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Analysis: Breaking Down the Airbus Product Lineup in 2017

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Analysis: Breaking Down the Airbus Product Lineup in 2017

Analysis: Breaking Down the Airbus Product Lineup in 2017
March 01
10:57 2017

MIAMI — Airbus reported a net profit of €995 million (US $1.05 billion) for the full year 2016 last week, down 63% year-over-year (YOY). It’s fourth quarter (Q4) 2016 net income was even worse on paper, as Airbus swung from a €796 million net profit a year prior to a €816 million net loss.

However, both figures were substantially affected by special items, including most notably a €2.21 billion charge on the A400M military transport (including €1.2 billion in Q4) as well as a €385 million charge on the A350 program booked earlier in the year.

To get a more accurate picture of Airbus’ earnings, profits before interest and taxes excluding special items for the full year was roughly flat, at €3.96 billion.

The challenge with Airbus, as with Boeing and Bombardier, is that the present day and present quarter earnings are sort of irrelevant. As with any business, Airbus earns revenue and cash flows based on the tangible delivery of its products, i.e. airplanes.

However, thanks to the very long lead times in commercial aircraft production, we actually know basically how many aircraft Airbus or Boeing is going to deliver (and thus roughly how much revenue they will generate) several years in advance. To wit, sales activity for 2016 deliveries likely happened as early as 2009 and likely no later than 2012, and that makes it hard to assess the actual state of a manufacturer’s business based on present year financial results.

So to truthfully assess the state and health of an aircraft manufacturer’s business, the actual thing you want to evaluate is the state of the overall backlog, the net orders generated during that year, and the qualitative state of aircraft programs in development.

Overall Backlog Health and Net Orders


2016 was undoubtedly a come down from years prior in terms of net orders, but the overall backlog for Airbus is still exceedingly healthy at 6,851 jets. Thanks to several straight years winning the net orders battle head-to-head with Boeing, Airbus now has a lead of more than 1,000 total planes of backlog versus its Chicago-based American rival, who had a backlog of 5,715 aircraft as of December 31, 2016.

The gap is almost 100% due to Airbus’ extreme strength at the lowest end of the market with its narrowbody Airbus A320 family, as Boeing actually enjoys a modest advantage in terms of its widebody backlog (without even taking into account the relatively unhealthy state of many of the orders for the Airbus A380. So overall the backlog for Airbus is in excellent shape.

The net order position for Airbus is a bit more dicey, as the 731 recorded in 2016 was the lowest since 2010 which saw 574. Excluding the recession hit years of 2009 (271 or the lowest since 1995) and 2010, 2016’s was the lowest net order total for Airbus in more than a decade (2004 to be precise).

In many ways, Airbus is a victim of its own success, at least with the A320neo and A350. Both aircraft programs are so successful and well regarded that they don’t have available delivery slots for several years, and that constrains Airbus’ ability to win blockbuster orders like IndiGo’s for 180 A320neos or AirAsia’s for 200 A320neos.

In the current environment of low fuel prices, older aircraft are more economical and airlines are accordingly hesitant to place large orders that won’t be delivered for many years to come. With that in mind, we don’t expect top line net orders to grow very substantially for Airbus in 2017. The matter is worth digging into a line by line analysis.

A320neo


We’ve taken a long look at the competitive state of the neo versus Boeing’s 737 MAX before, but suffice to say that Airbus still retains its longstanding advantage. Looking at combined neo + ceo and MAX + NG order figures is instructive, as the MAX and neo are still at different stages of their evolution (Airbus is ramping production on the A320neo while Boeing is just getting started on the MAX).

To wit, the A320 family (ceo and neo) has a combined backlog of 5,625 jets, while the 737 (NG and MAX) has a combined backlog of 4,452 jets.

That nearly 1,200 plane advantage for Airbus comes at the top of its A320neo family, where the A321neo has been a revelation in the middle-of-market (MOM) space.

