Stock of the week - Airbus (07.07.2022)

Share price of Airbus (AIR.DE) had a decent first half of 2022. While stock recorded a double-digit drop in January-June 2022 period, sell-off was smaller than on the broad market or in the case of its main rival, Boeing. Company delivered slightly less jets in the period than a year ago but the order log keeps booming. Let's take a look at recent news surrounding Airbus!

Deliveries in first half of 2022 drop

Airbus (AIR.DE) trades around 18.5% lower year-to-date. While this may look like a poor performance, it is still a better return than one generated by Euro Stoxx 50 index (-19.7%) or DAX index (-20.2%). It is also a much better showing than the one of Airbus' main rival, Boeing, which trades 34.4% YTD lower.

Data on stock market returns shows that Airbus managed to outperform the broad market in the first half of the year. However, was this solid performance also present in financial data? Airbus has not released deliveries data for June but data from industry sources suggests that the company managed to deliver 58 jets in June 2022. This puts first-half deliveries at 295 units, just slightly below last year's 297. Year-over-year decrease in deliveries  puts under question Airbus' full-year target of 720 jets delivered. Planemaker said that its production rates are picking up in-line with the announced trajectory but any setbacks, even brief ones, may cause the target to get out of reach.

Orders keep coming in

Some may wonder whether a slightly weaker showing of Airbus in the first half of 2022 can be reasoned with slowing demand amid expectations of a slowdown in the global economy. This is far from the truth. Airbus still enjoys strong demand for its jets and recent new orders prove it. News hit the markets recently that Airbus managed to secure a massive order from 4 leading Chinese airlines for a total of 292 jets. Order is valued at $37 billion and is one of the largest in the industry. Awarding the contract to Airbus instead of Boeing is said to be a direct aftermath of the US-China trade war as well as recent crashes involving Boeing planes. This is a very important factor to consider. Strained US-China relations may help Airbus secure more deals in the world's second largest economy. In fact, Airbus has already said that it plans to further increase its footprint in China and promote jets designed for short-haul flights to Chinese carriers.

War impact? Titanium supply on watch

So far, the impact of the Russia-Ukraine war on Airbus business has been limited. War has magnified some of supply chain issues but as deliveries data for the first-half of 2022 showed, no major business disruption occurred. Airbus has stopped providing maintenance services to Russian airlines but it has not had any material impact on the business. However, it does not mean that there are no risks to the company from rising tensions between Russia and the West. In fact, it would be a massive problem for Airbus if the West decided to sanction Russian titanium. Titanium is a key metal used in production of jetliner parts and Airbus relies on Russia for more than 65% of its titanium supply. According to the Wall Street Journal, executives at Airbus approached Western politicians and asked them not to sanction titanium from Russia as it would benefit no party. Interestingly, a ban on Russian titanium could be a gamechanger in Airbus-Boeing rivalry as Boeing has already halted purchases of the metal from Russia and a ban would not have as big of an impact on Boeing as it would have on Airbus.

Airbus (AIR.DE) managed to halt the recent sell-off at a support zone ranging below €90 handle. Note that this area also halted initial sell-off after the Russian invasion of Ukraine back in Q1 2022 (orange circle).  A near-term level to watch for Airbus stock is the €96 resistance zone. While the macroeconomic environment may be deteriorating, this deterioration did not have a big impact on Airbus business yet. In fact, the company continues to enjoy strong demand for its jets and any disruptions are more likely to come from a supply-side. More information as well as outlook for the coming periods is likely to be provided on July 27, 2022 when Airbus releases its earnings report for the first half of 2022. Source: xStation5