Stock in Airbus Plummeting, Causing a Dip in Aviation Sector
In the midst of troubles at aviation corporations, Boeing consistently makes the news, while Airbus, including its vendors - some of whom are shared with Boeing - face their own challenges. Recent news from Airbus led to a dip in their stock.
At Airbus, it's sand in the gears. The European aviation giant is compelled to reduce both production and profit targets for the year due to issues with engine suppliers. Airbus CEO Guillaume Faury admitted that the aim of manufacturing two and a half times as many A320 aircraft in two years as before is unachievable. "We're running high but slower than expected," Faury commented to analysts. Airbus is unlikely to reach 75 A320 planes per month until 2027, a year later than planned.
"We're running high but slower than expected," Faury remarks. Suppliers had forewarned for a while that they couldn't keep up with Airbus' speed. Airbus' stock dropped by eleven percent to 132.74 Euro at the exchange. Shares from engine suppliers like MTU and Rolls-Royce, whom the company blames for the issues, also suffered. MTU decreased by six percent to 214.30 Euro, and Rolls-Royce lost four percent.
The company anticipates delivering around 770 planes instead of the planned 800 this year. The supply of A320 engines has significantly deteriorated over the past few months. According to industry sources, Airbus delivered barely half as many planes to customers as planned in June. If Airbus hadn't lowered its targets, they would have had to build the first planes without engines at the end of the month, Faury said. The suppliers "have to bear the consequences" - they allegedly face penalties.
Airbus markets the A320neo with two engine variations: one from a consortium including GE and Safran, and the other from Pratt & Whitney and Munich's MTU Aero. Pratt & Whitney declined to comment. CFM International, the joint venture of GE and Safran, stated: "The supply chains remain challenging, and we're working to accelerate deliveries to meet Airbus' needs." For the larger models, Rolls-Royce engines are used. Regarding the A350, Rolls-Royce plans to supply engines but not for the A330neo, Faury revealed.
Operational profit falls short
The engines weren't the primary obstacle in Airbus' supply chain until now. Seats and cabin components also put the aircraft manufacturer in a "very challenging situation," Faury explained. Additionally, there's uncertainty regarding the future of supplier Spirit Aerosystems, which builds structural parts for the A350 and A220. The supplier is under scrutiny due to quality issues at its competitor Boeing and is anticipated to be reabsorbed back into the former parent company. However, the parts that work for Airbus would need to be extracted.
Another Airbus project resides in the Space sector. The new leadership team, installed in the spring, recognized "further economic and technical challenges" in contracts for Telecommunications and Observation Satellites. Therefore, Airbus is planning additional roughly 900 million Euro in write-offs. This will impact the results: Instead of a cleaned-up operational EBIT of 6.5 to 7 billion Euro, as the board confirmed two months ago, there will now only be 5.5 billion Euro expected in 2024, Airbus warned. The operational cash flow is expected to be half a billion Euro lower than planned at 3.5 billion Euro.
Berenberg analysts referred to this as a "significant profit warning". This also worsened the prospects for a share buyback and for dividend increases. At the satellites, Airbus will get a handle on the situation by the end of the year, wrote Marc Zeck from Stifel. A persistent theme like with the military transport plane A400M is not to be expected here.
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Despite the challenges faced by Airbus, Rolls-Royce is also affected as Airbus blames them for supply issues, leading to a decrease in Rolls-Royce's shares.
Boeing and Airbus, both major players in the airplane industry, are currently dealing with supply chain disruptions, affecting their respective share prices.
