Airbus will reach 1.000 aircraft deliveries or more in the second half of the decade as demand for narrowbodies remains strong and that for widebodies is expected to recover strongly as well. Short term, the airframer has to deal with supply chain issues, although there are the first indications that things start to improve, Airbus said on September 23 during its Capital Markets Day in Toulouse. Airbus deliveries will clear 1.000 in second half of 2020s.
Airbus delivered 863 aircraft in 2019, but Covid caused a drop to 566 in 2020 and 611 in 2021. The target for 2022 was 720 deliveries, but this was revised down to 700 after including the effects of Omicron and the war in Ukraine. Chief Financial Officer Dominik Asam said Airbus is on track to meet this target, having delivered 382 aircraft through August and another 320 to do to reach 700, but he added that this wouldn’t be “a walk in the park.” Good progress is being made on getting out the ‘gliders’, aircraft (mostly A320neo family) that have been completed except for the engines as engine makers struggle with supply and labor issues.
The A220 is currently being produced at six per month in Mobile and Mirabel. On the A320neo family, Asam said that “we expect to close the year with a monthly production rate of around fifty. Our current level of inventory will support the end-of-year deliveries.” He said that Airbus has been successful in remarketing and de-storing widebody aircraft (A330neo’s and A350s) for customers that didn’t take these aircraft (Aeroflot, Qatar…). A330neo rates are currently three per month, while five A350s are produced per month.
Narrowbodies
In the coming years, rates will aggressively go up. The A220 will go to fourteen per month in 2025 which should get the program to break even. This is an impressive ramp up, said Faury, going from four to fourteen in five years. Right now, the A220 is still loss-making, but progress is made on synergies with the A320 production to improve the numbers.
While delaying the ramp up to 65 per month for the A320neo family by six months into early 2024, rate 75 is still very much the target for 2025, CEO Guillaume Faury said. Even with this number, Airbus will not be able to fulfill the strong demand until 2028. Asked by analysts if rate 75 is actually possible, given the current supply chain issues, Faury replied that it will be a challenge. But there are the first indications from suppliers that the situation is slowly improving and could stabilize in 2023.
Pratt & Whitney and CFM, which have been suffering from various manufacturing issues and labor shortages, have been delivering good numbers over the summer. Faury said they don’t challenge the need for a further ramp-up in production and that “they don’t push back on the willingness to get there. But they are telling us it will going to be hard. We have agreed on volumes with both engine makers for 23 and 24 and we start to discuss the volumes for 25. But they believe in rate 75.” He added that Airbus has an agreement with CFM on rate 75 as a target.
Getting to these numbers of A320neo, Airbus is expanding the production capacity to have nine A320neo lines. The ninth will be an extra assembly line in Mobile (Alabama). The other lines are in Hamburg, Toulouse (where the former A380 assembly hall is being converted and more automation is introduced), and Tianjin. Airbus has a backlog of 6.699 narrowbodies, of which 55 percent are A321neo’s, LRs, and XLRs, 36 percent are A319neo/A320neo aircraft, and eight percent A220s. The A321neo could conquer a share of even seventy percent if demand continues.
Faury told analysts that Airbus is definitely looking at stretching the A220 to make it the A220-500 The stretch will be a very strong aircraft that will outperform the -300. But he added that “we don’t want to be right too early”, which means that Airbus will not launch the -500 until the second half of the decade.
“But we hear from our clients that the A220 product range needs the -500 as well. The -300 is a very good plane, but the potential of the -500 is probably even stronger. We see strong opportunities in terms of potential. Are we able to say today what we expect from the product? It is probably too early, but we have a lot of hopes and are working on that product. On top, it is something that we like to believe will take a significant share of the market and for us to be less dependent on the A320 family and be more balanced, with a very strong A321neo that will be the center of the range for the A320 family.”
Widebodies
Airbus is very bullish about the widebody market, with long-haul traffic expected to have fully recovered from the Covid crisis by 2024. “There will be a moment when widebody orders will be coming big time and that is probably not very far out,” said Faury.
There currently is a backlog of 640 widebodies, of which 48 percent are A350-900s, 34 percent A330s, thirteen percent A350-1000s, and five percent for the new A350F. Thanks to lowering the rates, the backlog has been stretched out over time to keep production going. As rates go up and fixed costs go down, the widebodies will get from near break-even in 2023 to profitability later. Dominik Asam reminded analysts that back in 2019 when rates were higher, the A350 was already at break even.
While being optimistic, Faury added a disclaimer to his optimism by stating that the recovery of the widebody market depends on a lot of factors and KPI’s, so it is impossible to predict when exactly demand will surge again. “We have to wait to see it coming. We want to be prepared. We think it is more to come than not, but it isn’t certain at all.”
Asam said that deliveries should reach 2019 levels of around 860 again in 2024. More expensive widebodies will have a minor share in this delivery mix, which will have a negative impact on revenues and profitability. Doing some maths shows you how Airbus will get to 1.000 deliveries in the second half of the decade. First, producing 75 A320neo per month already translates into 900 aircraft. Add to that 168 A220s per year, 72 A350s, and 36 A330neo’s, and you even get to potentially 1.176 deliveries somewhere between 2025 and 2030.
R&D investments
Airbus expects its capital expenditures to be $1.0 billion higher in HY2 than in HY1. Spending on Research and Development will also increase and includes “several hundred million” on the ZEROe hydrogen program. These investments will be possible thanks to strong earnings from the current generation aircraft, especially the narrowbodies. Faury said that the early 2040s or second half of the 2030s will be the time for the next generation of aircraft to come.
The European airframer is considering hedging more against the strong US dollar, for which it is already hedged $18 billion for 2025 at $1.24. Dominik Asam demonstrated that hedging $23 billion at $1.20 would have a positive impact on the EBIT of $160 million. As it can’t take the current market conditions as granted forever, Airbus will gradually hedge more against foreign currencies.
Another factor impacting earnings is inflation. Airbus has various clauses in place, with caps negotiated with customers on a case-by-case basis. The airframer still benefits from the effects of limited inflation in previously signed contracts and will also be able to pass on certain costs to customers in the event of prolonged inflation. In between, there are various factors to influence to so-called compound escalation rate that could be either beneficial or against Airbus. If inflation would be curbed as expected by the European Central Bank, Dominik Asam expects this not to be a significant factor for Airbus.
