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Airbus Adds $11B In Orders In December

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About: Airbus SE (EADSF), Includes: AVH, BA, UAL
by: Dhierin Bechai
Dhierin Bechai
Aerospace, airlines, Commercial Aircraft
Summary

Airbus added big orders on all key programs except the Airbus A350.

Deliveries surged to 138 deliveries in December reaching the revised delivery target.

Jet maker used final month of the year to clean up the order book.

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

A single month does not make a trend, but by closely tracking the order and cancellations activity, we always will be a step earlier in detecting trends and will have detailed insight into 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.

Airbus A350

In this report, we will have a look at the orders and deliveries as well as cancellation activity for Airbus during the month of December. What should be kept in mind is that, while this seems to be like a simple summarizing piece, I spent a considerable amount of time to get all data right and present it in a useful way, including graphics. Subscribers of The Aerospace Forum are given access to a fully interactive infographic built on order data of Airbus and Boeing. Next to the monthly values for orders, we also have a tally for cumulated cancellations just like last year, but starting this year, we also will put a value on the cancellations. If you are interested in reading Airbus's monthly overview for November, you can check it out here.

Orders in December

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

Airbus started the year very weak. After booking 67 orders in the first four months, of which 58 were in March, May saw an order inflow of just one aircraft. June looked a lot better, helped by the launch of the Airbus A321XLR, Q3 was a modest quarter, while we saw orders head higher significantly in Q4.

In December, we saw Airbus booking another strong month with 171 orders, 131 for its single-aisle product and 40 wide-body orders, valued $11.4B after customary discounts:

  • United Airlines (UAL) finalized its order for 50 Airbus A321XLR. AeroAnalysis previously discussed the order.
  • A private customer orders 1 Airbus A319neo business jet.
  • Air France orders 60 Airbus A220-300s. AeroAnalysis previously discussed the order.
  • Paris Airshow Order: Nordic Aviation Capital finalized an order that was previously tentatively announced.
  • An unidentified customer ordered 40 Airbus A330-900 aircraft.

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

Airbus A220

  • An order from Braathens for 10 Airbus A220-100 signed years ago was formally cancelled. The order had previously been deferred indefinitely.

Airbus A320ceo/neo Family

  • UTAir Aviation cancelled its order for 8 Airbus A321ceos.
  • Synergy Aerospace Corporation, parent company of Avianca (NYSE:AVH), cancelled 62 Airbus A320neos.
  • A corporate jet customer cancelled orders for 1 Airbus A320neo (likely in favor of the A319neo jet that was ordered during the month).
  • One or multiple unidentified customers swapped 4 orders for the Airbus A320neo to orders for the Airbus A321neo.
  • BOC Aviation took over 16 Airbus A320neo orders from AZUL Finance.
  • Interjet took over 1 Airbus A320neo orders from Aviation Capital Group.
  • China Eastern Airlines, China Southern Airlines. Qingdao Airlines, Shenzhen Airlines and Sichuan Airlines were revealed as customers for 6, 2, 1, 2 and 1 Airbus A320neo.
  • Air China was disclosed as the customer for 3 Airbus A321neos.
  • Sky Airline was revealed as the customer for an order for 10 Airbus A321neos that was placed in September 2019.
  • BOC Aviation took over slots for 6 Airbus A321neos from TAP Portugal (4) and Azul Finance (2).
  • Aviation Capital Group took over 7 Airbus A321neo slots from JetSmart.

Airbus A330ceo/neo

  • Synergy Aerospace Corporation canceled its outstanding order for 1 Airbus A330-200F.
  • Hong Kong Airlines cancelled orders for 4 Airbus A330-300s.
  • Air Lease Corporation (NYSE:AL) cancelled orders for 2 Airbus A330-900s.
  • TAP Portugal took over one Airbus A330-900neo order from BOC Aviation.
  • CIT Leasing took over 2 slots for the Airbus A330-900 from Garuda Indonesia.

Airbus A350

  • Hong Kong Airlines cancelled orders for 8 Airbus A350-900s.
  • Synergy Aerospace Corporation cancelled orders for 10 Airbus A35-900s.
  • An undisclosed customer cancelled orders for 15 Airbus A350-900s.
  • Air Caraïbes was identified as the customer for 1 Airbus A350-1000.

We have observed that there is a disjoint between our cancellation data and that provided by Airbus. We are currently awaiting a reply from the jet maker and will clarify and correct cancellation numbers where needed.

Update 1-15-2020: On request of AeroAnalysis, an Airbus spokesperson clarified that a previous conversion from lessor Avolon converting 14 A321neos to 14 A320neos had been altered into a firm order for 20 Airbus A320neos, canceling 7 Airbus A320neo orders while converting 1 Airbus A321neo order to an order for the Airbus A320neo and cancelling 13 Airbus A321neos. The result is the same as the mutation in November but accounted for differently.

