Airbus's Path to Recovery: Assessing the Impact of RBC's Price Target Hike and Q2 2025 Performance

In the ever-evolving aerospace sector, Airbus SE (EPA:AIR) (OTC:EADSY) has emerged as a focal point for investors seeking value in a market defined by cyclical volatility and geopolitical uncertainty. RBC Capital Markets' recent decision to raise its price target for Airbus from €190 to €200, while retaining an "Outperform" rating, has sparked renewed interest in the stock. This move, however, must be contextualized within Airbus's Q2 2025 performance, which revealed both progress and persistent supply chain hurdles. To assess the validity of RBC's optimism, we must dissect the interplay between strategic valuation metrics, operational efficiency, and the company's ability to navigate a complex global supply chain.

Strategic Valuation and RBC's Rationale

RBC's price target increase is rooted in a strategic valuation framework that emphasizes Airbus's long-term growth drivers. The firm highlights a combination of robust demand in defense and helicopter divisions, a near-1x free cash flow (FCF) conversion rate, and an expanded dividend payout ratio as key catalysts. These factors, coupled with Airbus's record backlog of 8,726 aircraft and revised mid-term targets unveiled at the 2025 Paris Airshow, suggest a company poised to capitalize on structural trends in aerospace and defense.

Valuation metrics further support RBC's optimism. Airbus's current P/E ratio of 28.9x and EV/EBITDA of 12.7x (as of July 2025) position the stock at a moderate premium to industry averages. While the sector's negative P/E (-40.31x) reflects broader unprofitability, Airbus's positive earnings and EBITDA growth underscore its relative strength. RBC's forward P/E of 24.79x implies confidence in earnings normalization, particularly as delivery bottlenecks ease and FCF generation improves.

Q2 2025 Performance: Progress Amid Constraints

Despite RBC's bullish stance, Airbus's Q2 2025 results exposed significant operational headwinds. The company delivered just 306 commercial aircraft, far below its annual target of 820, due to engine shortages and geopolitical disruptions. Safran's LEAP engine delays left 17 A320neos as "gliders," while Spirit AeroSystems' acquisition delays further strained production timelines. These challenges contributed to a negative free cash flow of €1.6 billion in H1 2025, driven by inventory buildup and constrained cash conversion.

Yet, Airbus's management has signaled cautious optimism. CEO Guillaume Faury noted that the number of gliders is plateauing, with expectations to reduce the count to zero by year-end. The company's Alabama-based second A320neo final assembly line, set to ramp up in 2027, could mitigate long-term bottlenecks. For now, however, the path to 75 aircraft per month remains uncertain, with Forecast International projecting only 625 A320neo deliveries in 2025—16% below targets.

Supply Chain Realities and Strategic Resilience

The aerospace industry's 14-year delivery backlog, exacerbated by aging fleets and constrained production, has created a paradox: airlines are extending aircraft lifespans while demand for maintenance, repair, and overhaul (MRO) services surges. This dynamic benefits Airbus's services division but masks the structural challenges of scaling manufacturing.

RBC's analysis acknowledges these risks but emphasizes Airbus's ability to adapt. The firm cites improved capital allocation, including a higher dividend payout ratio, as evidence of financial discipline. Additionally, increased NATO defense spending is expected to bolster Airbus's defense and space segments, which have shown resilience amid commercial aviation turbulence.

Investment Implications and the Road Ahead

RBC's price target hike hinges on two critical assumptions: first, that Airbus can resolve supply chain bottlenecks by Q4 2025 to meet its delivery surge expectations, and second, that the company's FCF conversion rate improves as production volumes normalize. Investors must weigh these assumptions against the reality of geopolitical tensions, supplier dependencies, and the slow ramp-up of new facilities like the Alabama plant.

For those with a long-term horizon, Airbus's valuation appears compelling. At €200, the stock trades at a 13% premium to its 2025 revenue target and a 57% discount to the implied value of its order backlog. However, short-term volatility remains a risk, particularly if engine shortages persist or global trade tensions escalate.

Conclusion: Balancing Optimism and Pragmatism

Airbus's path to recovery is neither linear nor guaranteed. While RBC's strategic valuation framework highlights the company's long-term potential, the Q2 2025 results underscore the fragility of its current operational model. Investors should monitor key metrics: the pace of glider reduction, progress in Alabama's assembly line, and the resolution of Safran's engine supply issues.

For now, Airbus remains a high-conviction play for those comfortable with near-term volatility. The aerospace sector's structural demand—driven by defense spending, MRO growth, and a global need for modern fleets—provides a tailwind that could justify RBC's €200 price target. However, as with any cyclical stock, timing and risk management will be paramount.

In the end, Airbus's success will depend not only on its ability to navigate supply chain chaos but also on its capacity to innovate in a sector where margins are as thin as the wings of its aircraft.