Military aircraft woes for Airbus, Boeing, and Embraer

While there has been considerable positive news recently from Airbus and Boeing regarding their passenger-to-freighter conversion programs, the opposite has been the case regarding their production of military transport and tanker aircraft. Brazil-based Embraer is having similar trouble, and all three manufacturers have taken financial hits as a result.

• Airbus reported strong second-quarter earnings, on the back of commercial aircraft sales, and would have done even better had it not been for a €290 million charge against its troubled A400M military transport program, following a crash during a test flight in May. The crash has caused delays in the transport’s delivery schedule. Further, a system for customer price adjustments is now in the red as a result of low inflation in the eurozone (i.e. the cost of manufacturing the A400M is rising faster than inflation, against which the price to be charged to customers is indexed). The second-quarter charge brings Airbus’ total charges against the A400M program to over €5 billion.

• Boeing also reported a stronger-than-expected second quarter, and like Airbus, the result would have been even better were it not for an $835 million charge ($536 million after tax) against the 767-based KC-46 aerial tanker program. Boeing said the charge was “driven by required rework on the airplane’s integrated fuel system.” This brings Boeing’s total charges against the KC-46 program to $1.26 billion, but things took a turn for the worse at the end of July, when the fueling system on the first test aircraft was damaged in a chemical mix-up. First flight of the fully outfitted tanker was scheduled for late August/early September, but introduction of a mislabeled chemical during a fuel system test has temporarily grounded the tanker.

• Brazil-based Embraer reported second-quarter net profit down 10% to US$129 million, with the decline due in part to a cutback in military contracts by the Brazilian government – a part of the government’s attempt to cut expenditures and shore up the country’s standing in the international investment community. The Brazilian Air Force is by far the biggest customer for Embraer’s KC-390 twin-jet military transport, and in the face of the cutback, Embraer postponed delivery of the first KC-390 by eighteen months from the end of 2016 to mid-2018.