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We took a detailed look at Airbus FY numbers and consider the takeaways impacting our mid-term earnings and valuation scenario. Beyond usual supply chain constraints, productivity development and, to a lesser extent, DandS margin emerge as leading points of debate on the name. Debate refocusing on productivity recovery potential The deterioration of productivity (voluntary overstaffing) as Airbus prepares the next stages of its civil range ramp up has been one of the marking points of 2023. In the near future, we view the front loading of recruitments and workforce training as a sign of risk reduction (welcome at a time when US suppliers suffer from quality issues following juniorisation of workforce). Once production stabilizes (we anticipate in 2026), we see potential for Airbus to recover part of the 350bp of related margin deterioration it has seen since 2019. Defence and Space margin anomaly needs addressing, but risk is marginal Further analysis of DandS reveals abnormally low returns for the unit, even adjusting for the exceptional charges recorded in Space over the year. We remain cautious on the group''s ability to reach its high single digit margin ambition in the mid-term (we have 5.7% in 2026e) but believe a strong turnaround (as intended by the group) could add a bit more upside to the name. Although a point of market attention, this remains secondary in the value equation, in our view. Blue sky remains very blue, but the value case still holds up on derated assumptions 2024 should remain a year of transition in the group''s margin recovery story as ramp up investments continue to prepare a high-volume production plateau that should start at the end of 2026. We still see a strong long-term outlook for a company that stands to soon benefit from its dominant position in the narrowbody market. Our TP increase from EUR179 reflects a reduction in the time discount of our SOTP and marginal earnings changes (small EBITA increase, improved tax rate)....
Airbus Airbus SE
Airbus’ 9M 23 figures missed the company-collected consensus estimate by 1% on revenue and by 11% on adjusted EBIT, largely due to the struggling Defence and Space segment in which a one-off charge of EUR0.4bn was booked due to the re-estimation of costs and re-assessment of risks, opportunities and competitiveness of the existing as well as the under-development projects. However, due to good performances from the other businesses and a FX tailwind, the company has re-iterated its FY23 guidance.
RTX issues a severe warning on the impact of the PW1100 engine recall campaign RTX''s update on the PW1100 was expected. Several elements surprised negatively: 1) the extent of the manufacturing issue, with compressor disks now impacted on top of HPT disks and 3,000 engines to be impacted vs 1,200 previously, 2) the industrial burden, with wing-to-wing turnaround times of 250-300 days (equivalent to a full shop visit), vs a 60-day inspection leadtime mentioned so far, 3) the headwind of USD3-3.5bn on EBIT and USD3bn on cash in 2023-25 (for RTX''s 51% share in the engine), with 80% of the cost driven by compensation to airlines, and 4) the disruption to airlines, with a peak of 600-650 aircraft grounded in H1 2024 (350 average over 2024-26). Readthrough on MTU - significant impact, but looks more than priced in MTU''s preliminary estimate is a sales and EBIT headwind of c.EUR1bn in 2023, consistent with its 18% share in the PW1100 engine under risk-sharing partnership (before cost mitigation initiative). The cash impact over 2023-25 is unknown, and we expect further details in the near future. To this must be added the probable erosion of future margin on PW1100 support (PandW mentioned 100bps headwind by 2025). Overall, the EUR2.4bn loss in MTU market cap since the initial RTX warning looks harsh, but it remains hard to estimate the total reduction in the programme''s NPV for now. Readthrough for Airbus - marginal impact seen at this stage PandW''s production commitments on new engines and spare parts have been reiterated, with support to airlines stemming from compensations rather than a reallocation of production from the OE to the fleet support. While an impact of second order on productivity at PandW is still possible, it rules out scenarios of potentially high impact on Airbus deliveries in 2024-25, which is a relief. Readthrough on Safran - capacity stretch to further support aftermarket momentum Airlines are up for a few years of further capacity...
