DLAKF - Airbus Underperforms Growth Prospect Remains Bright

2023-08-14 14:50:46 ET

Summary

• Airbus SE stock faced pressures from lower margins and issues with the Pratt & Whitney geared turbofan.
• Airbus booked 60 gross orders in July, with a net value of $4.1 billion, and delivered 65 jets, showing improvement in delivery numbers.
• Airbus expects to deliver around 720 aircraft in 2023, with a one-year delay in ramp-up planning, and remains in the lead compared to Boeing in terms of deliveries.

I provide monthly overviews for orders, cancellations, deliveries, and other order book mutations for Airbus SE ( EADSF , EADSY ). 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 July 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 July, EADSF stock gained nearly 0.9% compared to >3% gain for the broader market, and year-to-date we're looking at a 17.9% gain compared to 16.3% for the broader market.

Year-to-date, Airbus stock still outperforms but it has been facing some pressures. The company reported higher revenues but lower adjusted margins and 27% lower EBIT for H1 2023. Furthermore, the issues with the Pratt & Whitney geared turbofan have put pressure on the stock while the Airbus A321XLR might not quite live up to the range that Airbus promised. All of that does put some pressure on Airbus stock, while the company also seems to have removed an intermediate production target set for 2024.

Airbus Airplane Order News

In July, Airbus booked 60 gross orders, marking a sequential decrease of 860 orders. The orders consisted of 11 wide-body airplanes and 49 single-aisle jet with an estimated value of $4.6 billion:

• An undisclosed customer ordered 6 Airbus A321neo airplanes.
• Icelandair ordered 13 Airbus A321neo airplanes.
• Pegasus Airlines ordered 36 Airbus A321neo airplanes.
• An undisclosed customer ordered four Airbus A350-900s.
• An undisclosed customer ordered six Airbus A350-900s.
• Iberia ordered one Airbus A350-900.

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

• Air Lease Corporation ( AL ) converted orders for two Airbus A220-300s to two Airbus A220-100s.
• Delta Air Lines ( DAL ) was identified as the customer for 12 Airbus A220-300s.
• Spirit Airlines ( SAVE ) converted orders for 31 Airbus A319neos to orders for 31 Airbus A321neos.
• Tibet Airlines was identified as the customer or one Airbus A319neo.
• Avolon took over three delivery slots for the Airbus A320neo from JetSmart.
• BOCOMM Leasing was identified as the customer for two Airbus A320neo airplanes.
• CDB Leasing converted orders for 10 Airbus A320neo airplanes to 10 Airbus A321neos.
• Two Airbus A320neo orders previously attributed to CMB Financial Leasing are now attributed to Flynas and China Express Airlines.
• Lufthansa Group ( DLAKF ) converted one Airbus A321neo order to an order for one Airbus A320neo.
• Swiss converted orders for one Airbus A320neo to one Airbus A321neo.
• An unidentified customer converted orders for six Airbus A320neos to six Airbus A321neos.
• CMB Financial Leasing was identified as the customer for one Airbus A321neo.
• Juneyao Air was identified as the customer for one Airbus A321neo.
• An unidentified customer cancelled orders for three Airbus A350-900s.

Airbus logged 60 gross orders with a value of $4.6 billion, while it scrapped three orders valued at $0.5 billion from the books, bringing the net orders to 57 orders with a net value of $4.1 billion. A year ago, Airbus booked 401 orders and four cancellations, bringing its net orders to 397 units with a net order value of $21.5 billion. So, year-over-year gross orders and net orders decreased, but this was driven by the timing of the airshow.

Year-to-date, Airbus has booked 1,101 net orders valued at $73.5 billion compared to 656 net orders with a value of approximately $32.4 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 big orders from Indian airlines this year.

Airbus Airplane Deliveries Improve

In July, Airbus delivered 65 jets compared to 72 in the previous month. The European jet maker delivered 54 single-aisle jets and 11 wide-body aircraft with a combined value of $4.6 billion:

• Airbus delivered five Airbus A220s.
• A total of 49 Airbus A320neo family aircraft were delivered, consisting of one Airbus A319neo, 17 Airbus A320neo aircraft and 31 Airbus A321neo aircraft.
• Airbus delivered three Airbus A330-900 airplanes.
• Eight Airbus A350s were delivered including five Airbus A350-900s and three Airbus A350-1000s.

Compared to last year, July delivery numbers increased by 19 units while the value of those deliveries increased from $3 billion to $4.6 billion. We're 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 40 units compared to last year's 341 deliveries in the first half of the year. The value of the deliveries has increased from $22.5 billion to $24.8 billion as the delivery volumes are increasing. The delivery profile remains backloaded, but Airbus should be able to achieve its 2023 delivery target.

The book-to-bill ratio for the month was 0.9 in terms of units and 1.0 in terms of value reflecting significant order inflow during the month, while the cancellation rate was 5% 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 in terms of units and 3.1 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 airplane deliveries for 2023.

How Do Airbus Deliveries Compare To Boeing?

In July, Boeing ( BA ) delivered 43 airplanes for a total of 309 airplanes so far this year. Airbus delivered 65 jets bringing the total to 381. 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.

Conclusion: Airbus Stock Remains A Buy

Sequentially, Airbus saw its orders decline and the same holds for the year-over-year numbers for July but both declines were driven by timing of airshows. Overall, Airbus continues to hold a strong backlog for its commercial airplanes and with demand for commercial airplanes being high, the pricing power on those sales is equally high giving Airbus the ability to sell slots forwards and attractive prices. The bigger challenge seems to be to increasing the production in line with demand.

Deliveries declined sequentially driven by seasonality, but increased year-over-year. Year-to-date deliveries are also up compared to last year. While deliveries are improving, Airbus stock has underperformed which likely is driven by the issues on one of the propulsion systems used on the A320neo family and exclusively on the A220. Furthermore, the A321XLR might not quite live up to the range expectations of customers and Airbus continues to battle supply chain issues which put pressure on its ambitious goals for single aisle production. So, 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.

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