VLRS - Airbus Backlog And Stock Surge

2023-07-10 13:30:59 ET

Summary

• Airbus booked more than 900 orders in June.
• Order inflow consisted of the anticipated Air India and IndiGo orders.
• Deliveries are showing an upward trajectory and could be indicative of supply chain issues becoming more manageable.

I provide monthly overviews for orders, cancellations, deliveries, and other order book mutations for Airbus SE ( OTCPK:EADSF ). While the release of monthly orders and other order news does not always directly impact the Airbus stock price, it's important to keep track of the orders and deliveries because this provides the smallest blocks of information from which we can assess how things are going for the European jet maker and detect trends early on. In this report, I will be analyzing the Airbus orders for June 2023 as well as the deliveries.

How Is Airbus Stock Performing?

As I provide the reports on a monthly basis, it's also interesting to look at what Airbus stock has done over the month. After all, we're doing the analysis to align investors to make money. So, looking at stock prices is very relevant. During the month of June, EADSF stock gained 9.8% compared to a 5.4% gain for the broader market, and year-to-date we're looking at a 20.4% gain compared to almost 14.6% for the broader market.

In June, the Paris Airshow took place which often is used by jet makers to announce new business, deals pending finalization and announce new products. Quite often we see that this leads to stock prices moving as orders are announced. This year, however, that was not so much the case and Airbus's stock price softened during the trading days of the airshow which I believed was caused by the Paris Airshow having only two big orders which were already anticipated and just a handful of incremental orders.

Year to date, the performance of Airbus stock is strong, showing the outperforming nature of the industry. There are some positives such as improving demand profiles for airplanes in all seat classes as well as longer-term plans to increase production.

Airbus June 2023 Airplane Order News

In June, Airbus booked 920 gross orders, marking a sequential increase of 903 orders. The orders consisted of 65 wide-body airplanes and 837 single-aisle jet with an estimated value of $56.7 billion:

• An undisclosed customer ordered 22 Airbus A320neo and 38 Airbus A321neos.
• An undisclosed customer ordered 10 Airbus A350-900 airplanes.
• An undisclosed customer ordered two Airbus A330-900s.
• An undisclosed customer ordered four Airbus A330-900s.
• An undisclosed customer ordered 12 Airbus A220-300s.
• An undisclosed customer ordered six Airbus A320neo airplanes.
• International Airlines Group ( OTCPK:ICAGY ) ordered 10 Airbus A320neo airplanes.
• Paris Airshow order: Flynas ordered 30 Airbus A320neo airplanes.
• Paris Airshow order: Qantas ( OTCPK:QUBSF ) exercised options for nine Airbus A220-300 airplanes.
• Paris Airshow order: Air India firmed its commitment for 140 Airbus A320neos, 70 Airbus A321neos, 6 Airbus A350-900s and 34 Airbus A350-1000s.
• Paris Airshow order: IndiGo ordered 500 Airbus A320neo with the provisional selection currently being 125 A320neos and 375 A321neos (subject to change).

During the month, the following changes were made to the order book:

• An unidentified customer cancelled an order for one Airbus A220-300 though Airbus has not processed this in the totals.
• BOC Aviation converted an order for three Airbus A320neos to three A321neos.
• Chengdu Airlines was identified as the customer for one Airbus A320neo.
• CMB Financial Leasing was identified as the customer for one Airbus A320neo.
• SMBC Aviation Capital converted orders for four Airbus A320neo airplanes to four Airbus A321neo airplanes.
• Juneyao Airlines was identified as the customer for one Airbus A321neo.
• Volaris ( VLRS ) was identified as the customer for 25 Airbus A321neo airplanes.
• Nile Air cancelled orders for two Airbus A321neo airplanes.
• STARLUX Airlines converted orders for eight Airbus A350-900s to eight Airbus A350-1000s.