AIR AIR MTX
A good quarter of execution Airbus EBIT adjusted came 7% ahead of consensus, with a 10% beat in civil aircraft. Stripped of slightly lower FX tailwind than hoped and a EUR0.1bn provision release on compliance matters, civil aircraft is on a strong track of execution, with c.EUR140m underlying EBIT beat vs our expectations. This is despite continuing ramp up of investments. FCF was very strong at EUR2.5bn in Q2 (38% above consensus) and benefited from favorable phasing of customer payments. Ramp up on track Airbus continues to deliver on track with its rescheduled delivery plan, and all guidance was reiterated for 2023 (deliveries, EBIT, FCF) as well as for the ramp up of the coming years. This is despite a better hedge rate for 2023 (by 1c.) and nice progress on the FCF side. The EUR3bn FY FCF guidance now implies a 50% drop y-y in H2, which we see as conservative. Note that Airbus removed intermediate A320 ramp up targets (rate 65 and 70) and focuses on rate 75 in 2026. RTX engines not an overhang for 2023 - but potentially for afterward The recall program of some PW1100G-JM engines fed the debates on the conference call. Airbus confirmed that it received a commitment from RTX that 2023 engine deliveries to Airbus will not be affected by the need to provide more spare engines to support airlines. The impact of the recall program is yet to be estimated on the 2024-25 production of RTX, and flexibility to ramp up CFM instead (already leveraged through the previous PW1000 durability issues) is now very limited. Earnings fine-tuned - Outperform reiterated We have trimmed our delivery forecast again (now expecting 804 civil aircraft deliveries in 2024) and fine-tuned our 2023 estimates. We now expect especially EUR3.35bn of FCF this year, 12% above the company''s guidance. We believe Airbus will continue to deliver on its ramp up despite suppliers'' industrial and parts durability issues, with execution control that should yield significant margin...
Airbus published its Q1 figures which beat our expectations. While the revenues were in line with our expectations, adjusted EBIT was 6% above AV’s estimate, thanks to higher deliveries and a favourable hedge rate. With no surprise, Airbus’s commercial order intake increased by 303%, leading to a record level in the order book of €7.9bn. While the company confirmed its FY23 targets, its FY26 delivery target will be watched closely due to the additional headwinds we have in sight.
Pratt and Whitney fleet update - negative surprise on the PW1000 engine RTX has announced that PandW has determined that a rare condition in powdered metal used to manufacture some engine parts will require accelerated fleet inspection. A significant portion of the fleet of PW1100G-JM engines (powering the A320neo) will require accelerated removals and inspections within 9-12 months, including c.200 by mid-September 2023. Airbus commented that the issue affects engines produced between Q4 2015 and Q1 21. To our knowledge, no issue has been spotted since then. Note that the A220 (powered by another version of the PW1000 engine family) is apparently not impacted. Some risk for MTU Aero Engines as a risk-sharing partner We identified 798 aircraft powered by the PW1100G and delivered between Q4 2015 and Q1 2021. According to the company c.1,200 engines would require inspection. We have no indication yet on how much work would have to be performed in these inspections. What is above all clear is that the MRO network of RTX and its partners is likely to be kept fully occupied by the inspections required. This should weigh on the mix of the MRO division (low margin PW1100 MRO vs core MRO) and could put the guidance of that division at risk for this year. As a risk-sharing partner on this program, MTU could be impacted by any extra associated cost, just like the other risk-sharing partners (JAEC, Melrose). Airbus: no impact on deliveries at first glance, but fleet support may be a priority Aircraft in the production process are not affected by the production issue. However, we cannot rule out that Airbus will have to adapt its production sequence to help support the airlines, as RTX will be under massive pressure to propose spare engines to support airlines during aircraft inspections. This may put pressure on the number of engines available at Airbus this year for new A320 deliveries, driving small new risk to guidance.
Revisiting numbers between the Paris Airshow and Q2 results Airbus will release its Q2 2023 results on July 26 post market. We have spoken to the company, and we highlight there has been no change to FY guidance nor any indication of trajectory for the future years. Note that Airbus already released its Q2 2023 deliveries, with 183 deliveries over the quarter, up 18% y-y. This is an occasion for us to do a quick model update, in particular factoring in some of the company''s key messages at the Paris Airshow. Solid results ahead, though we have turned more cautious on phasing of ramp-up costs We expect group Q2 EBITA to be c.EUR1.65-1.7bn, driven by civil aircraft at EUR1.5bn, and a solid FCF before MandA and customer financing at EUR2bn. Q2 should be a strong quarter of deliveries and margin (13.5% est. in civil aircraft in Q2); however, we reduce our initial expectations a little due to front-loaded development of some industrial costs, as flagged at the airshow, with an especially significant staffing effort under way to prepare for the ramp-up of the years 2024-2026. Model update - slight increase in caution on GTF availability, ramp-up costs under focus We continue to believe in a regular improvement of the supply environment for Airbus and bet on its improved agility, demonstrated at the airshow, to deal with small hiccups in suppliers'' on-time deliveries. We have taken a more cautious view, however, on the availability of PW1000 engines, as Pratt remains under pressure to reallocate engines from its OE production schedule to the support of the fleet of A220s and A320s in service. Our 3% EPS cut reflects 2024 deliveries trimmed to 814 aircraft and a slight front-loading of ramp-up costs in 2023 (in line with group EBIT guidance). Valuation case unchanged Beyond 2023 and the short-term ramp-up challenge, we continue to see a bright future for the group''s valuation case, lifted by Airbus margin expansion potential. In particular, we see...
