Disaster at Airbus – even more aircraft sold!

Well, I’ve been on the road for a couple of days so maybe I’m missing something, but I am struggling to understand all the commentary on Airbus’ new China order. Truly we are in the proverbial interesting times when you can sell 160 aircraft, including 50 widebodies, and the general consensus is that you’ve really screwed up this time. This Bloomberg piece in the Seattle Times pretty much sums up the situation.I appreciate that all is not well at Airbus, but the gloom-meisters do really seem to have gone over the top this time. Zafar Khan of SG Securities, London plumbs hitherto unmined depths of pessimism. I quote: “Even if they were selling these planes at list price, given where the dollar is, are they able to make any real profit?” Khan, you will not be surprised to learn, rates EADS a ‘sell’.

My cheery chum Richard Aboulafia, who I suspect has never seen toast land jammy side up and won’t believe it can happen until he does, has fractionally less apocalyptic views than Khan. Just. The Sage of Fairfax reckons that Airbus and Boeing are ultimately headed for 50/50 in China – which I suspect is correct, largely on political grounds – but thinks Airbus is doing it the expensive way by assembling aircraft in-country.

Well, Airbus already admitted that Chinese built narrowbodies (four a year in 2011 by the way) will be costlier to produce than the Toulouse output, for now at least. But the 50 A330s will be done the tried and trusted Airbus way and I think they’ll be making a buck on those.

Incidentally, I don’t think anyone knows where 40 of the 50 A330s are going, but I wonder if it is the realisation of the heavy hint from John Leahy at the Asian Aerospace show when he said that the sudden resurgence of A330 sales…has been driven by increased use of the aircraft to provide more capacity on regional routes. He believes that the same phenomenon will eventually emerge on Chinese domestic routes as the country’s airlines use larger aircraft to overcome infrastructure constraints.

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9 Responses to Disaster at Airbus – even more aircraft sold!

  1. Aurora November 27, 2007 at 12:53 pm #

    One could be tempted to say that some of the reaction towards Airbus’ recent blockbuster sales is “undue pessimism”. Unfortunately, it seems to be shared by the stock market. I would have expected to see the share price of EAD.PA skyrocket; it has not. It isn’t just a few analysts and the “Sage of Fairfax” that are questioning the profitability of the deals, but the EADS unions themselves. Not all the speculation about profitability is of the “sour grapes” variety.

    Were there “quid-pro-quos” WRT the China deal? Well there’s that factory…. How about Emirates?

    Unlikely we’ll ever know for sure. However, if I had to choose between selling aircraft or not selling aircraft, I’d certainly opt for the latter. I hope for EADS’ sake they didn’t give away the farm to garner market share. Unlikely we’ll ever know for sure though….

  2. Aurora November 27, 2007 at 1:07 pm #

    Correction to my earlier comments…it should have read, “if I had to choose between selling aircraft or not selling aircraft, I’d certainly opt for the former”. Not enough coffee! ;-)

    (There is the “market share” argument that its better to garner the sales and make money on support later on.)

  3. OV-099 November 27, 2007 at 7:22 pm #

    “Analysts” looking mainly at short-term performance in the stock market for indications of how things will work out for Airbus, in the mid to long term, are nothing but fools with little strategic insight.

  4. Addison Schonland November 28, 2007 at 3:31 am #

    Kieran – you’re not the only one to wonder aloud about this issue.

    http://iagblog.podomatic.com/entry/2007-11-27T10_51_08-08_00

  5. layman November 28, 2007 at 2:12 pm #

    The annals of history are littered with sages who just did not drink enough coffee or those that like the taste of their boots.

    Here you have a company, who have a plan (power8), a simplified and focussed management structure(unlike last year) and an order book that is bulging.. and it get’s written off with a “sell”?
    Try taking a five year view and you will get a better idea of just how strong Airbus actually is. The more production is moved to China, the better access Airbus will have to those markets and of course the low manufacturing costs will only improve the bottom line. The initial losses with the Chinese A320′s will more be reversed once the production rate is increased. In the future, R & D and design will be done in Europe and the majority of manufacturing will move to China and India.

  6. Kieran Daly November 28, 2007 at 2:30 pm #

    Share prices never skyrocket on news of new orders. That’s what investors expect major airframers to do – win new orders! Although actually they rarely drop on news of a lost contest either. No individual orders are of sufficient size to move the share price.

  7. Aurora November 28, 2007 at 3:15 pm #

    Layman, your 5 year vision may well be correct, but I suspect it will take more than coffee to sell this to the unions and their political supporters in France and Germany. Good luck.

  8. scott November 29, 2007 at 2:32 pm #

    A few orders aren’t going to affect share price because there are larger issues at hand: the dollar-euro, balky unions, critical parts of Power8 not yet implemented. Until these are resolved, and most particularly the dollar-euro cost issue, the stock is going to languish.

  9. Aurora November 30, 2007 at 1:29 pm #

    It also takes earnings, or the anticipation of same, to move the share price; it seems the market isn’t too keen on the prospect that there will be any.

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