Navigating the turbulent skies of the aerospace industry is no small feat, but Airbus has proven it has what it takes. With a focus on innovation and efficiency, Airbus has positioned itself as a leader in both commercial and defence aviation. The company’s strategic initiatives to ramp up production and capitalise on increasing military spending have set the stage for significant growth. But what’s driving this momentum, and is it sustainable? Let’s find out.
- Airbus aims to increase A320 production by 50% by 2027 – Can this boost profitability?
- With Boeing facing labour disputes, could Airbus seize market share and solidify its position as the aerospace leader?
- Airbus has 21 buy ratings, 5 holds, and 1 sell, with an average price target of €163, signalling a 26.6% upside.
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The Basics
Founded in 1970, Airbus has grown to become one of the world’s largest aerospace companies. The company’s commercial aircraft division, featuring popular models like the A320 and A350, remains the core of its business. Airbus has ambitious plans to increase the production of the A320 to 75 units per month by 2027, up from the current 50, and double A350 production to 12 units per month by 2028. These increases are crucial for achieving better economies of scale and boosting profitability. However, the key to realising these goals lies in maintaining a stable supply chain, a challenge that has been complicated by global disruptions.
In addition to commercial aviation, Airbus is also making strides in the defence sector. Europe’s renewed focus on military spending has created opportunities for Airbus’s defence products, such as the Eurofighter, A330 Multirole Tanker, and A400M transport aircraft. The company’s helicopter division is also poised to benefit from similar trends, with increased demand for both military and civilian applications. These segments are expected to contribute to Airbus’s overall revenue and margins moving forward.
Competitor Diagnosis
The aerospace industry acts mostly as a duopoly dominated by Boeing and Airbus. Although emerging players like Embraer and Bombardier, along with state-backed manufacturers from China and Russia, are entering the scene, Airbus is in a strong position to defend its market share.
Boeing has been under immense pressure due to a series of issues with its planes and production processes, particularly the 737 Max and 787 Dreamliner models. The company has faced safety concerns regarding a design flaw in the 737 Max that caused fatal crashes and a whistleblower’s claims of subpar manufacturing practices. These problems have led to delivery delays, federal investigations, and a damaged reputation, which are key reasons for Boeing’s recent struggles and slow recovery.
To make matters worse, the company has been in the news for labour disputes with more than 30,000 workers walking off the job in protest of a proposed labour contract. This strike comes at a time when Boeing is already struggling to meet demand. The company reached a deal with union leaders to potentially avoid a prolonged strike, offering a 25% wage increase over four years and a commitment to build the next plane in the Seattle area. However, workers still need to vote on the accord, and the uncertainty has impacted Boeing’s stock, which is down 13.66% over the last month.
With Boeing facing these challenges, Airbus has the opportunity to capture a larger slice of the market. The company’s A320neo and A350 XWB models, known for their fuel efficiency and reduced emissions, exemplify Airbus’s commitment to environmentally conscious manufacturing. This approach not only appeals to eco-aware consumers and investors but also gives Airbus a competitive edge in an industry where sustainability is becoming increasingly crucial.
Financial Health Check
It is no secret that Airbus has experienced some financial turbulence over the last few years. COVID lockdowns halted global travel, and Airbus felt the impact in 2020 when sales plummeted. With air travel virtually suspended, airlines had little need to purchase new aircrafts.
More recently, adjusted EBIT dropped to €814 million, impacted by weaker performance in both its commercial and defence units. A €989 million expense tied to its space division further cut into profits. Total revenue remained flat, with most of it coming from its commercial aircraft business. Its EBIT margin also slipped to 12%, down from 13.7% in the previous year.
Despite these setbacks, Airbus remains resilient in its efforts to ramp up the production of key models. With the growth of its defence and helicopter divisions, they have a solid foundation for future expansion. Rising military spending across Europe further supports growth, particularly in the defence and helicopter segments, helping offset any potential slowdown in commercial aviation. Its research into environmentally friendly flight, namely hydrogen, holds promise for long-term leadership in the industry. While no major breakthroughs have been made yet, success in this area could offer a significant competitive advantage.
Buy, Hold or Sell?
Airbus’s strategic growth initiatives and robust market position make it an attractive option for investors. However, challenges such as supply chain issues, rising competition, and significant space expenses impacting profitability present risks.
Despite these challenges, analysts remain optimistic about Airbus. The company’s commitment to sustainability and its adaptability to market changes enhance its investment appeal. Additionally, Boeing’s current issues with labour, production delays, and setbacks in its Defence & Space division create opportunities for Airbus to gain market share.
Financially, Airbus maintains a strong position with a market cap of €102 billion. According to Bloomberg’s Analyst Recommendation, Airbus has 21 buy ratings, 5 holds, and 1 sell, with an average price target of EUR€163 signalling 27% upside.
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*Data Accurate as of 19/09/2024
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