Airbus: Strong But Blunders On Delivery Target (EADSF)

Throughout the majority of 2022, I had been pointing out that while Airbus (OTCPK:EADSF) (OTCPK:EADSY) is aiming high for commercial aircraft deliveries and even is setting targets for 2024 and 2025, the 2022 target was actually never in reach for the European jet maker. I pointed this out and was met with some healthy criticism but also snarky remarks whether I would be rectifying in case I would be wrong. The good thing about data driven approach is that data provides a solid foundation for analysis. So, long before Airbus admitted it would not reach its delivery target I had already laid it out for my readers and that is how we drive value to readers.

In this report, I will be analyzing the order and delivery numbers as well as other mutations for December 2022. Since it marks the final month of the year, our year-to-date tracking will provide full year results, but I will also be working on a report analyzing the full year in detail. It is very interesting to do so because the past year has not been easy for jet makers even though demand for air travel was sky high.

Airbus Aircraft Orders Jump

In December, Airbus booked 16 gross orders, marking a decrease of 13 orders, solely consisting of wide body aircraft with an estimated value of $2.2 billion:

• An undisclosed customer ordered 4 Airbus A350Fs.
• An undisclosed financial institution ordered 2 Airbus A350-900s.

• CIT Leasing ordered 10 Airbus A330-900s.

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

• Lease Corporation cancelled orders for three Airbus A220-100s and 17 Airbus A220-300s.
• Macquarie Financial Group cancelled orders for one Airbus A220-300.
• China Southern Airlines converted orders for four Airbus A319neos to orders for four Airbus A320neos.
• Sichuan Airlines converted orders for two Airbus A320neos to orders for two Airbus A319neos.
• Avolon converted an order for one Airbus A321neo to an order for one Airbus A320neo,
• BOC Aviation was identified as the customer for 2 Airbus A320neos and converted four Airbus A320neo orders to orders for four Airbus A321neos.
• BOCOMM Leasing was identified as the customer for one Airbus A320neo.
• DAE Capital took over a production slot for one Airbus A320neo from Viva Air.
• Orders for nine Airbus A320neos from Flynas were transferred to the undisclosed category.
• Orders for two Airbus A320neos from Malta Medair were transferred to the undisclosed category.
• SMBC Aviation Capital Group converted an order for one Airbus A320neo to an order for one Airbus A321neo.
• China Southern Airlines was identified as the customer for one Airbus A321neo.
• CMB Financial leasing was identified as the customer for seven Airbus A320neos and one Airbus A321neos.
• Juneyao Airlines was identified as the customer for two Airbus A321neos.
• An order for eight Airbus A320neos from one or multiple undisclosed customers were converted to orders for the Airbus A319neo.

While December usually is a month where jet makers try to scoop some final orders and end the year with a bang. Airbus’ order inflow showed no sign of that. Earlier the European jet maker already shared that it was no longer saving up announcements and announced the orders as they came so that does explain the lack of order inflow in December, but it could of course also be the case that the order momentum was simply not there for Airbus as it basically went unrivalled for the majority of the past three years, and with Boeing (BA) back in the game and a filled order book, it can be harder securing orders.

Airbus logged 16 gross orders with a value of $2.2 billion while it scrapped 21 orders valued $824 million from the books, bringing the net orders to -5 orders with a value of $1.3 billion positively impacted by the all-wide-body composition of the order inflow which is a rarity for the jet maker. A year ago, Airbus booked 161 order and 24 cancellations, bringing its net orders to 137 units with a net order value of $7.5 billion. So, we see that order inflow and value dropped sharply.

In 2022, the European jet maker booked 1,078 gross orders and 258 cancellations, bringing the net orders to 820 units with a net order value of $40.8 billion. In 2021, Airbus booked 771 gross orders and 505 net orders with a net value of $30.5 billion. So, Airbus is having a far better year this year driven by revival of demand and really we are comparing a risk-on low year (2021) to a year where customers are quickly finding out that the recovery is much faster than they anticipated. While December was underwhelming, Airbus still had an extremely strong year.

In December, Airbus delivered 98 jets compared to 68 in the previous month. The European jet maker delivered 84 single-aisle jets and 14 wide-body aircraft with a combined value of $6.6 billion:

• Airbus delivered eight Airbus A220s.
• A total of 76 Airbus A320neo family aircraft were delivered, consisting of 32 Airbus A320neos and 44 Airbus A321neos.
• Airbus delivered four Airbus A330 family aircraft including one multi-role tanker transport base aircraft and three more fuel efficient Airbus A330-900s.
• Ten Airbus A350s were delivered, eight -900 models and two -1000 model.

In December, deliveries hit a high for the year but the uptick was not strong enough to get even close to the delivery target. At a time when Airbus was maintaining its delivery targets, I had already pointed out that the jet maker was unlikely to hit the target. Over the course of the year, the target was lowered twice but still was higher than what I deemed to be a realistic number. The company’s guidance was vague with a lowered target of around 700 aircraft from 720 previously and then in its most recent update on the target left an open-ended delivery number as it simply stated it would no longer be able to reach the delivery target. I expected deliveries in the 655-675 range and with 663 deliveries I would say that guidance nailed it near the mid-point of the range.

Compared to last year, deliveries increased by 5 units while the delivery value decreased by $0.5 billion driven by lower Airbus A350 and Airbus A380 deliveries. In 2022, Airbus delivered 663 aircraft or 661 aircraft after correcting for the reversal on sanctioned deliveries valued at $43.7 billion compared to 611 aircraft valued at $40 billion last year. While Airbus missed its target by a wide margin, year-over-year they still saw growth in their numbers which itself is quite an achievement if you consider the significant disruptions and pressures in the supply chain.

The book-to-bill ratio for the month was 0.2 in terms of orders and 0.3 in terms of value. For the year, the gross book-to-bill is 1.6 in terms of units and 1.5 in terms of value while the cancellation rate is 23.9% and 5% when measured against the backlog. The book-to-bill ratio for the year is looking extremely strong. This is primarily driven by a combination of the big order from Chinese airlines, but also by the underwhelming delivery numbers due to supply chain issues. So, book-to-bill ratios higher than one do show balance or oversold positions in general, but in this case, they also reflect the big challenges when it comes to hiking production.

Conclusion: A Buy Despite A Miss

Looking at the December numbers, the order numbers were underwhelming but no reason for concern. During the month, the Airbus A220 took a hit with 21 cancellations. Delivery numbers ticked up strongly but not nearly enough to get even close to the delivery target. A quick glance on the full year shows us that despite a weak December month for orders, Airbus had a good year. In terms of deliveries, they did not get where they wanted to be but with insights in the data this has been clear for the majority of 2022. As pressure on the supply chain continues into 2023, I do believe that the delivery numbers might be more in line with what Airbus had expected this year, and while that might be somewhat disappointing as it indicates that the European jet maker is one year behind on its ramp up, it still positions Airbus for a good year. Overall, they have a good product line up with a plan for ramping up production in the coming years with production sites in key markets. So, I continue to like shares of Airbus and would mark them a buy based on the combination of a strong product line-up and the production prospects

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