Shares of Airbus (OTCPK:EADSF/OTCPK:EADSY) gained sharply today braking the €100 level again. Recently the company has undergone a leadership change and has been plagued with issues on the turbofans of the Airbus A320neo crumbling the jet maker’s ability to increase production to previously envisioned levels. In this report we look at a couple of things that might have driven up shares prices of the European jet maker.
Etihad Airways troubles
Source: 3D Warehouse
Earlier, we explained that Etihad Airways’ busted investment strategy could severely dent its growth profile and appetite for new aircraft. The airline has wide body orders for the Airbus A350, Boeing 787 as well as the Boeing 777X and the signs have been getting stronger that especially the Boeing 777X will fall victim to changes in the delivery schedule. The problems Etihad Airways faces are not directly a good sign for Airbus since it has unfilled orders from the airline, but the hesitance regarding the Boeing 777X might agitate the thought that with the Airbus A350-900 and Airbus A350-1000, Airbus is in a much better low-risk demand spot.
Jetlines to start operations with Airbus
Another reason that may possibly have contributed towards some positive momentum is the decision of Jetlines to commence operations with the Airbus A320 instead of the Boeing 737-800s. The airline is one of the few confirmed customers for the Boeing 737 MAX 7 and currently that contract is still in place, but we could see the airline sticking to Airbus.
Recovery plan on track
Source: ELFC
The big positive news is that suppliers of turbofans are on track with their recovery plan to catch up on deliveries. The geared turbofan of the Pratt & Whitney (NYSE:UTX) is often seen as the sole reason why Airbus is currently backloading deliveries. The turbofan has been suffering from various design and durability related issues choking the delivery flow to Airbus, which forced the jet maker to produce dozens of ‘gliders’, which is an terminology used for aircraft that are missing their turbofans. What is often not known, because the disruption of PW1100G deliveries is so big, is that also CFM is running a few weeks behind on schedule.
Given that jet makers do depend a lot on their single aisle production for earnings as well as future upscaling in production, the issues with the turbofans have been a huge setback for Airbus earnings and might have raised some question marks regarding plans to scale up production even further. So the news that the recovery plan is on track is a huge plus that warrants the shares of Airbus trading higher. Obviously the road to full recovery is a long one for Airbus.
New assembly line opened
Source: ainonline.com
Another important news item was the opening of another production line for the Airbus A320 in Hamburg. The added capacity will not directly result in a steep increase in output as Airbus aims to increase production from 50 aircraft per month now to 60 aircraft per month by mid-2019. The line features 2 robots to drill holes, thereby increasing quality and decreasing required rework effort. Additionally the line also features automated moving platforms for fuselage and wing and used dynamic laser tracking for better alignment of aircraft parts.
With the eye on more deliveries per month in the future, Airbus has also opened a bigger delivery center for.
Stock performance
As much as I’d like to keep Boeing (BA) and Airbus separated and try to view them individually, my readers have made a habit out of it to compare even when not necessary or relevant.
This week, we are seeing that shares of Airbus are trading roughly 5 percent higher, while Boeing shares are trading about 2% lower. This can be partly explained by news items regarding both companies. A few news items do not make a trend, but since I bought shares of Airbus the company’s shares have performed somewhat better than Boeing and year-to-date the performance for both company’s shares have been comparable. So, while I do appreciate people being concerned about my long position in Airbus… I am doing just fine.
Conclusion
The uptick in Airbus share prices are mainly caused by relatively good news on the recovery plan for engine suppliers and the opening of a new assembly line that will further support production hikes and cost efficiency.
Important to note is that the road towards a fully recovered delivery profile for the Airbus A320 is long, but that it does not mean that share prices should remain pressured. Investing in the aerospace industry is difficult, since it is an industry with a complex product line and on top of that it is a very closed industry for the average investor. What holds is that if you wait for the real good news to be expressed by management you might already have missed part of the upward movement in share prices. What rewards investors in this industry is taking positions for the long term.
If you enjoyed reading this article, don"t forget to hit the Follow text at the top of this page (below the article title) to receive updates for my upcoming articles.
Disclosure: I am/we are long BA, EADSY.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor"s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
No comments:
Post a Comment