EADSY - Airbus Stock Underperforms As Airplane Deliveries Show Strength

2023-06-08 10:05:51 ET

Summary

• Airbus stock underperformed, but the market has missed the improvement in airplane deliveries.
• Airbus faced cancellation from collapsed Go First airline.
• Company continues to face challenges but first signs of improvement might already be visible.

Each year, I provide monthly overviews for orders, cancellations, deliveries, and other order book mutations for Airbus SE (EADSF). 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 May 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 May, EADSF stock lost 5.3% compared to a 0.5% gain for the broader market, and year-to-date we are looking at a 16.8% gain compared to almost 12.4% for the broader market.

In May, Airbus stock underperformed the markets. There was no big news item or event that significantly moved the stock price but the collapse of Go Air, which has a significant number of Airbus airplanes on orders has not helped supporting the stock price and there might have been some negative attention for the Airbus A220neo and Airbus A320neo family which are powered by the troubled geared turbofan manufactured by Pratt & Whitney (RTX). Perhaps the somewhat underwhelming first quarter results have also not helped Airbus stock lift off.

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 May 2023 Airplane Order News

In May, Airbus booked 17 gross orders, marking a sequential increase of 12 orders. The orders consisted of one wide body airplanes and 16 single aisle jet with an estimated value of $1 billion:

• BOC Aviation ( BCVVF ) ordered seven Airbus A320neos.
• One or multiple unidentified customers ordered nine Airbus A320neos.
• Delta Air Lines ( DAL ) ordered one Airbus A330-900.

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

• AerCap ( AER ) converted orders for five Airbus A320neos to orders for five Airbus A321neos.
• NAS Aviation Services converted orders for three Airbus A320neos to orders for three Airbus A321neos.
• Azul ( AZUL ) seemingly took over a delivery slot from BOC Aviation one Airbus A320neo.
• BOCOMM Leasing was identified as the customer for two Airbus A320neo airplanes.
• Chengdu Airlines was identified as the customer for two Airbus A320neo airplanes.
• CMB Financial Leasing was identified as the customer for one Airbus A321neo.
• Yuneao Airlines was identified as the customer for one Airbus A321neo.
• Go First cancelled orders for 16 Airbus A320neo airplanes.
• Virgin Atlantic Airways cancelled orders for one Airbus A330-900.

May was once again not an exciting month. Fluctuations in orders happen from month-to-month, so there is no immediate reason to worry. However, there could be reasons for Airbus having difficulties finalizing orders. One reason could be the continued delivery delays which makes airlines less likely to commit to purchases as the timelines for deliveries remain unclear and Airbus is pretty much sold out on the A320neo program for years to come. Another reason might be that Boeing ( BA ) is back in the game, Airbus had years to scoop up orders while Boeing had its fair share of difficulties and whatever was ordered years ago are orders that can't be added today so that might also be a reason for the relatively low order inflow. While Airbus says it no longer saves up orders to be announced during air shows such as the upcoming Paris Airshow in June, this could still be a reason for the underwhelming order inflow.

Airbus logged 17 gross orders with a value of $1 billion, while it scrapped 17 orders valued at $940 million from the books, bringing the net orders to zero orders with a value increment of $40 million. The cancellations are driven by the collapse of Go First , which has a significant number of Airbus airplanes on order. Seventeen airplanes are now scrapped from the order book leaving 72 orders from Go First on the books and I would expect that over time these orders will also be cancelled. It is highly likely that the airplanes that were ordered were directly offsetting the cancellation from Go First. There is a shortage of airplanes, so when delivery slots are freed up it should take little to no effort to remarket the slots or the airplanes that were not handed over to the customer. In fact, Airbus' order month was a zero-sum game as likely all order activity was tied to cancellations.

A year ago, Airbus booked 13 orders and no cancellations, bringing its net orders to 13 units with a net order value of $1.1 billion. So, year-over-year gross orders continue to be lower.

Year-to-date, Airbus has booked 144 net orders valued $12.7 billion compared to 191 net orders with a value of approximately $5.2 billion last year. So, we see net orders being down, but the value of the orders is up due to big cancellations for wide body airplanes in the comparable period last year as well as a big cancellation for the 50 Airbus A321neo jets for Qatar Airways. The order from Qatar Airways has since been restored.

Airbus May 2023 Deliveries: Airplane Deliveries Improve

In May, Airbus delivered 63 jets compared to 54 in the previous month. The European jet maker delivered 54 single-aisle jets and nine wide-body aircraft with a combined value of $4.3 billion:

• Airbus delivered three Airbus A220s.
• A total of 51 Airbus A320neo family aircraft were delivered, consisting of 19 Airbus A320neo aircraft and 32 Airbus A321neo aircraft.
• Airbus delivered four Airbus A330, one airplane for tanker conversion and three Airbus A330-900s.
• Five Airbus A350s were delivered including three Airbus A350-900s and two Airbus A350-1000s.

Compared to last year, May delivery numbers increased by 15 units while the value of those deliveries increased from $3.2 billion to $4.3 billion. We're finally seeing the delivery numbers improve and that could provide the first evidence that supply chain issues are easing, but it is too early to draw definite conclusions. For the year, the delivery numbers are now up eight units compared to last year's 236 deliveries. The value of the deliveries has dropped from $15.8 billion to $15.3 billion.

The book-to-bill ratio for the month was 0.3 in terms of units and 0.2 in terms of value reflecting stability on the mix and low order inflow, while the cancellation rate was 100% 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 0.7 in terms of units and 0.9 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 and one should keep in mind that cancellations are not accounted for in the book-to-bill ratios.

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 May, Boeing ( BA ) delivered 48 airplanes for a total of 218 airplanes so far this year according to preliminary figures . Airbus delivered 63 jets bringing the total to 244. For most 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 Despite Challenges

Airbus is having a challenging year. Its net orders are down, but is net order value for commercial airplanes is up due to a favorable mix. May was a zero-sum game as the company processed cancellations, most notably the cancellation of some Go First orders, and those slots were directly occupied. I would expect that more Go First orders will be cancelled, but with a prospective order from Air India to be finalized, a potential 500-unit airplane order from IndiGo and high demand for airplanes I don't see any issues for Airbus on the Indian market or outside of the Indian market to sell and remarket. There also is no big incentive for Airbus to sell airplanes with high discounts in the current market and against a backdrop of a sold-out production line for the coming years.

The bright spot was that deliveries have improved sequentially and year-over-year, while year-to-date deliveries are now also up compared to last year. That actually creates an interesting situation as the company's stock has underperformed the market in May following its first quarter earnings report but we might also be seeing the first signs of recovery in the delivery volumes. It might be showing that sometimes the market is too focused on the past without paying attention to the present performance which might be indicative of better results going forward.

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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