Airbus Group: Why you should follow the Le Bourget air show and its impact on the stock market

(BFM Bourse) – The International Aeronautics and Space Show (SIAE) opens its doors to professionals this Monday. During this productive event both in terms of orders and communications from listed groups, several points will need to be monitored.

After a four-year absence due to the pandemic, the International Air and Space Show in Le Bourget (SIAE) is making a comeback. A flagship event for the aviation industry and for the specialist media, this show should not be overlooked by investors.

Bank of America believes this event could be a catalyst for Airbus stock, especially on its production targets (or even lower). The bank recalls that these large air shows are traditionally accompanied by numerous communications that can drive aircraft manufacturers.

“There is always an accumulation of announcements during this show. At the order level, of course, but not only. All the major players are present and communicate a lot, some of them organize mini-day investors”, recalls Chloé Lemarié, analyst for the European aviation sector at Jefferies.

Here is an overview of the most important points to watch in the stock market.

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> Orders (obviously) in shit

A number of orders could be revealed and/or confirmed during this show, which is usually a major supplier of contracts. It is always difficult to really count them because the aircraft manufacturers can announce different types of commitments from the simple exercise of an option to the firm order that goes through the letter of intent, the memorandum of understanding, the conversions from one model to another, or purchase rights. Or simply reveal the identity of a customer whose order was already registered in the order book. According to a count by the Agefi-Dow Jones agency, in 2019 Airbus had received a total of 363 aircraft and Boeing less than 300. But the firm orders amounted to only 149 Airbus and 20 to the American group.

The harvest could be more impressive during this 54th edition of Le Bourget. Turkish Airlines’ mega-order of up to 600 planes is unlikely to take place at this show as it depends on a Turkish government decision expected in two months, Reuters reported last week. However, a number of press reports have mentioned other major contracts to come, at least some of which should materialize during the show. This is the case, for example, with a widebody order from Emirates, a mega-announcement from the Indian company IndiGo (500 one-way aircraft mentioned) or large orders from Japan Airlines and its competitor All Nippon Airlines. Bank of America also lists articles eliciting contracts from Finnair, Riyadh Air, Vietnam Airlines or Pegasus Airlines.

However, the market is already well aware of the strength of demand for smaller aircraft and more attention can be directed towards larger aircraft. “On a case-by-case basis, aircraft manufacturers’ order books are really full. I see more catalysts at the widebody level, where new contracts could give a better idea of ​​Airbus’ production increases and Boeing’s on these programs, and therefore their operational leverage,” explains Chloé Lemarié, analyst at Jefferies .

“Currently, Airbus is close to financial equilibrium on all its widebody programs (A330, A350),” she recalls.

“In addition to aircraft orders, it will be interesting to see engine orders as Pratt&Whitney’s (P&W) GTF is currently experiencing difficulties. It will therefore be interesting to see what contracts P&W could announce on the one hand and CFM International [coentreprise de General Electric et Safran, NDLR] on the other hand”, continues the analyst.

Remember that P&W, which belongs to the American Raytheon Technologies, is the direct competitor of CFM International to equip the Airbus A320 Neo.

> Supply chain comments

Bank of America sums it up well: “the question that will arise during the show will not be demand, but rather supply”. “With the entire industry gathered at Le Bourget airport, we will have a better understanding of the recovery trajectory, of aircraft production rates in the short and medium term, as well as possible shortfalls”, continues the bank.

This will be an opportunity for Airbus to take stock of its supply chain, which is suffering from various problems, be it recruitment or parts. This slows the increase in the rate of production and thus its aircraft deliveries, the moment when an aircraft manufacturer receives most of the cash linked to sales. The European group will hold a conference with investors on Wednesday.

“This will be THE big issue that the market will follow for Airbus. The whole question will be knowing where the tensions are and what the time will be to resolve the supply chain issues and whether management will confirm the date they are aiming for a rhythm of 65 A320 family aircraft produced every month, i.e. before the end of 2024”, explains Chloé Lemarié.

“For now, the group’s communication about these difficulties is not easy to read. Listening to the engine manufacturers, the tensions on the boiler part are getting a little better, while we hear more cautious bells ringing on other products such as cabin interiors. In addition, there are still difficulties with certain electronic components”, she explains.

However, the May deliveries announced last week proved encouraging and gave credence to the European company’s annual target of 720 units.

Bank of America expects the group to repeat all of its single-aisle and jumbo jet production targets at Le Bourget.

“We consider this to be a particularly important point for the medium-term bullish scenario on Airbus shares, as increased production speed is essential to increase margins (through operational leverage) and improve free cash flow generation. This last point is also essential for Airbus to reach a net liquidity of more than 10 billion euros, which, once reached, should enable it to continue with share buybacks”, explains the bank.

It should be noted that Boeing is also not spared from the difficulties, as the American group in April in particular reported problems with one of its suppliers of airframe elements, which will punish deliveries and production in the short term. The CEO of the American group, Dave Calhoun, recently estimated that the logistical tensions in the sector could continue next year, even, he estimated, until the end of next year.

> The Airbus A220 programme

This point is specific to Airbus. Financial analysts are awaiting the announcement of the launch of a stretched version of the A220, a single-aisle program that Airbus took over in 2018 from Canada’s Bombardier Transport, when this series of aircraft still bore the CSeries name. Cited by Reuters, however, an Airbus spokesman last month rejected the idea of ​​an announcement at SIAE, however, echoing the statement of the group’s “super VRP”, Christian Scherer, who had indicated that the question was “when” this aircraft would be launched, not “if” it would be launched.

“Although Airbus has publicly stated that they do not plan to launch the A220-500 [la potentielle version allongée de l’appareil, NDLR] at the Paris Air Show, we expect it to become an increasingly important part of the market,” Bank of America said.

“Airbus should not immediately announce the launch of a stretched version of the A220, but could give indications of the conditions under which the group expects to launch this version. Such a decision would give this family more leeway in the positioning of the niche with 170 seats “, says Chloé Lemarié.

Other topics are on the table for this program, currently in deficit and whose break-even point should be crossed around the middle of the decade, according to Airbus forecasts.

“Airbus is aiming for a monthly production of 14 aircraft per month by the middle of the decade, but for now the order book of the A220 is not full enough to justify this ramp-up. This while the GTF engine – the one from Pratt & Whitney, the only choice to equip the aircraft – is currently experiencing setbacks”, emphasizes Chloé Lemarié. Guillaume Faury, the executive chairman of Airbus, also recently stated to Aviation Week that he was in favor of a different type of engine in the long term equip the A220.

“We will therefore have to monitor what Airbus says about the level of demand and about the potential new elongated version”, concludes the Jefferies analyst.

Julien Marion – ©2023 BFM Bourse

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