Leonardo revamping Aerostructures business, rules out exit

MILAN (Reuters) -Italy’s Leonardo has ruled out exiting its struggling Aerostructures business which the aeronautics and defence group is overhauling and expects to absorb at least 350 million euros ($404 million) in cash this year before bottoming out.

The state-controlled group said on Friday the COVID-19 crisis had interrupted the turnaround of the division that makes airplane components for Boeing, Airbus, ATR and others.

The division is expected to break even at the end of 2025, Leonardo CEO Alessandro Profumo said, adding that exiting the troubled business was not an option for the group.

“We are a sole supplier for Boeing 787, we cannot exit the programme,” Profumo said on a call with analysts.

Valerio Cioffi, Leonardo’s executive responsible for the division, said Leonardo was in talks with unions to implement furlough in Aerostructures starting from 2022. Leonardo booked 90 million euros in restructuring costs for early retirements at the division.

Shares in the group fell more than 2% in early trading before paring losses and were exchanging hands at 6.62 euros each, up 0.12% at 1216 GMT.

Cioffi said that the production rate for Airbus had already increased while it would start rising in 2022 for ATR. For Boeing 787, the recovery was expected to be slower, but there would not be any stops to production.

Cioffi also hinted at the potential participation of Leonardo in a Commercial Aircraft Corportation of China (COMAC) programme for wide-body aircraft, but said this would not be included in the group’s five-year plan.

Overall core profit up

Despite problems in the Aerostructures business, which comprises four plants in southern Italy, the state-controlled group reported a rise in its overall core profit in the first nine months and confirmed its full-year guidance.

The group’s earnings before interest, tax and amortization (EBITA) rose 22% year-on-year in the January to September period, reaching 607 million euros, in line with analysts’ expectations.

The problems at Aerostructures were partly compensated by healthy growth in the defence electronics and security business and the aircraft component of the group’s aeronautics business.

Free operating cash flow was a negative 1.39 billion euros, an improvement compared with negative cash flow of 2.6 billion euros last year.

Leonardo said it had a strong liquidity position and no refinancing needs in the short term.

Net debt was 4.7 billion euros, up from 3.3 billion euros at the end of last year.

The group confirmed its intention to revisit a plan to list its U.S. unit DRS on Wall Street, subject to market conditions.

($1 = 0.8657 euros)

(Reporting by Francesca Landini, editing by Emelia Sithole-Matarise)