Airbus SE (AIR) EUR1

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Airbus has lowered it’s full-year aircraft delivery target by 30 to around 790 planes. This comes as the group discovered a quality issue with a batch of fuselage panels from a single supplier, impacting its A320 family of planes.

Airbus has frozen deliveries from this supplier while it checks panels in the affected batch. Inspection is quick to implement, and most panels haven’t required any modification so far.

Full-year financial guidance has been maintained. Airbus expects to deliver underlying operating profits and free cash flow of €7.0bn and €4.5bn respectively.

The shares rose 1.7% in early trading.

Our view

Airbus has lowered its full-year aircraft delivery guidance after discovering an issue with a batch of fuselage panels from one of its suppliers. Despite this, full-year financial guidance remains unchanged, and markets reacted positively on the day.

The supplier issue comes hot on the heels of a 10% share price decline earlier in the week, as intense solar radiation disrupted the flight control software on around 6,000 of its planes. The vast majority of these aircraft have now been fixed, and we’re not expecting a significant financial impact.

At its core, Airbus builds aircraft using thousands of parts from companies worldwide. Market dynamics are very favourable given it’s dominated by just two companies, with the split standing at roughly 60/40 in Airbus’ favour. Meanwhile, high barriers to entry help to keep outside competition at bay.

Demand is strong as airlines try to upgrade their fleets after years of COVID-19 underinvestment. As a result, the order backlog rose to 8,665 aircraft at the last count. That’s more than 11 times the number of planes Airbus delivered in the whole of 2024, giving the group great revenue visibility.

Issues with suppliers continue to be the main bottleneck to Airbus meeting demand. The picture looks to be improving on the whole. But the potential for suppliers to fail to deliver parts on time is largely out of Airbus’ control, and likely to remain a key risk moving forward.

With full-year operating profit guidance of €7bn maintained despite a downgrade to aircraft delivery guidance, it’s a clear sign that operational performance within the business was tracking better than expected.

The Defence and Space division offers some diversification from its commercial aircraft operations. After a tough period of write-downs, performance has picked up significantly, and the division is back to turning a profit. With Europe looking to ramp up its defence spending in the coming years, Airbus looks well-placed to deal with the shifting landscape and increasing demand.

The balance sheet is in great shape, with net cash standing at €7.0bn last we heard. That means the forward dividend yield of 1.7% looks well covered. But remember, shareholder returns can vary and are never guaranteed.

The valuation on a forward price-to-earnings basis is sitting a touch above its long-run average. Despite this, we still see more upside given its market position and strong demand outlook. If Airbus can iron out supply chain issues, there could be a long runway of growth ahead. But execution risks could mean some turbulence along the way.

Environmental, social and governance (ESG) risk

The aerospace and defence sector is high risk in terms of ESG. Carbon emissions from products and services and product governance are key risk drivers. Data privacy, business ethics, and security and labour relations are also contributors to ESG risk.

According to Sustainalytics, Airbus’ management of ESG risk is strong.

The Ethics, Compliance, and Sustainability Committee, which reports to the Board of Directors, oversees all ethical and sustainable businesses. The group has developed and implemented very strong programmes to manage bribery and corruption, business ethics and human rights, along with a robust whistleblower programme. Overall, Airbus remains one of the lowest risk companies in the Aerospace and defence industry.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.

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