Aerospace & Defense

Brexit and subsidy row cloud strong Airbus profits

Airbus is in a pretty healthy position at the moment: CAPA

Airbus urged European governments to step up plans for a "likely" no-deal Brexit and settle a long-running subsidy dispute with the United States to help limit trade risks for Europe's largest planemaker.

The twin concerns surrounding Airbus's cross-border factory network prompted Chief Executive Guillaume Faury to issue a warning about rising trade tensions even as he unveiled stronger than expected second-quarter profits, driving up Airbus shares.

Airbus builds wings for commercial aircraft in Britain, where new Prime Minister Boris Johnson has promised to lead the country out of the European Union on Oct. 31 whether he has secured a negotiated departure or not, fuelling speculation in currency markets of a disorderly Brexit.

"It is now obvious that 'no deal' is likely and we want all governments to be prepared for that, which was not the case by end of March," Faury told reporters, referring to Britain's originally planned exit date from the EU.

Visitors inspect a model Airbus SE A380 aircraft in an exhibition center at the aircraft maker's factory in Toulouse, France, on Wednesday, March 20, 2019.
Balint Porneczi | Bloomberg | Getty Images

His comments echo those of Britain's employers' group, which says the EU is less prepared for a no-deal Brexit than Britain.

The European Commission says it has published almost 100 preparedness notices including several on aviation and overseen dozens of other legal steps to be ready for a no-deal Brexit.

Airbus has built a stockpile of about one month's supply of aircraft parts as a buffer to cope with Britain leaving the EU without a transitional deal, Faury said. That contributed to a heavy drain on cash in the first half of the year.

Plane parts are exempt from default World Trade Organization (WTO) tariffs under a 1980 pact signed by both the EU and Britain in its own right. But Airbus is worried extra red tape could slow supply chains and hamper the movement of engineers.

Faury also sounded a broader alarm about rising global tensions and in particular recent U.S. threats to impose sanctions on European planes and other goods following WTO rulings against European government subsidies to Airbus.

The French CEO called for a settlement in the long-running dispute, while Airbus included a warning in its results for the first time of damage to deliveries and finances if the punitive tariffs go ahead. The EU is gearing up to impose counter-tariffs after the WTO ruled separately against U.S. subsidies to Boeing.