Airbus’s sales domination in key emerging markets could be hit by the Serious Fraud Office’s criminal investigation into the company’s use of middlemen to broker deals.
The company’s shares fell 1.5pc in afternoon dealing - bucking a positive trend in the wider markets - as investors digested news the pan-European plane-maker was being examined by the UK watchdog over potential bribery and corruption.
Airbus said in April it had found problems with the use of third parties to negotiate deals in some countries and reported itself to regulators as part of the company’s tighter compliance regime under a recently installed legal boss.
However, confirmation by the SFO that it has launched a formal investigation could deal a blow to Airbus’s sales success, especially as local “fixers” are often vital to securing contracts.
Airbus is understood to have failed to disclose the use of these third parties to UK Export Finance (UKEF), which guarantees credit for foreign buyers, resulting in the body putting a halt to its services for the plane-maker in April. Similar bodies in Europe also pulled their support.
These credit guarantees can be vital in winning sales in emerging nations, where some customers are start-ups with little history to ensure they can back up multi-billion purchases of aircraft. With credit guarantees in place, Airbus is not left facing losses if the buyer should fail.
Both Airbus and Boeing are targeting sales to Asia-Pacific, having identified it as the biggest single growth market for aerospace over the next 20 years. Airbus believes the region will be worth almost $650bn - out of a global total of $5.2 trillion - and require about 13,000 new jets out worldwide market of 33,000. The bulk of these are smaller single-aisle airliners, where Airbus has stolen a march over rival Boeing.
Without credit guarantees available, buyers in emerging regions could turn to other manufacturers, though there are doubts about the future of America’s Import-Export bank which fulfils the same role as UKEF, and is a major supporter of Boeing.
Airbus has said it has stopped using the third-party agents and aims to re-establish its relationship with UKEF, and is looking to provide other methods of financing, having made up for the loss of credit guarantees from its own reserves. The company’s interim results last month showed a €600m outflow as a result.
However, the prospect of a criminal investigation could mean the export finance providers keep the tap turned off for much longer, putting a greater strain on Airbus’s balance sheet.
One analyst said: “If Airbus has got production slots but airlines standing on the sidelines holding off to order, it could be forced to cut prices to make sure it has buyers for those planes, which is just going to add to the pressure.”
Closer scrutiny of how aircraft manufacturers secure sales could also open up opportunities for other aerospace companies battling to get into the smaller, single-aisle end of the market which is dominated by Airbus’s A320s and Boeing’s 737s.
Canada’s Bombardier has just launched its new C-Series jet, and also fighting for a slice of the market are Russia with Irkut’s MC-21 and China’s Comac with it C919.
However, it could be years before there is any outcome from the SFO’s investigation. Sandy Morris, analyst at Jefferies, said: “If it is just a case of Airbus doing its paperwork then it is unlikely to have any real impact, and this is a company that has been excellent at disclosing to the market.
“However, if you look at how long the SFO has taken in its investigation of Rolls-Royce - three years and eight months to date - it could be a very long time before we know what they have found.”
In a statement, Airbus said: “We have been informed by the SFO it has opened a criminal investigation into allegations of fraud, bribery and corruption in our civil aviation business relating to irregularities concerning third party consultants. Airbus Group continues to cooperate with the SFO.”
(culled from www.telegraph.co.uk)
No comments:
Post a Comment