Airbus says output cut won't drive A380 massively into red

By Tim Hepher and Cyril Altmeyer

FARNBOROUGH, England (Reuters) - Airbus's decision to cut production of the world's biggest passenger jet, the A380, will not drive the programme massively into the red, the European planemaker's group chief executive said on Wednesday.

Tom Enders added that Airbus remains optimistic about the long-term prospects of the double-decker, 544-seat A380, and hopes to return to higher levels of output in the years ahead.

"I hope that this is only a year or two and then we can raise production rates again," he told reporters at the Farnborough Airshow.

Enders was speaking a day after Airbus cut its target for A380 deliveries to 12 a year from 2018, from 27 in 2015 and well below its current break-even point, due to weak demand.

The reduction deals a blow to one of Europe's biggest and most expensive industrial projects.

Airbus and U.S. rival Boeing have enjoyed years of booming sales, driven by rising air travel and demand for new fuel-efficient planes.

But risks to the global economy, from slowing growth in China to Britain's decision to leave the European Union, have caused sales to dry up and analysts are worried some of the industry's record order backlog could be deferred or cancelled.

So far at the Farnborough Airshow, the industry's showcase event, Airbus and Boeing have announced combined business worth a little more than $50 billion, including deals that confirmed preliminary agreements. That is less than half of the business closed at last year's sister event in Paris.

Airbus shares dipped to 50.67 euros in early trading, but by 1200 GMT were up 0.8 percent at 52.63 euros.

Jefferies analysts said they had already been expecting the A380 to make a trading loss, before research and development costs, of 250 million euros in 2018, 300 million in 2019 and 350 million in 2020.

They added the cut in production could be a prelude to a revamped A380neo, with new engines, to counter the new version of Boeing's most profitable widebody jet, the 777, being developed by the U.S. company.

Enders said Airbus would strive to break-even on the A380 at lower rates of production.

"How far we can bring it down, we will have to see," he said. "I do not expect to be massively in the red."

Each A380 is worth $432.6 million at list prices, but after discounts it would sell for significantly less.

Sales of large four-engine airliners such as the A380 have been hit hard by improvements in the range and efficiency of smaller two-engined models, which can be easier to fill.

The trend became starker on Monday when one of the mammoth plane's earliest advocates, Richard Branson's Virgin Atlantic, opted for 12 of Airbus's A350-1000 twin-engined jets after progressively shelving its long-standing order for A380s.

In another blow, Airbus finance chief Harald Wilhelm said on Wednesday the company was likely to take a fresh charge in first-half results later this month for the latest problems involving its A400M military transporter.

Problems that the company partially blames on the gearbox of the aircraft's large turboprop engines have disrupted deliveries of the already delayed military plane and driven up costs.

Wilhelm, who gave no indication of the size of the potential charge, said there was also a risk of charges related to loss-making contracts for the A350 jetliner, but that these would not affect the aircraft's overall break-even target.

(Additional reporting by Conor Humphries, Andrea Shala and Sarah Young; Writing by Mark Potter; Editing by Susan Fenton)