The A321neo has outsold the 737 MAX 9 by a ratio of more than 4 to 1, and while the proposed 737 MAX 10X may stem some of the bleeding, it is certainly unlikely to shift control of the top end of the narrowbody market back to Boeing.

In terms of risks, the biggest one for Airbus remains whether Pratt & Whitney can deliver enough PW1100G geared-turbofan (GTF) engines to Airbus to support all planned 2017 deliveries. Our understanding is that that situation has gotten better in the back half of 2016 and early 2017 but that there is still uncertainty.

The other risk for the A320neo, and it is a minor one, is that some of the developing economies where massive order totals for Airbus are present, particularly looking at Malaysia and AirAsia as well as India and IndiGo/GoAir come crashing back to earth. This wouldn’t necessarily wipe those orders off the books, but it could lead to deferrals or even outright partial cancellations, which would rein in some of the A320neo’s lead over the 737 MAX as the MAX has a broadly more stable customer base.

A330neo


The development program of the A330neo has been remarkably straightforward and uneventful for Airbus, and progress towards this first flight later this year and then delivery to launch customer TAP Portugal in early 2018 continues apace. The real question for the A330neo is where are the orders.

Yes the overall widebody market is relatively rough right now, but its not so rough that Airbus should only win 40 net orders for the A330neo in 2016 (the 11 AirAsia X ones were conversions from the A330-300). It’s a somewhat worrisome sign that the A330neo isn’t selling better right now given that the 787 is handcuffed by availability constraints, yet still managed to outsell the A330neo period.

A350


A smooth entry into service (EIS – plus or minus interior supplier issues) has given way to an excellent introduction of service (with 98.7% dispatch reliability two years after launch). Production rates continue to climb and should climb to between 6-7 aircraft per month in 2017 before jumping up to the 10/month in 2018 that was promised.

The 13 per month figure bandied about in 2015 likely isn’t supported by the current backlog. A350-1000 rollout will happen this year and early signs are that its condition at EIS will be on par with that of the A350-900.

A380


The A380 may be a functionally dead aircraft, at least in the sense of remaining a viable part of Airbus’ product offering moving forward. The sales pitch for this aircraft continues to deteriorate as more and more of its actual or potential customers opt for the rival Boeing 777-9X, which gets close enough to A380 unit economics to functionally serve as a replacement.

Even Emirates has cooled on its superjumbos, and while Airbus can bet on further airport and infrastructure constraints emerging by its early 2020s deadline for making a decision on re-engining the A380, it’s unclear whether those pressures can emerge in time. We are increasingly bearish on the future of the A380.

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About Author

Vinay Bhaskara

Vinay Bhaskara

Senior Business Analyst, Big Airline Enthusiast, Avid Airport Connoisseur, Frequent Flyer, Globetrotter. I Miss Northwest Airlines Every Day. vinay@airwaysmag.com @TheABVinay

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1 Comment

  1. geeohgeegeeoh
    geeohgeegeeoh March 04, 21:20

    Faced with a choice between a 380 and a 777, I know very few pax who would chose the 777 apart from on cost grounds: in terms of the actual in-air product, the 380 wins hands down. Its quieter (its pitch shifted against other powerplants, even if the dB may be comparable although I think it *is* quieter overall) it has an exceptionally stable in-flight feel, its headroom, lighting, window setting, seat pitch, toilets win hands-down.

    that the 777 can be fitted out to achieve similar return on investment to a carrier won’t alter the experiential advantage a 380 has, at least for some considerable time, while the fitout in a 380 is still in its first flush.

    I suspect most pax (like me) will continue to consider a 777 and a 350 as a more logical comparator, a 380 is a beast for a different purpose.

    The 787 in business is a fine craft, the large windows and reduced effective in-air altitude for air pressure is fantastic. But its noisier, and down the back, increadibly cramped. I think Boeing engineers made some truly awful compromises on this design. I hope the newer 777 avoids them, although I would love it if larger windows, led lighting and lower effective cabin ‘air height’ were more common.

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