ii view: Airbus shares plunge after profits warning

Having comfortably outperformed rival Boeing so far this year, Airbus shares are now deep in negative territory for 2024. Buy, sell, or hold?

25th June 2024 11:27

Keith Bowman from interactive investor

Update to full-year 2024 estimates

Now expects to deliver around 770 commercial aircraft, down from a previous 800
Now expects adjusted profit of around €5.5 billion, down from €6.5-7 billion

ii round-up:

Plane maker Airbus SE (EURONEXT:AIR) downgraded its full-year forecasts, flagging the impact of supply chain issues on 2024 performance.

Persistent specific issues, largely regarding engines, aerostructures and cabin equipment, now leave it expecting to deliver around 770 commercial aircraft in 2024, down from a previous 800. As such, annual adjusted profit is now forecast to come in at around €5.5 billion, down from management’s previous estimate of between €6.5 billion and €7 billion.

Shares in the CAC 40 company fell 10% in early European trading having come into this latest news up around 7% year-to-date. That compares to a near one-third loss for rival plane maker Boeing Co (NYSE:BA) following a mid-flight incident and subsequent investigations. The French CAC 40 index is up around 1.5%.

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Airbus makes commercial passenger planes such as its popular A320 series and used by airlines such as easyJet (LSE:EZJ) and British Airways owner International Consolidated Airlines Group SA (LSE:IAG), along with military and space related equipment and helicopters.

Supply chain challenges now push Airbus’s targeted production rate of 75 A320 family aircraft a month out by a year to 2027. Commercial aircraft deliveries of 735 during 2023 rose from 611 in 2022.

A management review of all ongoing space related programmes also sees charges of around €0.9 billion taken in relation to assumptions for schedules, workloads, sourcing, risks and costs over the lifetime of certain telecommunications, navigation and observation programmes.

The Netherlands headquartered Airbus also reduced its expected full-year free cash flow estimate before customer financing to around €3.5 billion from €4 billion.

First-half results are scheduled for 30 July.

ii view:

Tracing its commercial aircraft history back to 1967, Airbus today employs over 145,000 people, largely across Europe. Commercial aircraft generate most of its sales at just over 70%, followed by Space and Defence and including fighter jets at almost a fifth and helicopters, previously called Eurocopter, the balance of around a tenth. Geographically, Europe accounts for its biggest slug of sales at almost two-fifths, followed by Asia Pacific at just over a quarter and North America around one fifth.

For investors, supply chain issues initially suffered during the pandemic and now being caused by raised global geopolitical tensions, are creating operational challenges. Costs for businesses generally remain elevated, skilled worker shortages persist, while conflicts in Ukraine and the Middle East could yet spread, hitting demand for air travel.

To the upside, ongoing challenges for arch-rival Boeing may, for now at least, leave Airbus still favoured by airline customers despite its own difficulties. Sizeable costs have been removed via a major restructuring following the pandemic, pressure for airline customers to reduce their environmental impact via more efficient aircraft is ongoing, while a forecast dividend yield of around 1.6% compares to a halted dividend payment at Boeing.

In all, Airbus and its position as one of two major commercial aircraft builders will likely leave existing investors sitting tight. That said, potential new investors may wish to await evidence of a stabilisation in its operational performance.

Positives:

A duopoly passenger plane supplier
Net cash held of €10.7 billion as of year-end 2023

Negatives:

Supply chain challenges
Concerns for aviation’s impact on climate change

The average rating of stock market analysts:

Buy

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