Things Are Terrible at Airbus, But at Least It’s Not Boeing

(Bloomberg Opinion) -- The ink has barely dried on Airbus SE's announcement that it will cut 15,000 jobs, or about 11% of the workforce, and the French finance minister is already criticizing the cuts as “excessive.” Pushback from governments and trade unions is inevitable when big industrial companies announce layoffs. That's especially true at Airbus, which has assembly lines on three continents and counts France, Germany and Spain as anchor shareholders.

Redundancies are never pleasant and they're a particular blow in aerospace because employees are usually highly skilled and well paid. Unite, a British trade union, said the loss of 1,700 Airbus jobs in the U.K. was an act of “industrial vandalism.”  

Airbus hasn't cut this deep before, but the workforce is fortunate not to suffer even more. The impact of Covid-19 on Airbus's aircraft-making business has been devastating. In 2020 and 2021, it will probably produce 40% fewer planes than planned. The company has no choice but to scale back. 

With the coronavirus now ripping through the southern U.S. again, any hope that American and transatlantic air travel would swiftly return to normal has been shot down. The aviation recovery will probably be slow and prone to setbacks. Airlines are cutting their staff numbers too — British Airways, for example, by 30% — and some may not survive the crisis.

Instead of attacking the passenger jet manufacturer, Europe's governments should be grateful that Airbus's finances and order book were in decent shape before Covid-19 appeared. Its problems are mild by comparison with arch-rival Boeing Co., which is reeling from the grounding of the 737 Max. The American company announced 16,000 job cuts in April, and its balance sheet is in a far worse state.

Of course, it stings that most of Airbus's job cuts will be in France and Germany. Both countries have pledged billions of euros of support for the aviation sector.

But at least European states haven't had to directly recapitalize Airbus. At the end of March the manufacturer had 18 billion euros ($20.2 billion) of gross cash, plus a similar volume of available credit lines. It will burn though lots of money this year — in part because airlines either can't or won't take delivery of planes — but Airbus will end the year with only “modest” net indebtedness, according to Standard & Poor's, which rates the company's debt a pretty respectable A, albeit with a negative outlook.

Contrast that with Boeing, which had $9 billion in negative shareholder equity at the end of March, and $39 billion of indebtedness. Boeing avoided a U.S. government bailout only by issuing a further $25 billion of bonds in April. It may consume an astonishing $16 billion of cash this year, according to a consensus of analyst forecasts compiled by Bloomberg, and its debt is rated only one notch above junk.

While Airbus's comparatively solid finances will help it withstand this unprecedented crisis, they shouldn't be used as a justification for not facing reality. Using government subsidies to furlough employees only makes sense if you think demand will quickly bounce back. But pre-crisis levels of air traffic probably won't be reached again until 2023, according to Airbus. Even that might be an optimistic assumption. Airbus revenue won't fully recover until 2024, analysts estimate.

The equity markets have certainly taken a dimmer view of Airbus of late, after it scrapped its 2019 dividend. The company was capitalized at almost 110 billion euros as recently as January, when its assembly lines could barely keep up with demand. Now, the market value has shrunk to less than 50 billion euros.

Boeing's shares, by contrast, have gained more than 90% since their March nadir because of hopes that the 737 Max will return to service. Massive stimulus from the Federal Reserve has helped too. Airbus shares have recovered only 28% during that period. Still, an over-inflated American stock market is one thing, the comfort of the European company's cash pile is quite another.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.

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