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Airbus CEO Warns Drastic Cuts Are Needed

By Lou Whiteman – Updated Apr 27, 2020 at 7:44AM

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The plane maker is worried that demand will take years to return.

The CEO of Airbus (EADSY -2.20%) has told employees that the company is "bleeding cash" and needs to cut costs quickly as airlines retrench due to the COVID-19 pandemic.

Airbus and archrival Boeing (BA 0.13%) are scrambling to deal with a sudden decline in demand for new jets due to the pandemic. Airlines have seen travel demand evaporate overnight, and in response are grounding planes and cutting expenses.

Airbus has already announced production cuts, trimming the number of its previously hot-selling A320 planes it makes each month by about one-third and the monthly rate on larger jets by about 40%. But CEO Guillaume Faury, in a letter to employees obtained by Bloomberg, said those cuts might not be enough and that Airbus is reassessing its long-term forecast for plane sales.

An Airbus A330neo on the ground.

Image source: Airbus.

"We're bleeding cash at an unprecedented speed, which may threaten the very existence of our company," Faury said. "We must now act urgently to reduce our cash-out, restore our financial balance and, ultimately, to regain control of our destiny."

Airbus and Boeing are both expected to have burned through billions in cash in the first quarter, in part due to production halts to allow local communities to deal with the pandemic. Even when the virus is contained, airlines are likely to need upward of three years to fully recover. And with jet fuel prices falling to near-record lows along with falling crude prices, the airlines will have no reason to aggressively buy new aircraft.

The letter can be interpreted by investors as addressed not just to workers and union leaders, but to European governments as well. The governments of Germany, France, and Spain, through affiliates, combine to own about 25% of Airbus, and in years past, politicians in those countries have leaned heavily on the company to maintain job numbers during downturns.

Airbus in recent years has asserted its independence, but its flexibility to downsize production and cut jobs in response to market demand is far from certain as European governments deal with possible post-pandemic recessions.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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