During the month, cancellations increased by 141 units. The cancellations primarily reflect the problems and subsequent order restructuring of Avianca (Synergy Aerospace Corporation) and Hong Kong Airlines and the cancellation from one or more unidentified customers for the A350.

Looking at the 12-month figures (we will be providing concise overviews on the full year performance in future reports), gross orders increased by 300 units, and net orders increased by 338 units, though net orders climbed only modestly from 747 units to 768 units this year. Earlier in the year, Airbus suffered a decline in the order book, driven by the termination of the A380 program, Germania and Jet Airways ceasing operations, and Avianca's and Etihad's fleet plan restructuring. However, after the Paris Air Show and the order inflow that came with it, Airbus has continuously showed a positive net order tally, indicating that Airbus booked more orders than it had to cancel, and after the IndiGo order placed in October, the European jet maker has been seeing year-over-year growth in net orders.

Deliveries in December

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

For 2019, Airbus initially set a delivery target of 880-890 units, which would be an increase of at least 10% year over year. However, the jet maker has lowered its delivery target to 860 units. The updated delivery target marks the third time Airbus lowered the delivery target in October since 2017.

In December, the company delivered 138 aircraft exceeding its full-year target by 3 units:

  • Seven Airbus A220 deliveries occurred.
  • Airbus delivered 105 Airbus A320 aircraft, 3 Airbus A320ceo family aircraft and 102 Airbus A320neo family aircraft. The number of deliveries was exceeding the production rate by a wide margin reflective of the backloaded delivery profile as communicated by Airbus.
  • Airbus delivered eight Airbus A330 aircraft, quite a bit higher than the production rate of 50 aircraft per year.
  • 10 Airbus A350-900s and 6 Airbus A350-1000s were delivered.
  • Two A380 deliveries occurred.

Compared to December last year, deliveries increased by 11 units. Year-over-year deliveries increased by 63 units, primarily driven by higher A220 deliveries (+28), A320 deliveries (+16), Airbus A350 deliveries (+19) and Airbus A330 (+4) deliveries, while A380 deliveries decreased (-4).

Previously, we already concluded that Airbus's increases in deliveries were realized earlier in the year, and the second half of the year was more or less flat, making it challenging to reach the delivery target. With Airbus reducing the full year delivery target, this concern has shown to be justified. What we are seeing is that the Airbus A220 and Airbus A330/A350 make up for the biggest part of the increase in the deliveries, while Airbus A320 came in lower than expected, sparking Airbus to revise its full year delivery target in October last year.

Book-to-bill

The book-to-bill ratio typically is expressed in gross unit terms by jet makers. This also is the number we show in the infographic. However, it should be taken into account that cancellations and conversions also take place. For December, the gross ratio is 1.2 in terms of gross units and 1.3 in terms of value. For the full year, these numbers were 1.3 and 1.4.

If you go to a net basis for the orders year to date, it would be 0.9 on a unit basis, indicating that there were 10% more deliveries than net orders and 1.2 on a value basis (slightly worse if you take into account that the A220 is part of a joint venture), indicating that the net order value is 20% bigger compared to the delivery value.

Conclusion

In December, we saw deliveries surging. The recovery in the delivery profile came a little too late for Airbus, but the company did reach its revised delivery target. Order inflow for December decreased year over year by 121 but is up 300 when comparing the year-to-date numbers.

In 2019, we saw an increase in deliveries (63), reflecting a partially recovered delivery profile on the A320 program (compared to last year), the addition of the A220 to Airbus deliveries compared to last year and higher Airbus A350 deliveries. The surge, however, was not big enough for Airbus to maintain its delivery target of 880-890, but the company did reach the revised target which I marked as challenging.

Pressure on net orders was caused by cancellations from Etihad Airways, Germania, Avianca, Republic Airways, and the cancellation of the Airbus A380 program.

For Airbus investors, the first half of the year was good, but the second half of the year has been bumpy. Obviously, the strong uptick in order activity is most welcome, but we saw that rolling out Cabin Flex on the Airbus A321neo has proven to be more difficult than expected.

Looking at orders, many of the cancellations already were anticipated, and we saw the Airbus net order tally surge during the month. Possibly, the only points where we would like to see improvement are consistency in wide-body sales and reduction in delivery delays for the A320neo program. The single-aisle program is in much better shape than it was in 2018, but there still are delays that are impacting customers. Overall, I do think Airbus had a good year, though Airbus A350 sales are not yet where I'd like them to see.

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.