- Both manufacturers have record order books
- Boeing's struggles easily make Airbus the safer bet
Airbus (FR:AIR) might still be struggling with supply chain strains but ongoing safety problems at rival Boeing (US:BA) means the gap between the industry’s big two continues to widen.
Revenue at the Toulouse-based planemaker rose by 11 per cent to €65.4bn (£56bn) last year, although adjusted operating profit came in lower than consensus forecasts at €5.8bn. This was a 4 per cent uptick on the year before.
The miss against expectations was attributed to around €600mn of charges against the value of its space programmes. Chief executive Guillaume Faury said assumptions around these long-term programmes had been “too optimistic” given the challenging commercial environment in the sector.
Airbus delivered 735 commercial aircraft last year, which was slightly ahead of its initial target of 720. The company has guided for an increase to 800 this year, although with some caveats. “The supply chain is a world of bottlenecks at the moment,” Faury said. More than 3,000 suppliers are serving Airbus’s A320 narrowbody programme, and the industry is still grappling with “a very constrained environment for skilled workers” after thousands left the industry at the height of the pandemic.
Airbus has increased headcount in its supply chain management division by 150 per cent as it sends more workers out on secondment into suppliers' firms to help clear blockages. The company remains “on track” to ramp up production of A320s to a rate of 75 per month by 2026, Faury added. Even with these difficulties, the company remains hugely cash generative: the year's free cash flow figure of €4.5bn was almost €700mn ahead of the consensus estimate.
Airbus also announced a special dividend for the year of €1 a share, although this came alongside a normal dividend that was "slightly weaker than expectations", in the words of Jefferies analyst Chloe Lemarie. "The total dividend would thus amount to €2.2bn, somewhat below the cash we expected would be returned to shareholders in 2024 of €2.5bn including €1bn share buyback and €1.5bn in ordinary dividend," she added.
A booming business
Getting the supply chain moving is even more important this year and beyond, given the substantial growth in orders that both Airbus and competitor Boeing experienced over the past year as demand for air travel continues to rebound. The pair secured a combined 3,775 gross orders – more than double the number booked in 2022.
Airbus accounts for 60 per cent of these orders, extending its recent run of outperformance against its US rival, which is still struggling with safety issues relating to its competitor to the A320, the 737 Max.
“We [have had] a market share of bookings higher than 50 per cent now for several years in a row,” Faury said. “All airlines of the world are looking at both products [that] are competing for that segment. I see a lot of interest across the board for the A320.” This is a case of the apprentice remaining behind the master, given Boeing pushed development of the 737 Max to meet sector demands for more narrowbody options after the A320neo came to market at the beginning of the 2010s.
With orders continuing to outpace deliveries, Airbus’s backlog grew to 8,598 units at the end of last year, which equates to more than 10 years of work at current delivery rates. Of these, 84 per cent are for A320s.
Boeing’s backlog stood at 5,600 aircraft at the end of the year, which also equates to a decade’s worth of work at last year’s delivery rates.
Boeing last month reported a 78 per cent reduction in its operating loss to $773mn (£615mn) on the back of a 17 per cent increase in revenue to $77.8bn. At the pre-tax income level, this was its fifth consecutive lossmaking year.
The results were overshadowed by another safety incident involving the 737, which was involved in two fatal crashes in 2017 and 2018, killing 346 people. A door blew off a 737 Max-9 plane operated by Alaska Airlines in mid-air a few days before the results, leading to regulators stepping up oversight and the company suspending forward guidance.
“Now is not the time for that,” chief executive Dave Calhoun told investors, arguing that it was focusing on safety rather than delivery targets.
The company delivered 44 aircraft per month last year and was producing 38 737s per month by year-end.
However, chief financial officer Brian West told an industry conference this week that output of 737s would probably be lower than this in the first half of this year and would “cycle into” last year’s rates in the second half.
Analysts had initially been sanguine about the impact of the Alaska Airlines incident on Boeing’s bottom line, but many have since downgraded earnings forecasts. Yet with the company’s shares also sliding by more than a fifth since the start of the year, most still rate them as a buy. The weak earnings outlook makes them look expensive at 50 times earnings, although this falls to 33 times on next year’s consensus forecast.
Airbus, understandably, looks like the much safer bet. Its shares are trading at 22 times earnings, in line with their five-year average. Earnings per share have grown at a compound rate of 14 per cent over the past decade, and the gains in market share made over Boeing don’t look as though they’ll be given up any time soon.
