Airbus Defense Sees Exit From A400M’s Financial Turbulence

Almost 15 years after the A400M’s first flight, Airbus Defense and Space is looking to move out from under the program’s financial shadow. The company expects to generate stronger financial performance from its defense business, driven by cost-cutting efforts, including on the A400M military airlifter, and more selective bidding on programs amid booming demand. Airbus also anticipates that the growing appetite for collaborative combat aircraft will open new avenues for international cooperation.

“We’re on a pretty good track as far as getting what we call our airpower and connected intelligence business to be commercially and financially where we need to be,” Airbus Defense and Space CEO Michael Schoellhorn says. “We have worked on the cost and continue to work on the cost. We have been extremely careful with onboarding new people and hiring.” He adds that customer talks have addressed some unfavorable contract terms.

• Airbus chases top-up orders and new customers
• Collaborative combat aircraft could open a door to transatlantic cooperation

Schoellhorn says the company is also being more judicious in contract pursuits. “We have been very selective on bids and have increased the threshold that we want to see [in financial returns],” he says. “The current situation lends itself to that because there is just more interest, so you can be a bit more selective.”

For years, Airbus’ defense operation suffered losses from the A400M as it fell behind schedule and costs soared. But Schoellhorn says that is changing: The program should be cash flow positive thanks to measures taken this year. “That will give us another shot in the arm,” he adds.

That turnaround comes as Airbus is wrestling with space program issues. A slump in the market for large telecommunication satellites and development setbacks on some projects have triggered a series of hits to the company’s earnings (AW&ST July 1-14, p. 30).

In addition to fixing the A400M’s bottom line, Airbus needs to work on securing more orders for the airlifter; 127 of 178 aircraft have been delivered. The A400M’s operational performance is driving interest in top-up purchases from existing buyers, including Turkey and the UK, Schoellhorn says, but the company is also pursuing new customers, particularly in the Middle East.

Airbus has a narrowing window to secure additional deals. The last A400M on order would be delivered in 2029, but production lead times require orders within the next few years to avoid disruptions. “I am optimistic we will find ways to secure enough orders to keep running,” Schoellhorn says.

Airbus is still working on finalizing SOC 3, the technical standard it promised core customers, and expects to complete that effort in about two years. Work on such issues as helicopter air-to-air refueling certification remains in progress.

In addition, Airbus this year expects to launch the Multi-Role Tanker Transport+. It is an upgraded version with improved performance using the A330neo to build on the program’s international success (AW&ST Aug. 12-25, p. 30).

Eurofighter Typhoon demand could be another financial tailwind for Airbus, a member of the fighter aircraft’s manufacturing consortium. Core Eurofighter countries Germany, Italy and Spain are looking to buy more aircraft, which—in addition to export opportunities—should keep that program in production until at least 2035, Giancarlo Mezzanatto, CEO of the joint venture, said at the Farnborough International Airshow in July.

Eurofighter expects customers to sign up this year for a three-year technology maturation program to keep the fighter modern. “We are experiencing a true renaissance of the program,” Mezzanatto said at Farnborough.

Even as Airbus aims to take fewer contract risks, it is investing in the emerging field of collaborative combat aircraft (CCA). “There is a lack of clarity in terms of how precisely these platforms will be used—which one does what and which ones do you need,” Schoellhorn says. To address that, the company is trying to advance its technology to help customers test those systems, train with them and refine their operational thinking.

“The speed of development has gotten so high you can’t wait until it is all clear and everybody has the money available for that—you might be too late,” Schoellhorn says.

Airbus, like many large defense prime contractors, is focusing on the more capable but more expensive spectrum of CCAs. The notional target for those high-end systems is to cost no more than one-third of a modern fighter. “It is a challenge, but we’ll take it,” Schoellhorn says.

CCAs could offer an opportunity for transatlantic cooperation, Schoellhorn notes. Airbus, which has long struggled to penetrate the U.S. defense market, is exploring the possibility of cooperation with U.S. startups that are focused on designing these vehicles but lack Airbus’ manufacturing background, he says. “I would like to see this as maybe the avenue where Airbus and Europe can come together with the U.S. in a more productive way going forward.”