By Tim Hepher

PARIS (Reuters) -Europe’s Airbus unveiled sharply lower second-quarter profits on Tuesday as the cost of investing in higher jetliner production, coupled with largely pre-announced charges in its Space Systems business, outweighed higher revenue.

The world’s largest planemaker said adjusted operating profit fell by more than half to 814 million euros ($879.7 million) in the quarter as revenue edged up to 15.995 billion euros.

It also took a charge of 989 million euros on forward losses in its space business, exceeding the estimate of about 900 million euros it gave with a profit warning last month.

Profits still exceeded analysts estimates, who according to a survey complied by the company were on average expecting second-quarter adjusted operating income of 699 million euros on revenue of 15.822 billion euros.

The charges bring to just under 1.6 billion euros the amount written off Airbus’s balance sheet in just over five months to reflect a new audit of potential losses on key communications and navigation satellite in its troubled Space Systems business.

“I won’t take my eyes off the case before it is fixed,” Airbus CEO Guillaume Faury told analysts.

Industry sources say much of the newly identified risk is accumulated in the OneSat satellite project and EGNOS, a system designed to improve accuracy of existing navigation signals.

Airbus is working on a review of space activities as it discusses potential alliances with France’s Thales and Italy’s Leonardo, and will detail a turnaround plan for Space Systems in September, Reuters reported on Monday.

It has also launched an expanded cost-containment plan for the wider Defence and Space division, accelerating and deepening existing cost measures, industry sources said. That comes on top of a new efficiency and costs plan at the commercial division.

Faury confirmed the space restructuring as well as the new

cost reduction plans in space and commercial aircraft.

The company has not provided specific cost reduction targets. Industry sources said the immediate cost containment plan at the Defence & Space division would start with 2% being chopped off budgeted spending plans for 2024.

Announcing its own mid-year results on Tuesday, Leonardo confirmed talks with its existing partner Thales and with Airbus over possible alliances in the space sector.

Europe needs a stronger structure to compete with the United States and China, Leonardo CEO Roberto Cingolani told analysts.

Airbus reaffirmed recently softened goals for 2024 including a target of 770 airplane deliveries this year, down from 800.

Faury said Airbus had been “blind-sided” by a shortfall in deliveries of LEAP engines made by CFM, a joint venture of GE Aerospace and Safran, which come on top of recent supply problems with competing Pratt & Whitney engines.

GE Aerospace said last week it had made progress with a number of suppliers but that new engine output, which fell 20% from the previous quarter, had not recovered in May as hoped. It reiterated that the supply of materials was a key constraint.

Analysts said LEAP engine supplies would be in focus when France’s Safran reports earnings on Wednesday morning.

(Reporting by Tim HepherEdited by Barbara Lewis, David Goodman, Tomasz Janowski and David Gregorio)

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