Airbus Q1 profit slides on engine delays, price squeeze

By Tim Hepher and Cyril Altmeyer

PARIS (Reuters) - Core profit at Airbus more than halved in the first quarter as it cut prices of old models and delays at an engine maker hampered deliveries of its profitable new A320neo jet.

The European firm said it was confident of plans to increase jet output despite wobbling demand, but voiced caution about the speed at which it can lower costs on its new A350 and warned of "significant" exposure on its troubled A400M army plane.

Airbus' results came a day after rival Boeing reported a 19 percent rise in first-quarter profit, with the world's largest planemaker also lifting its full-year forecast.

Airbus Finance Director Harald Wilhelm took aim at U.S. supplier Pratt & Whitney over engine delays that forced it to deliver fewer A320neos than planned last quarter, despite fresh assurances from the engine maker that it will meet targets.

"The demonstrated performance so far is not satisfactory, but let's see whether their fixes are coming through (and) are finally confirmed. ... We still need to see the proof coming through," he told reporters.

"We don't miss any opportunity to remind Pratt of the commitments they made for 2017 and 2018," he added.

He also said Airbus was trying to secure a return this year to European government export funding, which was suspended last year amid a probe into suspected corruption in jetliner sales.

Wrangling over past business dealings deepened on Wednesday when Austria disclosed a separate fraud probe into Airbus Chief Executive Tom Enders over a 2003 fighter deal. Airbus called the accusations "completely unsubstantiated".

Airbus shares fell as much as two percent, before steadying down 0.8 percent.

Its quarterly adjusted operating profit fell 52 percent to 240 million euros ($261.7 million) as revenues rose 7 percent to 12.988 billion. Analysts were on average expecting core profit of 344 million euros, down 31 percent.

A350 CHALLENGE

The Airbus planemaking business saw 31 percent lower profit despite a 13 percent rise in revenues.

It blamed a less favourable mix of deliveries in the quarter, which included more of the new but still sharply discounted A350s and higher production ramp-up costs.

Getting costs on the A350 to fall in line with targets as volume increases is a "top challenge" for 2017, Wilhelm said. However it had reduced the amount of unscheduled factory work.

Airbus is in the midst of two major product changes designed to revitalise its portfolio through the 2020s, but which also spell the end of its two existing cash lifelines.

They include the A320 medium-haul jet, upgraded with new engines to become the A320neo, and the long-haul A330, giving way to the all-new A350 and to an upgrade of the A330 itself.

The switchover between models is a tricky time for planemakers as they discount the old while mastering the new.

Agency Partners analyst Sash Tusa said the results were hit by "severe pricing weakness" as Airbus preserves customers for the current version of its A330 wide-body jet.

Wilhelm and some analysts said the trends were as expected.

Airbus Helicopters slipped narrowly into loss as the world's largest commercial helicopter maker continues to suffer from damage to its image from the grounding of aircraft in UK and Norway, following a crash that killed North Sea oil workers.

A report on last year's crash is due on Friday.

For 2017, Airbus officially expects to deliver over 700 jets and to report mid-single-digit percentage growth in operating income. Wilhelm said the actual delivery target is around 720.

(Reporting by Tim Hepher and Cyril Altmeyer; Editing by Sudip Kar-Gupta and Keith Weir)