New York analyst Bernstein is upbeat on the Airbus investment opportunity which it says is tied to long-term free cash flow, which it expects will exceed €6 bn in 2021.
It notes in a new report that over the last few years the estimate for €6+ bn FCF has slipped to 2021, as the company worked to normalize narrow-body production and finally resolve A400M issues.
Bernstein sounds a note of caution on the A400M cash burn and Airbus’s target of 62 a month production for the A320 series.
It notes that “production challenges are likely to persist through 2020 in Hamburg (on the A320). We understand A321neo deliveries are 7 months behind schedule.”
Bernstein says that “the A321neo ramp remains challenging with Airbus Cabin Flex (ACF) fuselage in Hamburg. The new cabin configuration added substantial complexity: new wire harness, fuel system, etc. Introduction of new automation in the final assembly and labour shortages have compounded the challenges. Production difficulties in Hamburg have been complicated by the large number of variants (A319neo, A320neo, A321neo, A321neo ACF, A321neo LR – with two engine options each) and some unusually complex cabin configurations.”
Bernstein adds “Airbus still explores higher rates (e.g. 70-75/mo.), which demand still supports but we want to see progress on production/supply chain.”
Interestingly Bernstein says it sees “no material benefit to Airbus so far from Boeing’s MAX issues.
“Widebody orders will be important to sustain current production plans, which looks achievable over the next 3-4 years. A350 is better positioned than A330. But we have seen more recent A330 orders. Expect A350 margin performance to continue improving,“ Bernstein reports.
“Even though traffic growth moderated in 2019 and is likely to remain weak as we begin 2020 due to the coronavirus, most global airlines continue to be profitable, and the decrease in fuel prices related to the coronavirus scare has been benefiting airlines.”