, to €7.909 billion ($10.059 billion), thanks mainly to a 10-percent rise in deliveries over the same period a year earlier, to 131 aircraft. EADS said it expects Airbus to deliver 570 commercial airplanes this year, a new high compared with its previous record of 534 set last year.