Airbus in Talks With U.S. Regulators About Potential Compliance Violations

By Robert Wall Features Dow Jones Newswires

European plane maker Airbus SE on Tuesday disclosed it is in talks with U.S. regulators about potential compliance violations and said it would miss delivery targets for one of its most popular plane models while reporting a 4% drop in operating earnings.

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Airbus, which has been struggling with a wave of regulatory issues including in the U.K., France and Germany, said it had reported itself to U.S. authorities about errors made on equipment exports. It said it was cooperating with U.S. authorities and couldn't determine if there would be a financial penalty.

The wrongdoing concerns compliance with U.S. International Traffic in Arms Regulations rules, which govern the dealing in sensitive military equipment. Britain's Serious Fraud Office is investigating Airbus for potential corruption. France and Germany also are looking into potential misdeeds. Austria has accused Airbus of overcharging the government in a military plane deal more than a decade ago.

The disclosure comes as the Toulouse, France-based plane maker, the world's No. 2 by deliveries, after Boeing Co., reported an expected fall in its closely watched adjusted earnings before interest and taxes to EUR697 million ($811 million) from EUR729 million in the year-earlier period. Sales rose 2% to EUR14.24 billion.

The company reported net profit of EUR348 million. Last year's third-quarter figure of EUR50 million was weighed down by currency headwinds and higher taxes.

Airbus and Boeing have been raising production rates for some of their most popular planes after years of record orders. Boeing last month said it would boost output of its 787 Dreamliner to 14 jets a month from 12 in 2019. The Chicago-based plane maker this month also said it saw demand to further raise production of its 737 single-aisle jet.

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While higher output is good for plane makers, Airbus has been struggling to get some of its most popular planes out the door. One delay this year was caused by United Technologies Corp. The U.S. supplier's Pratt & Whitney unit has been slow to deliver engines for Airbus to install on some of its A320neo single-aisle planes, holding back deliveries. United Technologies last week promised to meet its full-year engine delivery target.

Airbus said would miss its target of delivering 200 of its A320neo planes this year. Fewer new planes would go to customers in part because some of the engines from United Technologies are being used as spares to keep already delivered planes flying rather than cranking out new ones.

Still, Airbus has said it would deliver more than 700 planes this year. It had handed over only 454 in the first nine months of the year. Boeing plans to deliver 760 to 765 planes this year.

Airbus Chief Executive Tom Enders said "we confirm our outlook even though this year's delivery schedule is extremely back-loaded, largely due to the well-known engine problems plaguing our A320neo family."

The slow pace of plane deliveries has weighed on cash flow. Airbus reported EUR1.25 billion in cash outflow in the third quarter to end the first nine months with EUR3.34 billion in cash outflow before mergers and acquisitions and customer financing. It has promised to deliver EUR1.4 billion in free cash by that metric this year.

Earnings in the third quarter also were negatively impacted by another charge on the A400M military transport plane. Airbus has repeatedly suffered hits to earnings from the plane whose development and production have run over cost. The charge in the third quarter was EUR80 million, it said. Airbus is in talks with A400M-buying governments over contractual relief over some of the terms of the contract to buy the plane.

Write to Robert Wall at robert.wall@wsj.com

(END) Dow Jones Newswires

October 31, 2017 03:37 ET (07:37 GMT)