(BFM Bourse) – The European aircraft manufacturer lowered its forecasts for deliveries, operating profit and cash Monday evening, citing the difficulties of its space division and renewed tensions on its logistics chain in commercial aviation.
It’s an blunder that has a huge impact on Airbus’ reputation. After largely missing its delivery target in 2022, the aeronautics and defense group issued a formal results warning on Tuesday evening, lowering its outlook for 2024.
Airbus now expects to deliver around 770 aircraft this year, compared to 800 previously, generate adjusted operating profit of around 5.5 billion euros, compared to a range of 6.5 billion to 7 billion euros previously, and generate free cash flow. of around 3.5 billion euros, compared to around 4 billion euros initially. These objectives delivered by the group are understood before mergers and acquisitions operations.
To take into account its new delivery trajectory, Airbus has also shifted its medium-term production objective on its best-seller, the A320 neo single-aisle family, the group’s real cash cow. In the medium term, the aeronautical company intends to achieve a production rate of 75 aircraft per month in this family. But since 2021, due to persistent tensions on its supply chain, the former EADS has postponed this target several times.
First set at 2025, this objective was postponed to 2026. Monday evening, the company this time postponed it to 2027.
On the Paris Stock Exchange, the stock plunged 9.4% at the start of the session this Tuesday. In its wake, Safran lost 3%, Dassault Aviation lost 4.3% and Thales 2.4%.
Pinned engine manufacturers
The aeronautical group cited two distinct reasons to explain the lowering of its outlook.
The first comes, once again, from the difficulties of its supply chain in civil aeronautics. The situation among engine manufacturers has even “degraded”, explained Guillaume Faury, the executive president of Airbus during a conference with analysts. The manager explicitly cited Pratt&Whitney (Raytheon) and CFM International (joint venture of Safran and General Motors), the two A320 neo engine manufacturers, with “shortages compared to planned plans”.
The consequence is that Airbus has started producing “gliders” again, that is to say gliders, finished planes but which lack engines to be delivered to their customers. On the side of Rolls-Royce, which supplies the engines for the A330 and A350, the problems are more “marginal”.
Asked by a JPMorgan analyst whether Airbus would seek financial compensation from CFM and Pratt and Whitney, Guillaume Faury replied that the engine manufacturers “will have to face the consequences of their delays”.
Aside from engines, other elements of the supply chain have not improved as the company expected.
Guillaume Faury cited cabin and interior equipment, where suppliers must both face strong demand from aircraft manufacturers but also from airlines who want to modernize the cabins of their planes. He also mentioned a significant lack of parts in the “aerostructures” (fuselage, wings, etc.).
“The comments on the supply chain are not unexpected, but remain a source of frustration for investors,” grimaces Royal Bank of Canada.
Space in difficulty
Apart from the problems in civil aeronautics, space constitutes the second cause of the warning on Airbus results. This activity has been in difficulty for several quarters.
Airbus has appointed a new management team in this business which has conducted a thorough ‘technical review’. This led the company to identify new commercial and technical difficulties on space programs for telecommunications, navigation and observation. To take into account these concerns on long-term and loss-making programs, Airbus announced that it would spend a charge of 900 million euros during the first half of 2024.
This charge is included in the new outlook delivered by the company, said financial director Thomas Toepfert.
Guillaume Faury insisted that space “was not a bad activity for Airbus” and that the majority of space programs in difficulty would no longer pose a risk by the end of the year.
But the executive also said the company was evaluating “its strategic options in the space, such as potential restructuring, cooperation models, portfolio review and M&A options.”
This €900 million charge “is a headwind for management’s credibility in the space market, and we believe any steps the company takes to further de-risk this aspect of the portfolio would be good accepted”, judge Royal Bank of Canada.
The Canadian bank lowered its price target to 180 euros from 190 euros previously but remains at “outperform” on the stock, due to the attractiveness of its long-term cash generation. However, she recognizes that the company risks finding itself in a “penalty box” on the stock market due to its execution concerns.
Deutsche Bank lowered its advice on Airbus, going from “buy” to “hold”, with a price target reduced to 155 euros compared to 186 euros previously.
The German bank evokes a “stunning” and “rather damaging” profit warning. “The dust needs to settle before we can become positive again. June deliveries are apparently low and there is no guarantee at this stage that the new delivery target will be easy to achieve by the end of the year,” warns -She.
Julien Marion – ©2024 BFM Bourse
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