ii view: Airbus turns red

A settlement for corrupt practices weighs, but commercial plane deliveries should rise again in 2020. 

Full-year results to 31 December 2019

• Revenue up 11% to €70.5 billion
• 2019 loss of €1.36 billion compared to a profit of €3.1 billion in 2018
• Adjusted profit (EBIT) excluding exceptional charges up 19% to €6.95 billion
• Total 2019 dividend up 9% to €1.80 per share

Guidance:

• Expects full-year 2020 adjusted profit (EBIT) of €7.5 billion

Chief executive Guillaume Faury said:

“We delivered a strong underlying financial performance driven mainly by our commercial aircraft deliveries. “The reported earnings also reflect the final agreements with the authorities resolving the compliance investigations and a charge related to revised export assumptions for the A400M. Our focus in 2020 will be on reinforcing our company culture, improving operationally, and adjusting our cost structure to strengthen the financial performance and prepare for the future.”

ii round-up:

Maker of commercial and military aircraft, Airbus (EURONEXT:AIR), reported a 2019 loss of €1.36 billion (£1.14 billion) in these latest results. 

A provision to settle past corrupt bribery practices with British, French and US prosecutors, announced previously, along with a charge to cover its troubled A400M military transporter programme, weighed on performance. 

Buoyed by a record 863 commercial plane deliveries throughout 2019, up from 800 in 2018, profit excluding exceptional charges rose by 19% to €6.95 billion (£5.84 billion). 

Troubles at rival Boeing (NYSE:BA) and an 11-month grounding of its 737 MAX aircraft helped underline the popularity of Airbus’s A320 family of planes, which accounted for 642 of its 863 deliveries. Airbus has now overtaken Boeing as the world’s largest aircraft manufacturer.

Accompanying management outlook comments pointed to an expected 880 commercial plane deliveries in 2020, with an increase in adjusted profit to €7.5 billion estimated. 

As for the coronavirus, China domestic and worldwide travel restrictions are posing some logistical challenges. Its Tianjin final assembly line facility is currently closed.

The share price was little changed in early European trading. 

ii view:

Headquartered in Toulouse, France, Airbus makes commercial aircraft, military and commercial helicopters, fighter and transport aircraft, and satellites and space launch vehicles. Fighting against arch-rival Boeing to win sales, it employs a workforce of over 130,000.

Major troubles at Boeing, given the grounding of its 737-max aircraft, are playing into Airbus’s hands. But production difficulties in Germany and the coronavirus disruption in China mean that it is not without its own challenges. 

For investors, the volatile nature of the airline industry it supplies leaves Airbus cyclical in nature. Government spending on defence also has potential to inject volatility. A prospective dividend yield of around 1.5% and covered nearly three times by earnings offers some compensation. Despite current challenges for Boeing, a 55% gain in the share price during 2019 means a lot is already in the price. However, it is clearly the jet manufacturer of choice for investors currently, and there is nothing here to suggest any imminent and significant threat to the impressive long-term uptrend.

Positives: 

• Record 2019 commercial plane deliveries
• Order intake rose by 46% compared to 2018

Negatives:

• Its giant A380 plane programme didn’t prove the success it had hoped for
• Defence & Space divisional adjusted 2019 profit fell by 40% compared to 2018

The average rating of stock market analysts:

Strong buy