Airbus Group Plummets on Stock Market Following Severe Profit Warning
Airbus, the European aircraft manufacturer, significantly revised down its forecasts for deliveries, operating profit, and cash on Monday evening. The company cited challenges in its space division and renewed logistical tensions in commercial aviation as key factors.
This blunder has dealt a substantial blow to Airbus’ reputation. Following a significant miss on delivery targets in 2022, the aerospace and defense group issued a formal profit warning on Tuesday evening, adjusting its outlook for 2024.
Airbus now anticipates delivering around 770 aircraft this year, down from the previous target of 800. The adjusted operating profit is forecasted to be approximately 5.5 billion euros, down from the earlier range of 6.5 billion to 7 billion euros, while free cash flow is expected to be around 3.5 billion euros, revised from approximately 4 billion euros initially. These projections exclude mergers and acquisitions operations.
In response to its revised delivery trajectory, Airbus has also postponed its medium-term production goal for its best-selling A320 neo single-aisle family, which is crucial for the company’s financial health. Originally set for 2025 and postponed to 2026 due to ongoing supply chain issues, the target has now been pushed back to 2027.
The news triggered a sharp 9.4% decline in Airbus’ stock at the opening of trading on Tuesday on the Paris Stock Exchange. This downturn also affected related companies, with Safran dropping 3%, Dassault Aviation falling 4.3%, and Thales declining 2.4%.
The aerospace group attributed the downward revision to two main factors. Firstly, persistent challenges in its civil aviation supply chain, particularly concerning engine manufacturers like Pratt & Whitney and CFM International, have exacerbated delays in production schedules. These issues have led Airbus to resume producing “gliders,” completed aircraft lacking engines for delivery.
Secondly, Airbus highlighted ongoing difficulties in its space division, which has struggled for several quarters. The company has initiated a comprehensive technical review and appointed new leadership to address commercial and technical challenges in its telecommunications, navigation, and observation space programs. As a result, Airbus expects to incur a charge of 900 million euros in the first half of 2024 to address these issues.
Despite these setbacks, Airbus remains optimistic about resolving the challenges in its space segment by the end of the year. However, the company is actively considering strategic options, including potential restructuring, cooperation models, portfolio reviews, and mergers and acquisitions.
The profit warning has prompted mixed reactions from analysts. While Royal Bank of Canada lowered its price target for Airbus, it maintained an “outperform” rating due to the company’s long-term cash generation potential. Deutsche Bank, on the other hand, downgraded its recommendation from “buy” to “hold,” citing uncertainties around achieving the revised delivery targets and the overall impact of the profit warning on Airbus’ market standing.
