Airbus Order Book Tumbles By $9 Billion

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About: Airbus SE (EADSF), Includes: BA
by: Dhierin Bechai
Summary

Airbus booked 4 orders in February.

Net orders stand at -99 units year to date.

Deliveries at the start of the year tend to be slow but are up year over year.

For a couple of years, AeroAnalysis has been tracking the monthly order inflow for Boeing (NYSE:BA) and Airbus (OTCPK:EADSF) aircraft. The monthly coverage is not so much there to invoke any Boeing versus Airbus rhetoric, but it gives us some valuable insights.

A single month does not make a trend, but by closely tracking the order and cancellations activity, we will always be a step earlier in detecting trends, and we will have detailed insights in customers' appetite to order and take delivery of aircraft, and we can even track it by type as well as the jet maker's ability to reach any set sales target. Looking at the orders, we can see a combination of willingness to commit with pricing, product, and availability coming together. Special attention will be paid to the mix of single-aisle aircraft and wide-body aircraft, knowing that a single-aisle aircraft costs roughly half or a third of a wide-body aircraft, depending on the model.

A350 900 Ultra Long Range Singapore Airlines Take Off

In this report, we will have a look at the orders and deliveries as well as cancellation activity for Airbus during the month of February. What should be kept in mind is that, while this seems to be like a simple summarizing piece, I spend a considerable amount of time to get all data right and present it in a useful way including graphics. Next to the monthly values for orders, we also have a tally for cumulated cancellations just like last year, but starting this year, we will also put a value on the cancellations. If you are interested to read Airbus's monthly overview for January you can check it out here.

Orders in February

Figure 1: Orders Airbus February 2019 (Source: AeroAnalysis)

Airbus started the year very weak. After booking no orders in January. February did not look a lot better with just 4 orders for the smallest aircraft family Airbus has on offer:

  • Air Vanuatu ordered 2 Airbus A220-100s and 2 Airbus A220-300s

During the month, the following changes and cancellations took place:

  • Chengdu Airlines was revealed as the customer for 1 Airbus A320ceo.
  • China Eastern Airlines was unveiled as the customer for 2 Airbus A320neo aircraft.
  • An order from Germania for 25 Airbus A320neo aircraft was scrapped as the airline went bankrupt.
  • China Southern Airlines was revealed as the customer for 1 Airbus A321neo.
  • 4 out of 25 orders for the Airbus A330-900 from Air Lease Corporation ("ALC") were reclassified to the unidentified customer category.
  • Air Lease Corporation was revealed as the customer for 3 Airbus A350-900 and 1 Airbus A350-1000 aircraft. It is very well possible that the lessor is looking to prioritize the A350 delivery stream.
  • Etihad Airways cancelled orders 40 Airbus A350-900s and 2 Airbus A350-1000s.
  • Following the termination of the Airbus A380 program effective 2021, orders from Amedeo for 20 aircraft and Air Accord for 3 aircraft have been scratched from the books.
  • Clarification on a cancellation from January: The order cancellations for 5 Airbus A220-100 likely came from defunct PrivatAir.

Last year, Airbus booked 40 orders in February indicating a 36 units decline in sales compared to last year. In the previous 3 years, Airbus received 42 orders combined in February or 14 orders on average. Although order inflow is far below average, we believe that this is not a major reason for concern since the first quarter never is a strong sales quarter for Airbus. Nevertheless, we are not seeing yet what we’d like to see from Airbus and what we’d like to see are signs that the sales department is operating effectively again.

During the month there also were order cancellations, some of which were long overdue. Etihad Airways cancelled orders for 42 Airbus A350 aircraft as it reviewed its strategy and fleet requirements. Orders for 25 Airbus A320neo aircraft were cancelled as customer Germania went bankrupt and 23 Airbus A380 orders which were never going to see delivery were removed from the books as well. This brings cancellations for the month to 98 bringing the net order inflow to -93 and the net orders for the year to negative 99 units. So, even with the first quarter being a slow one and some expected order cancellations there is no doubt that February was a bad month for Airbus. After 2 months, Airbus has now received $9.3B worth of cancellations, which is a significant hit.

In February, Emirates and Airbus have agreed on cancelling part of the outstanding Airbus A380 order in favour of the Airbus A330neo and the Airbus A350. This agreement is a heads on agreement and as such has not yet been added to the book.

Deliveries in February

Figure 2: Deliveries Airbus February 2019 (Source: AeroAnalysis)

For 2019, Airbus has set a delivery target of 880-890 units, which would be an increase of at least 10%.

In February, the company delivered 49 aircraft with all programs reflecting the usual slow start of the year:

  • 3 Airbus A220 deliveries occurred.
  • Airbus delivered 36 Airbus A320ceo aircraft, 9 Airbus A320ceo family aircraft, and 27 Airbus A320neo family aircraft.
  • Airbus delivered (intra-company)1 Airbus A330-200, but no aircraft from the Airbus A330neo series.
  • 8 Airbus A350-900s and 1 Airbus A350-1000 were delivered in line with the production rate of 10 aircraft per month.
  • No Airbus A380 deliveries occurred.

You’d say that deliveries are lower than were they should be, but it is fair to point out that the first months of the year always tend to be slow. Year-over-year deliveries increased by 23 units. For the full year Airbus is targeting an 80-90 unit increase in deliveries meaning that Airbus is slightly ahead on the profile to achieve this.

Book-to-bill

The book-to-bill ratio typically is expressed in gross unit terms by jet makers. This is also the number we show in the infographic. However, it should be taken into account that cancellations and conversions also take place. For February, the gross ratio is 0.08 in terms of gross units and 0.04 in terms of value. If you go to a net-basis for the orders year-to-date, it would be -1.12 on unit basis indicating that there were more net negative orders than deliveries and -2.68 on value basis (slightly worse if you take into account that the A220 is part of a joint venture) reflecting high value cancellation. Obviously, this is not desired, but the cancellations were expected, and this is just the start of the year. If this is going to happen multiple times this year, then there is reason to worry, but not until then.

Conclusion

As expected, Airbus started the year slow when it comes to deliveries which is the usual pattern we see. The order inflow, however, was underwhelming. Two months do not make a trend, but booking 4 gross orders is not a particularly strong sign at times where we are looking for the return of continuous order inflow at Airbus.

Drawing conclusions after two months is early and unrealistic… after all, there are 10 months left. It is important to observe that there was nothing directly worrying about the orders and deliveries during the month. Airbus had some challenges the past 1-1.5 years to accumulate orders, so what we'd like to see is a normal order profile again. Booking 4 orders does not fit that profile, but we hope to see improvement in the consistency of order inflow reflective of market demand. When it comes to deliveries, Airbus aims to increase deliveries by 10% partially aided by A220 deliveries counting towards the final numbers for 12 months this year, contrary to 6 months last year, and higher production on the A320 and A350 programs, offset by lower A330 and A380 deliveries.

February showed a much-needed deflation of the order book, which Airbus has postponed for years. We now see that 31 A380 orders have been cancelled. These were orders AeroAnalysis already marked as doubtful to be ever delivered 4 years ago. A big hit came from Etihad Airways order review, but also this was already expected as we discussed it in a report to readers on Seeking Alpha in May 2018. Additional cancellations came from Germania and PrivatAir, which are two airlines that went bankrupt. We don’t see an immediate threat to the order books for jet makers, but it is important to keep in mind that we have been seeing a slight increase in cancellation activity driven by order and strategy reviews and bankruptcies while Airbus order activity simply hasn’t been convincing for quite some time now.

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Disclosure: I am/we are long BA, EADSF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.