Airbus 2015 Annual Report Download - page 46

AIRBUS GROUP REGISTRATION DOCUMENT 2015 l 14 l
Risk Factors
2 Business-Related Risks
Dependence on Key Suppliers and Subcontractors
The Company is dependent on numerous key suppliers and
subcontractors to provide it with the raw materials, parts,
assemblies and systems that it needs to manufacture its
products.
The Company relies upon the good performance of its suppliers
and subcontractors to meet the obligations defined under their
contracts. Supplier performance is continually monitored and
assessed so that supplier development programmes can be
launched if performance standards fall below expectations. In
addition, the Company benefits from its production’s lead times
inherent flexibility to compensate for a limited non-performance
of suppliers, protecting the Company’s commitments towards
its customers. In certain cases, dual sourcing may be utilised
to mitigate the risk. No assurance can be given that these
measures will fully protect the Company from non-performance
of a supplier which could disrupt production and in turn may
have a negative effect on its future results of operation and
financial condition.
Changes to the Company’s production or development
schedules may impact suppliers so that they initiate claims
under their contracts for financial compensation. However
the robust, long-term nature of the contracts and a structured
process to manage such claims, limits the Company’s exposure.
Despite these mitigation measures, there could still be a negative
effect on the future results of operation and financial condition
of the Company.
As the Company’s global sourcing footprint extends, some
suppliers (or their sub-tier suppliers) may have production
facilities located in countries that are exposed to socio-political
unrest or natural catastrophes which could interrupt deliveries.
Country-based risk assessment is applied by the Company
to monitor such exposures and to ensure that appropriate
mitigation plans or fall-back solutions are available for deliveries
from zones considered at risk. Despite these measures, the
Company remains exposed to interrupted deliveries from
suppliers impacted by such events which could have a negative
effect on the future results of operation and financial condition
of the Company.
Suppliers (or their sub-tier suppliers) may also experience
financial difficulties requiring them to file for bankruptcy
protection, which could disrupt the supply of materials and
parts to the Company. However, financial health of suppliers
is analysed prior to selection to minimise such exposure
and then monitored during the contract period to enable the
Company to take action to avoid such situations. In exceptional
circumstances, the Company may be required to provide
financial support to a supplier and therefore face limited credit
risk exposure. If insolvency of a supplier does occur, the
Company works closely with the appointed administrators to
safeguard contractual deliveries from the supplier. Despite these
mitigation measures, the bankruptcy of a key supplier could still
have a negative effect on the future results of operation and
financial condition of the Company.
Industrial Ramp-Up
As a result of the large number of new orders for aircraft recorded
in recent years, the Company intends to accelerate its production
in order to meet the agreed upon delivery schedules for such
new aircraft (including helicopters). The Company’s ability to
further increase its production rate will be dependent upon a
variety of factors, including execution of internal performance
plans, availability of raw materials, parts (such as aluminium,
titanium and composites) and skilled employees given high
demand by the Company and its competitors, conversion of
raw materials into parts and assemblies, and performance
by suppliers and subcontractors (particularly suppliers of
buyer-furnished equipment) who may experience resource
or financial constraints due to ramp-up. Management of such
factors is also complicated by the development of new aircraft
programmes in parallel, across the three Divisions, which carry
their own resource demands. Therefore, the failure of any or all
of these factors could lead to missed delivery commitments,
and depending on the length of delay in meeting delivery
commitments, could lead to additional costs and customers’
rescheduling or terminating their orders. This risk increases
as the Company and its competitors announce even higher
production rates. Good progress has been made in 2015 and
the supply chain is in general more stable. Specific areas of
risk with suppliers of cabin equipment continue to be carefully
managed.
Financial Statements 2015
11 22 33 44 55
QRegistration Document 2015
Annual Report 2015 Financial Statements 2015