Airbus defense unit freezes capex, may miss cash goals - Memo

Airbus Defence and Space has frozen capital spending and urged its 34,000 staff to take "drastic measures" to save cash as it faces the prospect of missing 2017 cash targets by hundreds of millions of euros, according to a memo seen by Reuters.

"With the risk of missing our full-year cash targets by hundreds of millions, we need to do something extraordinary together," divisional finance chief Julian Whitehead told an internal forum, according to a summary distributed to staff.

Airbus has said it expects 2017 group-wide free cashflow to be similar to 2016, before mergers and acquisitions and customer financing. It does not publish cash targets for divisions. Due to the bumpy patterns of cashflows in aerospace, it often faces a dash to meet targets in the fourth quarter.

Airbus Defence & Space, which has warned of continued cash pressures from the troubled A400M military aircraft program, plans to set up a "Cash Crisis" team to improve the situation by end-year, with all its programs expected to participate.

Until those plans become clear, all capital expenditure is being frozen with immediate effect across all the division's activities and across all its subsidiaries, the memo said.

Airbus shares stumbled from record highs and fell as much as 1.6 percent. They were down 1.3 percent by 0945 GMT, making the stock the worst performer on France's benchmark CAC-40 equity index.

Airbus' stock price remains up around 30 percent since the start of 2017 on buoyant demand for passenger jets, although rival Boeing's shares are up 64 percent.

Asked to comment on the memo, an Airbus spokesman said: "We are currently in the traditional year-end race in the commercial and government business."

He added: "It is key to remind our troops at this important time of a business year on the importance of meeting our cash objectives. That's the current ongoing effort at Airbus and it is rather standard procedure to achieve our quarterly and yearly divisional targets at Airbus Defence and Space without deviation."

ALSO FACING PRESSURE FROM A400M DELAYS

Another person close to the group said the language used in the memo was typical of the purely internal battle cry used by managers at this time of year to focus on reaching targets.

On Wednesday, however, Airbus reminded European governments that the delayed A400M would continue to "weigh significantly" on cashflow in 2017 and 2018, especially.

It has been squeezed as Germany withholds some 15 percent in cash owed for the transport plane because of what it regards as systems failing to do what Airbus had promised. The company earlier this year entered talks with buyer nations to try to ease the penalties and get a new agreement on schedules.

At a group level, cash and profits have further been hampered by delays in delivering A320neo jetliners because of delays in receiving engines from U.S. supplier Pratt & Whitney.

Late deliveries delay payments from airlines and prevent workers learning through experience as quickly as planned, which drives up cost and eats up cash for inventory on assembly lines.

Airbus as a whole had 7.9 billion euros of net cash at end-June, down from 11.1 billion at the end of 2016.

While freezing spending, Airbus Defence & Space is also in the midst of a strategy overhaul that has involved selling its electronics activity and now puts faith in the growth of digital services to help it grow faster than the rest of the industry.