Airbus Loses Its $1 Trillion Order Book (excerpt)
(Source: Bloomberg Gadfly; posted Nov 13, 2017)
By Chris Bryant
At the Dubai air show this week, Airbus SE and Boeing Co. are once again renewing their sparring over who's booked the most orders.

For Airbus, this year's show has added poignancy. Sales head John Leahy, who's been instrumental in securing thousands of jet orders for more than two decades, is poised to retire. In addition, Airbus is about to kiss goodbye to roughly half a trillion dollars of aircraft orders.

Airbus commercial backlog: 6,900 aircraft

Let me explain: After new accounting rules, called IFRS-15, take effect in January, Airbus will have to restate the value of its order book. Until now, the manufacturer has recorded the aggregate value of plane orders using its own list prices. In future, it will use the future minimum revenue it expects to recognize on those contracts.

The change won't have any impact on the number of jets in the Airbus order book -- which is what analysts pay attention to -- or the cash flows these will generate. Compared to the impact IFRS-15 will have on jet engine-maker Rolls-Royce Holdings Plc, Airbus's backlog issue is pretty minor.

Even so, the new rules will bring an end to an accounting fiction that gave Airbus an artificial edge over Boeing.

In its annual report, Airbus trumpeted 6,900 commercial aircraft in its backlog worth a cool €1 trillion euros ($1.2 trillion) at catalog prices. In contrast, Boeing valued its more than 5,700 commercial jet orders at about $416 billion. The discrepancy is explained by Boeing's book-keeping. The U.S. company uses the actual prices customers agreed to pay. Airbus uses prices it wishes they'd paid.

Airbus hasn't completed its assessment of IFRS-15 and plans to update investors early next year. Credit Suisse estimates the order book will be revised down to about 500 billion euros (from 945 billion euros at the end of September). (end of excerpt)


Click here for the full story, on the Bloomberg website.

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