Comment & Analysis

Latécoère, French supplier to Boeing (NYSE: BA - news) and Airbus (Paris: NL0000235190 - news) , will no longer invest as a partner in big aircraft projects - a sign that commercial aircraft manufacturers' attempts to shift risks on to parts makers might be hitting the buffers.

François Junca, chairman of Latécoère's supervisory board, has told shareholders that the group will in future be a simple subcontractor for aircraft manufacturers, which means no longer carrying part of the development and production costs for big projects.

The weak dollar has taken a heavy toll on Latécoère's competitiveness, as with other European industrial groups, but so have the many delays hitting some of the biggest aircraft launches of recent years. Boeing's 787 Dreamliner and Airbus A380 superjumbo are both significantly behind schedule.

This means Latécoère has had to wait longer to get a return on the upfront costs it has had to bear for aircraft manufacturers. As a result of these delays and the worsening dollar, its cash position has been seriously eroded and net debt currently represents 146 per cent of earnings before interest, debt and amortisation.

The French supplier is not alone in feeling the pressures being exerted by the aerospace industry in the search for cost reductions and risk sharing. Earlier this year, Boeing was forced to take a stake in one of its own suppliers after it struggled to cope with production demands. But Latécoère is the first significant European supplier to signal its discomfort with risk sharing, particularly as the weak dollar is eroding profits.

Latécoère's announcement is a blow to Airbus, which hoped it would share risks on its planned A350 mid-size long haul jet, and the French government. Paris had hoped Latécoère would form the core of a new aero components champion by taking on the French sites that Airbus had planned to sell as part of its Power 8 cost-cutting programme.

However, the sale was called off amid concerns about Latécoère's weakened financial state. The group is now planning 1,000 job cuts in France and is in discussions with its bankers and Airbus about managing the current difficulties. About 40 per cent of its turnover comes from the Franco-German aircraft group.

Airbus sought to play down the significance of the Latécoère decision on Wednesday, saying it was confident it would be able to find new risk sharing partners. "We are continuing with our strategy of seeking global partnerships including in Europe and we were recently successful in allocating a major share to Spirit of the US," the company said.