Airbus published its Q1 figures below our and the market’s expectations. Revenues were 4% above our estimate but the adjusted EBIT was a miss by 8%. However, the management re-confirmed that the FY23 guidance announced earlier this year had encompassed a weak Q1 and is confident of achieving its FY23 target. Following this results release, we will revise our Q2 figures downwards while leaving our estimates for FY23 unchanged. Hence, there will be no impact on our target price.
2022 numbers answer some of our questions, if not all of them Airbus Q4 2022 numbers brought significant progress on key debates: cost inflation is being contained, execution difficulties have not impaired civil aircraft margin, ramp-up costs are still slow to accelerate. Also, estimates have been dropped for the near future with a bearish guidance for deliveries and EBIT that has brought down consensus to much more realistic levels. How much is the delivery horizon now derisked? The 720 aircraft delivery target in 2023 and the slight postponement of the rates 65 and 75 for the A320 family in our view mask a wider rescheduling of the backlog that significantly reduces execution risk. The bar is set low for 2023 (59 units increment y-y) and improving visibility on supply delays (and the internal capacity to deal with them) underpin a decent de-risking despite the weak start to the year. The debate has moved to 2024, when ramp-up acceleration will bring new challenges. Revisiting 2024 - why we believe the margin story will still deliver We have fully reviewed our delivery model and EBIT bridge for 2023-26. We now expect 839 deliveries next year, which underpins our 12% EPS cut in 2024, making it another year of transition before sustainable high volumes and margins can be reached over 2025-26. Theoretically this would mean that Airbus would be unable to reach a 10% margin threshold in 2024, which we believe would be conditional on a return to the pre-covid peak of 863 units. However, we detail in this note structural tailwinds in 2024 that make us confident that the dynamics can be stronger than our base case. Pricing the uncertainty The partial de-risking of the ramp-up is an occasion to look at the Airbus valuation with more ambition and we have rolled over our SOTP-based approach from 2024 to 2025. The material profit uplift that we see for 2025 underpins a small TP increase from EUR155 to EUR158 per share despite our earnings revisions....
Despite an adverse operating environment, Airbus’s FY figures beat the consensus on all metrics. However, the supply chain is still far from full recovery and hence the company has postponed its 75/month narrowbody delivery target from 2025 to 2026. The guidance for 2023 stands at 720 deliveries and an adjusted EBIT of €6bn, which is below our current estimate. Hence, we will revise our estimates downwards.
December deliveries (unfortunately) in line with our tracker Airbus has released December deliveries at 98 aircraft. These came in line with our low expectations of 98 units, as detailed in AEROSPACE and DEFENCE: Pre-Flight Check: New year, same problems. In terms of mix, Airbus delivered 1 more A220, 2 less A321 and 1 more A350. This closes 2022 full year deliveries at 663 aircraft (661 net of the cancellation of the two A350s to Russia''s Aeroflot). Still no good news to consensus Airbus consensus FY deliveries had been trimmed to 683 units (as per Visible Alpha), following company''s warning on December 6 that it would miss its target of c.700 units, but that it would ''not fall materially short'' of it. The 22-units miss to consensus should therefore be a negative surprise by the street. The low deliveries may be seen as a hint that the operating situation has been more complex than anticipated in the final weeks of December, a reflection in our view of Airbus'' still struggling with aircraft rework to be completed out of the normal production sequence at year end. No material risk to guidance in our view, but a negative impact on sentiment We assume that the additional miss is not really jeopardizing the financial guidance (EBIT and FCF) reiterated on Dec 6, given the group''s cost flexibility and strong PDP-driven cash flow momentum. The issue we see today is more stemming from the lack of short-term visibility shown by Airbus on its execution environment (pace of supply chain recovery, internal aircraft completion capabilities), which was not fully baked into its communication (three delivery misses in 2022). Production forecast slashed for 2023 - value case remains with adverse momentum We remain confident in Airbus'' ability to profitably ramp its A320 production over the next few years, driving a strong value case. We have trimmed though our ramp up scenario for 2023-24. We also still believe that near term momentum remains adverse: Airbus...
