Airbus: fight risk
If Boeing scraps the 737 Max, it could be the worst-case scenario for both manufacturers
Airbus shareholders are revelling in malheur d’autrui at arch rival Boeing’s decision to halt production of its 737 Max. Deliveries in 2019 for the European aerospace giant beat expectations with 863 planes, according to reports. Boeing only managed to deliver 345 in the year to November. While that may suggest a period of dominance for Airbus in the years ahead, it cannot so easily expand to fill any space left by its arch rival.
The majority of Airbus deliveries have been for its A320neo jets, those that compete directly with Boeing's grounded aircraft. But just when air traffic growth shows signs of moderating, Airbus shares remain close to record highs. That should not last.
Airbus and Boeing have delivered a record of more than 15,000 aircraft between them since 2010. Shareholders in both companies have prospered and returns, once currency movements are accounted for, are similar. Boeing’s bad year puts Airbus holders shareholders ahead with share price and dividend gains close to 1,000 per cent over that period.
The fate of the 737 Max remains unknown, but Boeing scrapping the model could be the worst-case scenario for both manufacturers. That decision would lead to a race to spend billions on developing a new generation of narrow bodied jets, in which Airbus would be obliged to participate. Add to this possibility, growing pressure from environmental campaigners. That could result in higher investment in lower-carbon aircraft. High carbon taxes on kerosene would be an even more potent threat.
The market’s anticipation of free cash flow of almost €20bn from Airbus over the next three years therefore looks optimistic, says Jefferies. Analysts have been forecasting a doubling of dividends per share to €3.30 by 2022. The dividend yield is a modest 2 per cent.
Greater spending on research and development plus new equipment could curtail any shareholder largesse. Airbus shareholders can celebrate its lead over Boeing for now, but do not expect another decade like the last.