Airbus shares tumble 11% as company warns of supply constraints

In the face of an uncertain operating environment, Airbus embarked on Q1 2024 with a strategic decision to increase A350 production, aiming to capitalize on the growing demand for widebody aircraft. However, this ambitious move also exposed the company to a complex mix of financial and operational challenges. The 142 commercial aircraft deliveries, against a backdrop of geopolitical and supply chain tensions, showcased the resilience of Airbus in a competitive market. The A350 production rate hike to 12 units per month in 2028 was a calculated response to the strong demand, yet it came with a price. Increased investments in production capacity led to a dip in EBIT Adjusted for commercial aircraft activities, reflecting the trade-off between short-term profitability and long-term growth. The unfavorable hedge rate and investments for future fleet expansion weighed on the company's financial performance, offsetting the positive impact of higher deliveries. Airbus has updated its guidance for 2024, reflecting adjustments due to specific supply chain challenges and additional costs. The company now expects to deliver around 770 commercial aircraft this year, down from the previous estimate of near 800. This adjustment is primarily due to persistent issues in the supply chain, particularly in engines, aerostructures, and cabin equipment. Additionally, the ramp-up to producing 75 A320 Family aircraft per month has been delayed, with the new target set for 2027 instead of the earlier timeline.

The updated guidance includes a revised target for adjusted earnings before interest and taxes (EBIT), now projected to be around €5.5 billion, down from the previous estimate of €6.5 to €7 billion announced on April 25. Airbus has also revised its free cash flow before customer financing, now targeting around €3.5 billion for the year. These changes have led to a significant market reaction, with Airbus shares falling by close to 11% following the announcement.

One of the key factors contributing to the lowered outlook is an extensive technical review conducted by the Space Systems management team in the first half of 2024. This review identified further commercial and technical challenges, leading to anticipated charges of around €0.9 billion in the H1 2024 accounts. These charges are related to updated assumptions on schedules, workload, sourcing, risks, and costs over the lifetime of certain telecommunications, navigation, and observation programs.

Airbus has emphasized that its updated guidance assumes no additional disruptions to the world economy, air traffic, the supply chain, the company’s internal operations, or its ability to deliver products and services. This conservative approach underscores the company’s cautious outlook amid ongoing supply chain issues and the additional costs identified in its space systems division.

Overall, Airbus's revised guidance reflects a more challenging operating environment, marked by specific supply chain difficulties and higher costs in certain areas of its business. The company aims to navigate these challenges while maintaining a focus on delivering a significant number of commercial aircraft and continuing its efforts to ramp up production rates, albeit on a delayed timeline. Investors and analysts will closely watch the company’s half-year results, set to be disclosed on July 30, 2024, for further insights into its performance and strategic adjustments.