Why Shares in Airbus Took Off Today: Riding the Structural Recovery in Aerospace

Airbus shares surged 1.2% on May 27, closing at €162.20, as investors priced in a confluence of near-term catalysts and long-term tailwinds reshaping the aerospace sector. Beneath the headline move lies a compelling narrative of structural demand recovery, supply chain normalization, and Airbus's unmatched competitive advantages in narrowbody jets and defense—factors that justify its current valuation and position it for sustained upside.

The Immediate Catalyst: Fitch's Ratings Upgrade Signals Financial Fortitude
The stock's momentum began with Fitch Ratings' upgrade of Airbus to 'A' on May 23, citing improved profitability and a robust €11 billion net cash position. This upgrade, the first upward revision since 2018, underscores investor confidence in Airbus's ability to navigate supply chain bottlenecks and geopolitical headwinds. The ratings boost comes amid Q1 results showing a 33% jump in net income to €793 million, despite lingering challenges with Spirit AeroSystems' integration.

Structural Demand: Air Travel's Return and the A320neo's Unrivaled Position
The post-pandemic rebound in air travel is no fleeting trend. Passenger numbers in April 2025 hit 94% of pre-pandemic levels, with airlines globally ordering 1,200 aircraft in the first quarter alone. At the heart of this demand lies the A320neo, Airbus's workhorse narrowbody jet, which now accounts for 60% of all single-aisle orders. Its 20% fuel efficiency advantage over older models makes it indispensable for carriers seeking to cut emissions and costs—a dual imperative underpinning the sector's decarbonization push.

Boeing's struggles with the 737 MAX's software and certification delays have only widened Airbus's lead. With a backlog of 4,500 A320neo orders as of March 2025, Airbus commands 55% of the narrowbody market—a moat that will underpin EBIT growth for years.

Supply Chain Normalization: From Headwind to Tailwind
While supply chain disruptions continue to plague industries like semiconductors, aerospace is stabilizing. Airbus's Q1 results revealed a 90% cash conversion rate, a metric set to climb as Spirit AeroSystems' acquisition closes in Q3. This deal, valued at €4.4 billion, will bring wing production in-house, slashing reliance on third-party suppliers and enabling a faster path to its 75/month A320 production target by 2027.

Crucially, Airbus's €22 billion in hedged euro-dollar contracts (at a favorable 1.20 rate) will boost EBIT by ~€200 million for every cent the euro strengthens—a tailwind as the ECB's rate hikes bolster the currency.

Defense and Decarbonization: Dual Engines of Long-Term Growth
Beyond commercial aviation, Airbus's defense division—a €14 billion revenue stream—is expanding with orders for drones, satellites, and cybersecurity systems. Its partnership with Leonardo on the Future Combat Air System (FCAS) positions it to capture €200 billion in European defense spending through 2030.

Meanwhile, the EU's 2035 combustion-engine ban will accelerate demand for hybrid-electric aircraft, a space where Airbus's CityAirbus eVTOL prototype is already leading. This innovation, paired with its ambition to achieve net-zero emissions by 2050, aligns it with the $1.5 trillion global decarbonization investment opportunity.

Valuation and Catalysts: Why Now is the Time to Buy
At 18.2x 2025 EPS estimates, Airbus trades at a 15% discount to Boeing despite superior margins and backlog. BofA's €180 price target implies a 16% upside, while a €1 billion buyback program and a rising dividend yield (to 1.25% in 2025) bolster shareholder returns.

Near-term catalysts include:
- Q2 delivery data: Airbus aims for 820 annual deliveries in 2025, up from 736 in 2024.
- Spirit AeroSystems integration: Reduced production bottlenecks could lift FCF to €4.5 billion by year-end.
- U.S.-China trade tensions: Easing could unlock pent-up demand from Chinese carriers, which account for 20% of Airbus's order book.

The Risks, and Why They're Overblown
Bearish arguments focus on A350 delays, geopolitical risks, and €149/share short interest. Yet Airbus's €9 billion annual R&D spend and 8,726-aircraft backlog provide a cushion. Even in a downside scenario, the €155 support level (per analysts) offers a 4% margin of safety.

Investment Rationale: Buy Ahead of Q2 Earnings
Airbus is at an inflection point: it's de-risking supply chains, capitalizing on narrowbody dominance, and monetizing defense and decarbonization. With FCF set to turn positive in 2025 and a 16% upside to BofA's target, now is the time to buy.

The shares' May 27 close near €162 is a launchpad for gains. Investors who act now position themselves to capture a company poised to dominate not just the skies, but the next era of aerospace.

Action Item: Establish a long position in Airbus (AIR.PA) with a target of €180 and a stop-loss below €155. Stay long-term bullish on structural recovery and innovation.