Airbus 2024 results – good yet disappointing

Here are the highlights from Airbus 766 commercial aircraft delivered Revenues €69.2 billion; EBIT Adjusted €5.4 billion EBIT (reported) €5.3 billion; EPS (reported) €5.36 Free cash flow before customer financing €4.5 billion 2024 guidance achieved Dividend proposals: dividend of €2.00 per share; special dividend of €1.00 per share 2025 guidance issued (820 target deliveries) It should have been a blowout year for Airbus. It has operated in the market for several years while its competitor was stumbling from one crisis to another. As Airbus notes: "Gross commercial aircraft orders totalled 878 (2023: 2,319 aircraft) with net orders of 826 aircraft after cancellations (2023: 2,094 aircraft). The order backlog amounted to 8,658 commercial aircraft at the end of December 2024. Airbus goes on: "Consolidated order intake by value decreased to € 103.5 billion (2023: € 186.5 billion) with the consolidated order book valued at € 629 billion at the end of 2024 (year-end 2023: € 554 billion). The increase in the consolidated backlog value mainly reflects the Company-wide book-to-bill of above 1, and the strengthening of the US dollar." Digging In Airbus' order book value rose ~12%, and its order intake value dropped 44.5%. It cites exchange rates as a factor. The following chart shows the US$/€ for 2024. [caption id="attachment_89888" align="aligncenter" width="432"] Source: Exchangerate.com[/caption] Many years ago, Airbus faced the challenge of selling in USD while its costs were in Euros. The Tianjin FAL, then the Mobile FAL, was part of their strategy to lower this exchange rate risk. It was an excellent solution. Subsequently, Airbus acquired the Montreal FAL. The US$ strengthened from October after a decline through the summer. The exchange rate claim seems overstated. This is a long-cycle business, with deliveries in 2024 coming from orders placed years before. This chart provides context. [caption id="attachment_89889" align="aligncenter" width="640"] Airbus; AirInsight[/caption] Airbus had a run of significant orders for two decades before the pandemic. Orders dropped sharply during the pandemic, while deliveries dropped far less. After the pandemic, Airbus saw a surge in orders, mainly for the A321. That model is essentially a monopolist in its segment, and its pricing almost certainly reflects this. Airbus can offer discounts on other models, like the A220 when doing combination deals of A220/A321. Transfer pricing comes with its special magic. Moreover, with a surging order book and monopolist power on the most in-demand commercial aircraft, we wonder about the claim about order intake value declining. Why would that be? The order book value rose ~14%, which is logical, given the dearth of delivery slots before 2030 and firmer prices looking that far out. Airbus data model To understand what that A321 surge looks like, click on the upper donut for "single" and then "A321neo. The fog clears somewhat. Pricing has changed The following table is from the Airbus presentation (page 11). Here, we can start to unpack what might be going on. [caption id="attachment_89892" align="aligncenter" width="509"] Airbus[/caption] Order intake (units) dropped by 61%, but the value of the order intake rose by nearly 1%. That needs attention. This is remarkable -61% fewer orders, and value remains about the same. The only plausible explanation is the mix, moving to higher-priced aircraft. Next, look at Order intake (value), which was 52% lower in 2024 than in 2023. However, the backlog has risen 14%. Again, the only plausible answer is mix. Air Lease Corporation's recent results evidence the higher pricing. The key phrase is: "...anticipated increases in lease rates and aircraft valuations due to ongoing aircraft shortages." Further proof of this comes from Southwest Airlines extracting value from its fleet via sales and leasebacks. Summary Consequently, Airbus has perhaps not had as good a year as it appears. A321neo demand should have catapulted the results higher than they are. A321neo pricing, in particular, and the generally higher prices should have generated better results. Airbus noted supply chain challenges, especially at Spirit Aerosystems and CFM. Boeing, of course, points to the same companies. But that does not help Airbus - after all these years of being able to win and deliver business, it still does not have its supply chain settled. The results, in our view, are disappointing. Airbus should be doing far better than this. Now that Boeing is returning and indeed out-delivering Airbus in 2025, Airbus's advantages are gone. The supply chain that leaned into Airbus will now lean back to Boeing. Airbus' goal of 820 deliveries this year will be demanding on the supply chain. Although it is only 7% more than in 2024, that comes as the supply chain moves back to duopoly equilibrium. The thinner air Airbus has been trading in over the past several years just got much thicker. Analysts View Airbus's results came in slightly below the consensus estimate of €2.6 billion. Analysts seem broadly satisfied. For example: RBC stated: "In-line 4Q24 results with delivery expectations set, focus on FY25 delivery guide of 820 aircraft." JP Morgan states: "Q4 24 EBITA a touch light, but FCF beats and another special dividend; 2025 EBITA guidance is light." Vertical Research partners said: "4Q24 – Setting a reasonable target for ‘25." Crucially, Vertical added: "Margins of 10.3% were below our forecast as Airbus booked a €300m charge related to Space in its Defense division, though the margins in the other two divisions were also slightly below our estimate." Bank of America states: "The supply chain for engines & the integration of Spirit will remain watch items in 2025 but we think Airbus can stabilise Spirit and we see the engine situation improving through 2025. FX is becoming a tailwind mid-term as Airbus increases the open exposure of its hedge book (and we believe the market is still not fully considering this) Richard Aboulafia at AeroDynamic Advisory stated: "I’ve been saying for years that competence isn’t the same as strong leadership. They had the opportunity to surge ahead, and instead opted for…well…competence. They’re not ramping up as quickly as they could if they took a proactive stance with their supplier base, but they are ramping up fast enough, and profitably enough, to maintain a high level of market capture."

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