Rampup costs weigh on Q1 but Airbus hikes A350 output goal

PARIS (Reuters) -Airbus posted weaker-than-expected first-quarter operating profit and cashflow as it hires more staff to prepare for rising demand, but reaffirmed its financial goals for 2024 despite a nervous start to the year on industrial costs.

The world's largest planemaker also announced a higher output target for its wide-body A350 model, of 12 a month in 2028, amid a renaissance in demand for long-haul jets.

Jet demand is soaring, buoyed by recovering air travel, with China tentatively discussing a significant order ahead of a state visit to France next month, industry sources said earlier. Airbus first-quarter orders were the second highest for that period, according to Agency Partners analyst Sash Tusa.

Once lacklustre sales of the industry's largest jets have joined the ordering spree in recent months, prompting Airbus to announce on Thursday it would increase production for its A350 wide-body jet to 12 month in 2028, superseding a previous goal of getting back to pre-Covid production of 10 a month in 2026.

India's IndiGo announced an A350 order on Thursday.

But in the near term, there are growing fears of a shortage of planes as supply chains struggle to overcome recent bottlenecks. Some existing Airbus planes remain grounded by maintenance delays and rival Boeing remains mired in crisis.

Airbus CEO Guillaume Faury said the operating environment was not showing any signs of improvement, though it was not worrying enough to push full-year delivery targets off course.

"Basically we have a lot of issues," he told analysts on Thursday. "They are all manageable but the environment is a challenging one."

Airbus struck a carefully calibrated tone on its most widely watched industrial indicator, saying it was "making progress" towards producing 75 narrow-body planes a month in 2026, after saying in February it was "progressing well" towards that goal.

Suppliers watch forecasts by the world's largest planemaker, especially at a time when Boeing is drastically slowing output of its competing 737 MAX to catch up on industrial problems. Some are worried Airbus will not make the plan and say narrow-body production is running behind schedule at barely 50 a month.

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Airbus declined comment on month-by-month production.

The group says it is hiring 10,000 new staff this year and incurring up-front costs as it braces for the ramp-up in output, pushing its headcount above 150,000 people for the first time.

It is also carrying more inventory as a buffer against supply disruptions, Chief Financial Officer Thomas Toepfer said.

"Unfortunately ramping up all its civil aircraft lines simultaneously requires upfront investment, and that has weighed on both earnings and cashflow this quarter," Vertical Research Partners analyst Rob Stallard said in a note.

Reuters previously reported that spending was running over-budget in the civil business during the first quarter.

Airbus reported 577 million euros ($618.37 million) in first-quarter adjusted operating profit, down 25% on the year.

It posted revenue of 12.83 billion euros and a free cash outflow of 1.8 billion euros. Analysts had expected operating profit of 789 million euros and an outflow of 1.3 billion euros.

In part, the miss compared to market expectations is a side-effect of the company's own share price, pushing up the costs of a series of buybacks designed to fund employee share schemes.

Airbus shares have risen 12% so far this year compared with Boeing shares that are broadly flat following a crisis over the mid-air blowout of a 737 MAX door plug in January.

Toepfer said the increased cost of the staff share plan accounted for 100 million euros in the first quarter.

But analysts noted that the Defence & Space division remained in loss and Helicopters, which this week staged the first fight of a new "Racer" demonstrator, fell sharply following an exceptionally strong to the year in 2023.

(Reporting by Tim Hepher; Editing by Kirsten Donovan, Josie Kao and Sandra Maler)