By: Carter Copeland
Airbus is widely expected to report that the company achieved full year delivery guidance when final numbers are soon released. However, an extremely back-end loaded year was pressured by well publicized challenges with the A321 program, and while we forecast deliveries in-line with company guidance that was revised down last quarter, our updated EBIT/FCF estimates are 3-5% below guidance due to assumed costs related to ongoing disruption. While a modest EBIT shortfall isn’t that big of a deal, the impacts of ongoing factory disruption will be even more of a risk as we move into 2020.
The most important element of the Airbus bull-case is the potential for sustained margin improvement on the A320, the company’s largest and most-profitable program. The transition from the A320ceo to the reengined A320neo offers well documented pricing benefits, improved fixed cost absorption from higher volumes, and favorable FX tailwinds which all point to substantial profit improvement in years to come. This remains a key pillar of our bullish stance on the stock, yet progress continues to be obfuscated by near-term struggles with the A321ACF, an updated version of the plane undergoing several engineering changes. Since the ACF is planned to comprise all A321 volume by 2022, the program will be in focus for several quarters. At least so far, performance has been mixed at best.