The crisis in the aeronautics sector threatens to be structural, to the point of making Airbus lose very, very large …
The letter from the boss of Airbus, sent to employees last Friday, caused concern by referring to the “survival” of the aeronautical group. So much so that yesterday, Bruno Le Maire the Minister of the Economy said: “We will fully support and if necessary massively Airbus”. Except that observers read Guillaume Faury’s words too quickly. The Executive Chairman of Airbus wrote: “The survival of Airbus is at stake if we do not act now”. However, Airbus has already reacted, and strongly.
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30 billion secure cash
Cash, that is, financial liquidity, is the fuel in a business. It makes it possible to meet current expenses and operating expenses such as the payment of salaries. The first step Airbus took was to secure enough money to deal with the crisis. After a first line of credit of five billion euros negotiated at the start of the crisis, a new line of cash of ten billion euros has been added, bringing to fifteen billion the reserves. Including cash already on hand before the crisis, this brings the available cash to thirty billion, a year of visibility. With these reservations, Airbus estimates that it will be able to meet all of its expenses without delivering aircraft and therefore without collecting money until the end of the year.
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Decrease in rates by 33%
Lowering production by a third allows Airbus to protect its cash flow so as not to build planes that would remain without customers, nailed to the ground. This drop in activity appeared only very partially in Airbus’s financial results in the first quarter because the crisis really hit in March. In the first three months, 290 net orders were recorded and 122 aircraft delivered. “The second quarter will be much harder because we have had a good start to the year,” warned Guillaume Faury yesterday. The goal is to adjust production as closely as possible to the number of devices that companies can purchase. “We have to understand the rise in air traffic and aircraft deliveries to know how deep the long-term adaptation that we will have to do,” said the boss of Airbus during the presentation of quarterly results. A new point will be drawn up at the end of June for a possible downward adjustment. If the crisis gets bogged down, rates could still drop as low as -50%.
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Should we fear cancellation of orders?
So far, only Malaysian airline Air Asia has canceled delivery of six A320 NEOs (our April 22 edition). Today, the order book is stocked with 7,600 aircraft to deliver, the equivalent of nearly nine years of production. Even if half were to be canceled, this would give visibility of almost five years. What activity in the world is capable of offering such a long view? Besides Air Asia, no cancellations have been recorded. “The companies ask us for a lot of postponements for six months or more,” we are told at Airbus headquarters. During the 2008 financial crisis, Airbus had advanced or reduced 600 aircraft delivery slots between its various customers to maintain production and therefore turnover. A special crisis unit (our April 14 edition) is responsible for this very fine management of the order book with the companies. Inevitably, there will be cancellations in 2020, because some companies will simply disappear. Their number will depend on the depth of the crisis in Occitania.
Guillaume Faury.
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“Our suppliers will be affected in the third and fourth semesters”
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Around 7,000 partially unemployed?
Airbus has already placed 3,000 short-time workers, but that figure could climb to 7,000 even if nothing is decided. The aircraft manufacturer also froze all hiring, the use of temporary workers and put an end to fixed-term contracts. For Toulouse, the impact is therefore massive and represents several thousand jobs. Each year, Airbus recruits 5,000 people worldwide, including around 1,000 to 1,500 in Toulouse. One job at Airbus generates three jobs in the supplier network and another three in the induced economy (immobilization, shops, services, etc.). The most immediate threat, however, is found in subcontractors.
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50,000 jobs threatened in the region?
An Airbus is 500,000 parts, 70% of which are manufactured by a chain of suppliers and subcontractors who employ more than 100,000 people in Occitania. Today, “they continue to produce the orders we placed with them, but they will be affected [par la baisse des cadences] in the third and fourth quarters “, warned Guillaume Faury. Alain Di Crescenzo, president of the CCI Occitanie, figures at 50,000 the number of direct and indirect jobs threatened by 2021. The shock will be all the harder as subcontractors had invested heavily in recent years in both machinery and recruitment to cope with the increase in production rates. Today, they see order intake plummeting from 30% to 50%. Already weakened, Daher, supplier sections for Airbus, could see dozens of CDIs threatened in addition to 250 temporary workers at the Tarbes site. In Figeac, the trend is similar.
The digital sector (54,000 jobs in Occitania), which has been surfing on 4 to 5% growth per year thanks to aeronautics, has seen all development projects abandoned since Airbus announced their freeze. 2,000 to 3,000 jobs were to be created in 2020. Today, all engineering players are at a standstill and are wondering what workload will be occupied by their engineers in the coming months. The hirings are stopped. The air gap could last approximately 18 months for the sector.
Fear of a “new Detroit”
Members of the Copernic Foundation, a think tank that claims to be critical of liberalism, warn of a major economic crisis for Toulouse and its region. In a column entitled “Toulouse, the Detroit syndrome”, they describe the extreme dependence of the Occitan economy on the aeronautical industrial monoculture. The risk, for them, is in particular to see this crisis “cyclical” linked to the pandemic “to open another crisis, deep and lasting in the aeronautical sector”. They warn of a wave of factory relocations when the Occitania region is the only one with Paca to post a balance of positive industrial jobs over the last ten years. The authors also denounce an overly timid economic diversification even if the emergence of the autonomous vehicle sectors, artificial intelligence with the Aniti project or the efforts made in the health sector are positive signals. But according to them, they will never be able to compensate for the massive job losses in the aeronautical sector, raising fears of a destiny in the Detroit.
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