DLAKF - Airbus Orders And Deliveries Show Major Challenges

2023-04-13 08:31:14 ET

Summary

• Airbus orders were slow but with an appreciable wide body component.
• Deliveries are falling behind expectations as we are not seeing year-over-year improvement.
• While Airbus had a higher production base to recover from compared to Boeing, both jet makers show similar delivery figures.

Each year, I provide monthly overviews for orders, cancellations, deliveries, and other order book mutations for Airbus SE ( OTCPK:EADSF , OTCPK:EADSY ). While the release of monthly orders and other order news does not always directly impact the Airbus stock price, it is 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 March 2023 as well as the deliveries.

How Is Airbus Stock Performing

As I provide the reports on a monthly basis, it is also interesting to look at what Airbus stock has done over the month. After all, we are doing the analysis to align investors to make money. So, looking at stock prices is very relevant. During the month of March, EADSF stock gained 2.1% compared to a 4% gain for the broader market, and year-to-date we are looking at a 16.6% gain compared to almost 6.6% for the broader market.

In March, Airbus stock underperformed the markets. It is always hard to pinpoint at a reason for underperformance. I believe that the underperformance is mostly driven by the turmoil in the banking sector in March which also put some doubts on continued economic growth and robustness of air travel demand for the mid to longer term.

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 March 2023 Airplane Order News

In March, Airbus booked 20 gross orders, marking a sequential decrease of 79 orders. The orders consisted of 19 wide body airplanes and one single aisle jet with an estimated value of $3.2 billion:

• Lufthansa ( DLAKF ) ordered 5 Airbus A350-900s and 10 Airbus A350-1000s.
• An unidentified customer ordered four Airbus A350Fs.
• A private customer ordered one Airbus A319 ACJ.

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

• AerCap ( AER ) converted an order for one Airbus A320neo to an order for one Airbus A321neo.
• Azerbaijan Airlines was identified as the customer for 6 Airbus A320neo and 6 Airbus A321neo airplanes.
• BOCOMM Leasing was identified as the customer for 2 Airbus A320neo airplanes.
• TAP Air Portugal converted an order for one Airbus A321neo to one Airbus A320neo.
• Viva Air Colombia cancelled orders for two Airbus A320neo airplanes.

March seemingly brought a slowdown in order activity, but it is important to note that the February orders included the one-off reinstatement of the Qatar Airways order which Airbus unilaterally cancelled last year. Without those 77 orders, we see that the orders for Airbus in March were actually more or less in line with what we have been seeing throughout the first quarter. A positive note was that the order mix was heavily skewed towards the more valuable wide body airplanes.

Airbus logged 20 gross orders with a value of $3.2 billion, while it scrapped 2 orders valued at $103 million from the books, bringing the net orders to 18 orders with a value of $3.1 billion. A year ago, Airbus booked 104 orders and 76 cancellations, bringing its net orders to 28 units with a negative net order value of $2.4 billion. So, year-over-year gross orders were lower but cancellations were also lower and the order mix was more favorable this year.

Year-to-date, Airbus has booked 142 net orders valued $12.5 billion compared to 83 net orders with a value of approximately negative $1.5 billion last year. So, we see a significantly better start of the year for Airbus this year.

Airbus March 2023 Deliveries: A Tough Environment

In March, Airbus delivered 46 jets compared to 20 in the previous month. The European jet maker delivered 42 single-aisle jets and four wide-body aircraft with a combined value of $2.9 billion:

• Airbus delivered five Airbus A220s.
• A total of 51 Airbus A320neo family aircraft were delivered, consisting of 26 Airbus A320neo aircraft, and 25 Airbus A321neo aircraft.
• Airbus delivered three Airbus A330-900s.
• Two Airbus A350-900s were delivered.

Compared to last year, March delivery numbers remained flat while the value of those deliveries declined from $4 billion to $3.7 billion, driven by delivery mix. While I expect supply chain issues to ease somewhat, the reality is that it is not so much reflected in the current delivery volumes. Given the supply chain issues and the higher base that Airbus was able to start from compared to the competition, one could have expected more solid year-over-year numbers but so far we are not given a strong indication that supply chain issues are easing such that Airbus can deliver significantly more airplanes. For the year, the delivery numbers are still down 13 units compared to last year's 140 deliveries while the value has dropped from $9.4 billion to $7.8 billion.

The book-to-bill ratio for the month was 0.3 in terms of orders and 0.9 in terms of value reflecting favorable order mix, while the cancellation rate was 10% 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 1.2 in terms of units and 1.7 in terms of value. As I noted previously, we are looking for book-to-bill ratios higher than one, but even when that is achieved, these ratios should also be placed in context. March and the year so far are a continued example of the ratio being higher than one due to poor billing volumes driven by issues for Airbus to deliver aircraft. Furthermore, the book-to-bill does not capture cancellations. If we were to incorporate the cancellations.

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 March, Boeing (BA) delivered 64 airplanes for a total of 130 airplanes so far this year. Airbus delivered 61 jets in March bringing the total to 127 as well. So, what we are actually seeing is that while there is an extreme focus on delays at Boeing, Airbus is showing similar performance. You can spin this any way you want either by saying Boeing has an inventory it can rely on to make up for of the supply chain constraints. One could also say that given that Boeing literally had to restart production on its key programs from 0, Airbus should have been multiple steps ahead as it did not need to go through the same rate rebuilding.

Conclusion: Airbus Stock Remains A Buy Despite Challenges

Airbus without a doubt started the year soft. That was my conclusion the previous two months and it remains the conclusion this month. Looking at orders, I am not particularly concerned. The jet maker has a strong product portfolio and will be able to attract business and has a strong backlog. However, more worrisome is that deliveries are not steaming up. They are steaming up from the start of the quarter towards the end, but that is the natural course of business by now. What is not happening is year-over-year growth in deliveries. Last year, Airbus aimed too high with its delivery target as it expected a better supply chain environment in the second half of the year. What we are seeing so far this year is pretty much the same expectation for supply chain health improving, but we are not seeing delivery volumes improve.

Despite the challenges, I do believe Airbus SE stock remains a buy, driven by long-term demand drivers and a geopolitical landscape that gives Airbus an edge in a key market.

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