June was a good month for Airbus. Even though the big order items, namely the orders from Indian carriers, were expected it's still good to see them logged. We saw most of the orders from the Paris Airshow that were announced as firm ending up in the backlog, but the wide body order from Air Algerie remained absent. Furthermore, we also saw that the announcement from Volaris was an actual customer reveal. In our assessment and the evoX Airshow Order Tracker the announcement had been treated as such, but several media and aerospace outlets have treated the somewhat obvious customer reveal as a new order, which highlights the need for careful analysis.

Airbus logged 902 gross orders with a value of $56.7 billion, while it scrapped three orders valued at $156.7 million from the books, bringing the net orders to 899 orders with a net value of $56.6 billion. A year ago, Airbus booked 78 orders and 10 cancellations, bringing its net orders to 68 units with a net order value of $5.6 billion. So, year-over-year gross orders and net orders increased, but this was driven by the timing of the airshow as well as an uptick in demand for airplanes.

Year-to-date, Airbus has booked 1,043 net orders valued at $69.3 billion compared to 259 net orders with a value of approximately $10.8 billion last year. So, we see net orders being up significantly driven by big wide body order cancellations last year, the effect of Qatar Airways cancellations last year and the order being reinstated this year as well as the airshow timing.

Airbus June 2023 Deliveries: Airplane Deliveries Improve

In June, Airbus delivered 72 jets compared to 63 in the previous month. The European jet maker delivered 63 single-aisle jets and nine wide-body aircraft with a combined value of $4.8 billion:

• Airbus delivered six Airbus A220s.
• A total of 57 Airbus A320neo family aircraft were delivered, consisting of 25 Airbus A320neo aircraft and 32 Airbus A321neo aircraft.
• Airbus delivered two Airbus A330-900 airplanes.
• Seven Airbus A350s were delivered including four Airbus A350-900s and three Airbus A350-1000s.

Compared to last year, June delivery numbers increased by 13 units while the value of those deliveries increased from $3.7 billion to $4.8 billion. We're finally seeing the delivery numbers improve and that could provide the first evidence that supply chain issues are easing, but it's too early to draw definite conclusions. For the year, the delivery numbers are now up 21 units compared to last year's 295 deliveries in the first half of the year. The value of the deliveries has increased from $19.5 billion to $20.2 billion as the delivery volumes are increasing.

The book-to-bill ratio for the month was 12.5 in terms of units and 11.9 in terms of value reflecting significant order inflow during the month, while the cancellation rate was 0.3% measured against the order inflow, and negligible when measured against the backlog. The book-to-bill ratio for the year is looking extremely strong at 3.4 in terms of units and 3.5 in terms of value. As I noted previously, we're looking for book-to-bill ratios higher than one, but even when that's achieved, these ratios also should be placed in context and one should keep in mind that cancellations are not accounted for in the book-to-bill ratios and current demand for airplanes is higher than the ability to deliver those airplanes which can also stock up the book-to-bill figures.

What Is Airbus' Delivery Target For 2023?

For 2023, Airbus expects around 720 deliveries which was actually the same target it initially had last year. Likely with some easing in supply chain constraints, the company will be able to reach its target this year, but it does show that there is at least a one-year delay in the ramp-up planning. The delivery guidance fits my own expectation of around 725 I had for 2023.

How Do Airbus Deliveries Compare To Boeing?

In June, Boeing ( BA ) delivered 58 airplanes according to estimates for a total of 264 airplanes so far this year. Airbus delivered 72 jets bringing the total to 316. At the start of the year, Boeing deliveries were in line with that of Airbus but with a temporary halt on some single aisle deliveries the European jet maker is now in the lead again measured by deliveries.

Conclusion: Airbus Stock Remains A Buy

Airbus saw strong order inflow in June, which was helped by the big orders with Air India and IndiGo being finalized alongside some other meaningful and smaller orders.

Deliveries continued to improve sequentially and year-over-year, while year-to-date deliveries are also up compared to last year. Last month, I pointed out that the company saw its delivery volumes improving, but its stock was underperforming, and it seems that the market has also noticed it and put Airbus stock back in an outperform position.

Challenges remain to increase production to a level that OEMs are aiming for, but I do believe Airbus SE stock remains a buy driven by long-term demand drivers and a geopolitical landscape that gives Airbus a temporary edge in a key market.

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