Airbus reported a solid set of results and, most importantly, maintained its delivery guidance for the full year. The supply chain remains challenging, but Airbus believes it now has most of the components it needs to achieve its target. Despite Airbus’ low profitability in its core activity, thanks to the massive order intake in the Q3 the strong PDPs have generated an impressive FCF, prompting Airbus to readjust its FCF guidance upwards for the full year.
A soft underlying Q3 margin in Commercial Aircraft Airbus delivered a soft performance in its commercial aircraft business, 13% short of consensus and 17% below our target, but nonetheless reiterated its FY guidance of EUR5.5bn of EBIT. The gap to our projections is explained further below in the note, but in brief was due to a mix of FX, discretionary spending allocation between cost lines and small overruns from aircraft production because of late delivery of parts from suppliers. 2022 delivery target reiterated, 2023 also set to be another backloaded year Airbus reiterated its target of 700 aircraft deliveries for the FY, with management commenting that all equipment supporting these deliveries were in assembly lines or pre-assembly lines. Nevertheless, risk persists (on the A220 this year especially in our view), and some investors are likely to stay focused on short-term deliveries. We were happy to see management hinting at a probable backloaded profile of deliveries in 2023, meaning a possible drag on the momentum of the share has now been clarified. Upgraded FCF target, one step closer to the anticipated EUR10bn mark We welcome the group''s FCF guidance increase for 2022 (to EUR4.5bn from EUR3.5bn), which still looks conservative given the number of aircraft to be unloaded in Q4 (265 units to guidance) - although Airbus''s quarterly FCF phasing remains hard to anticipate due to the volatility in the sequence of customer PDPs. This should bring comfort to investors on the group''s ability to quickly reach its net cash target of EUR10bn and thereafter decide on its cash allocation. Preferred value case in the sector Post-Q3, Airbus remains our preferred value case in the sector over the medium/long-term, with no fundamental changes to the equity story to flag. However, we recognise the short-term trading of the name will continue to remain difficult, due to persisting delivery challenge likely to continue into 2023.
Airbus has reiterated its guidance, with a delivery target of 700 jets for FY22 and an expected production rate of 75 jets per month by 2025. Profitability is expected to reach the pre-covid levels by 2024. Although Airbus seems conservative in its profitability guidance, its delivery target seems out of reach.
Airbus will hold its long-awaited Capital Markets Day tomorrow in Toulouse, with the objective to restore confidence on the stock after having revised downwards its initial objectives last quarter. We believe there could be additional drama.
Airbus has reported the toughest quarter since the pandemic. It is even worse as it surprised the market, given the positive signals coming from Farnborough and the massive contracts it has signed recently. The supply chain has been particularly tough on the engine markers’ side, and Airbus has had to adjust its guidance downwards, from 720 jet deliveries to 700. Luckily, its low-cost base combined with several one-offs has still enabled Airbus to report miraculously strong profitability.
Airbus has published a massive beat in profitability and confirmed its ramp-up roadmap of 75 jets produced per month by FY25. Its strong A320 deliveries and the cost containment measures since COVID-19 have driven margins higher than all expectations. The FY22 guidance has been reiterated despite the impressive EBIT, due to macro-economic/geopolitical uncertainties in the near future. The only slight downside comes from the postponement of its A321XLR programme.
Airbus’s Q4 figures have beaten the consensus on all metrics, confirming its transition from a company mitigating its losses to a company well on track for growth. The success of its A320 family is unquestionable, and its high cash generation has enabled Airbus to propose a dividend again, and a stronger one than expected. Only the FY22 guidance seems conservative.
Airbus has provided a solid set of results for its Q3. Indeed, even though sales came in slightly below consensus, the profitability was better than anticipated. The guidance adjusted EBIT has been increased consequently.
Airbus reported a solid set of results and upgraded its minimum guidance for FY21. Through important one-offs and cost savings, it managed to explode the consensus on profitability. Airbus also reassured the market on future deliveries, a luxury that few companies in this industry can afford.
Airbus has shown robust sales in a complicated industry. The margins and cash were abnormally high this quarter due to good cost efficiency and significant one-offs. The company maintains its previously announced guidance, as the pandemic situation is still unpredictable.
2020 was quite a year, and the company’s performance was very decent given the circumstances. The positive note of the publication was the strong cash generation achieved in Q4. However, this has been shadowed by a very conservative guidance for 2021.
Following a review of internally available resources, we are temporarily withdrawing our estimates and suspending coverage. We previously had a Buy recommendation and €150 DCF-based target price. Key risks identified included execution on key development programmes, adverse FX movements given large US$/€ exposure, political interference and global air traffic slowdown.
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