Airbus SE

Analyst thesis

Our recommendation is based on:

• Airbus remains one of Europe’s highest-quality industrial franchises, underpinned by its entrenched position in the commercial aircraft market, high certification and engineering barriers, fleet commonality and significant customer switching costs, that together support pricing power and long-term customer retention.

• Demand visibility is strong, but production capacity remains the key constraint on earnings growth. Airbus has a substantial commercial aircraft backlog, but converting this demand into revenue and free cash flow (FCF) depends on engine availability, supplier recovery, and the successful ramp-up of production capacity. We expect these constraints to ease gradually as Airbus increases production rates and integrates the recently acquired Spirit AeroSystems operations, although execution remains the principal operational risk.

• Longer-term demand is supported by global passenger-traffic growth and fleet replacement, particularly as airlines replace older aircraft with newer, more fuel-efficient models. Higher European defence spending should also support Airbus’s Defence and Space segment, along with the demand for military helicopters, while improved programme execution has supported a recovery in Defence and Space profitability. The focus now shifts to further margin expansion.

• Higher commercial aircraft production should improve fixed-cost absorption and support earnings and FCF growth over the medium term.

• While we remain constructive on Airbus’s medium-term earnings outlook, we believe much of the benefit from higher commercial aircraft production, backlog conversion and increased European/NATO defence spending is already reflected in the current share price. We therefore view Airbus as fairly valued and maintain a hold recommendation.