Last week, Airbus (OTC:EADSY) reported its final order and delivery numbers for 2020. The COVID-19 pandemic, which crushed the global airline industry last year, weighed heavily on its results. Still, considering the magnitude of the crisis, Airbus had a very solid year. Let’s take a look.
A December deliveries surge
It has become a common pattern for Airbus to build up inventory of its commercial jets during the year and then scramble to deliver as many as possible in December. The pandemic aggravated this tendency in 2020, as many airlines refused to take delivery of new jets during the spring and summer, due to financial problems and government restrictions that complicated the aircraft delivery process.
Indeed, Airbus delivered just 341 commercial jets in the first nine months of 2020, down from 571 in the prior-year period. That left it with a backlog of about 135 jets that it had built but had been unable to deliver because of the pandemic.
However, delivery activity has rebounded in recent months. Airbus delivered 72 jets in October and 64 jets in November. Its year-end deliveries report revealed that it handed 89 jets over to customers in December. That gave Airbus 225 deliveries for the fourth quarter and 566 for the full year: down 34% year over year. Previous reports had indicated that it would likely deliver at least 550 commercial aircraft in 2020.
Airbus has been building about 51 commercial jets per month since adjusting production last spring: far fewer than it has delivered over the past three months. This implies that the company cleared out at least half of the undelivered jets that were sitting in its inventory entering the fourth quarter. That probably allowed Airbus to generate strong free cash flow last quarter, partially offsetting its high cash burn in the first half of 2020.
The backlog remains impressive
Airlines are likely to adopt a cautious attitude toward capital expenditures for the next couple of years, as they work to repair their balance sheets and avoid overcommitting themselves until it’s clear that demand is recovering. That will keep aircraft deliveries below 2019 levels in the near term.
However, Airbus is extremely well positioned for an eventual recovery in aircraft demand. It captured new orders for 383 aircraft — 268 net of cancellations — during 2020. (The vast majority of those came in January, before the pandemic swept across the globe.) This gave it an astounding backlog of 7,184 firm orders at year-end.
Undoubtedly, some of these so-called firm orders will be canceled in the years ahead, as financially weak airlines that have ordered too many aircraft are forced to rethink their plans. Yet even after factoring in some order cancellations, there is clearly enough demand for Airbus’ products to support a return to 2019 production levels (if not higher) within a few years.
A better bet than Boeing
Airbus’ 2020 performance was far and away better than that of its main rival, Boeing (NYSE:BA). The U.S. aerospace giant delivered a fraction of the number of planes that its European rival did, and a slew of order cancellations shrank its order backlog. While the 737 MAX grounding contributed to Boeing’s woes, the recertification of that troubled jet is not a panacea for the company. The 737 MAX’s fundamental performance limitations relative to Airbus’ single-aisle jets and weak demand for wide-bodies — especially the largest models like the Boeing 777X — will likely put pressure on the business for years.
Despite Airbus’ vastly superior performance in 2020 and its stronger prospects for the next decade, Airbus stock has barely outperformed Boeing stock over the past year. Airbus also has a lower market cap than its U.S. rival.
Historically, Boeing has been better than Airbus at turning strong aircraft sales into commensurate profits and free cash flow. However, that could change going forward, particularly because all of Airbus’ go-forward aircraft families have been updated recently and are now maturing (which should bring production costs down). As a result, Airbus stock looks like an intriguing bet for long-term investors.