A380 wing cracks don’t spell more financial trouble for costly programme

Airbus has hit arough patch this year with revelations that cracks are developing in the wingson its A380 superjumbos, a problem first identified on three Qantas andSingapore Airlines aircraft back in January. But while the problem has attractedmuch media attention and is being taken seriously by Airbus engineers, theaccountants are non-plussed.

Yesterdayin Paris, EADS chief financial officer Hans Peter Ring didn’t let the issuedetract much from his presentation of 2011 results that show the Franco-Germanaerospace giant and its dominant Airbus division racking up satisfactory – ifnot impressive – revenue and profits growth. Asked about the latest troubles todog a programme that has historically been a severe drag on EADS’s earnings,Ring was clearly pleased to be able to report that fixing the wing cracks willfall within the normal warranty cost provision already made for the A380.

So,expect no charges against 2012 operations, which Ring and chief executive LouisGallois promise will result in further profitability growth. Last year, EADSrevenue gained 7%to €49.1 billion and earnings before interest and taxes rose 38% to nearly €1.7billion, taking the profit margin higher by nearly a percentage point to 3.45%.Airbus commercial sales grew 10% to €31.2 billion ($41.1 billion) anddivisional EBIT gained 87% to €543 million on the back of a tenth consecutiveyear of increased production – to 534 deliveries – and a record net orderintake for 1,419 aircraft.

Resolving the A380cracks problem will involve detailed visual inspection of wing-rib feet and an interim repairthat relieves stresses believed to have been introduced by the originalassembly process. A more permanent repair may involve replacing the wing-ribfeet – each wing rib has 30-40 of these L-shaped brackets that connect them to the wing skin – with beefier parts of a different alloy, as well as altering theassembly process.

Theproblem needs addressing but is not grounding aircraft; nearly 70 have beendelivered and for many it will be adequate to delay inspection until routinemaintenance comes due.

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