General presentation of the Airbus Company:
To begin this article we will first provide a general but comprehensive presentation of the Airbus Group and its activities. This information will assist you in better understanding the economical environment of this group and therefore its growth possibilities for the coming future.
The Airbus Group is a French company specialised in the aeronautical, space and defence sectors. In fact Airbus is currently the European leader in this general activity sector and it also holds second position worldwide just after Boeing, the latter is of course its major competitor and we shall examine this company in more detail later on in this article.
To better understand the activities of the Airbus Group it is possible to divide them in different categories according to the turnover that they generate and how they do so:
- Firstly, the production development of commercial airplanes represents the majority of this group’s activities and in fact the company is the world leader in this sector for airplanes with over 100 seats. These activities generate 74.1% of this group’s turnover.
- Then we have the activities related to defence and aerospace systems that represent nearly 17.2% of this company’s turnover. These activities are particularly related to military transport airplanes, ocean surveillance aircraft, anti-submarine fighter airplanes, and refuelling aircraft as well as aerospace equipment such as orbital launchers, observation and communications satellites, turboprop aircraft as well as security and defence systems such as missile systems, and electronics and telecommunications systems. It should also be noted here that the group also offers related services such as training and aircraft maintenance.
- Finally, the remaining 8.7% of the turnover comes from the production of civil and military helicopters.
It can also be beneficial to understand the geographical distribution of the group’s activities. This company in fact achieves only 27.9% of its turnover in Europe, 36.6% of this company’s turnover is from Pacific Asia, 17.5% from North America, 10% from the Middle East, 2.2% is from Latin America and the remaining 5.8% is from other countries around the world.
Know the competition to the Airbus Company shares:
As we examined earlier, the Airbus Group currently holds second position in its activity sector worldwide just after the American company Boeing. However, to all intents and purposes these two companies are the only major players and share the vast majority of the global commercial airplane market between them. Understanding and knowing about the Boeing Group is therefore primordial for taking into account this competition when completing your analyses.
The Boeing Company is an American company that is also specialised in aeronautical construction and is currently number one in this activity sector worldwide. In particular it manufactures and sells commercial airplanes as well as replacement parts and provides technical, maintenance, engineering and support services. But Boeing also operates in the defence sector with the production of military aircraft and mobility systems such as airplanes, helicopters, defence missiles, logistical support services, engineering, maintenance and training. Boeing also provides aerospace equipment such as satellites, launch pads and also offers commercial and private aircraft and aeronautical equipment financing. It is of course in the USA that Boeing achieves the majority of its turnover but the group is also very active in Asia, Europe and the Middle East as well as other places around the world.
When you complete your fundamental analyses of the Airbus Group be sure to take into account all the information coming from this sizeable competitor such as major announcements from Boeing, any significant news from this company as well as the launch of new products or publications related to finance.
Strategic alliances implemented by the Airbus Group:
The Airbus Group does not only count upon its strategies for growth and in fact it regularly implements major partnerships in order to boost its development. These partnerships are of course highly significant if you wish to trade effectively in this asset as their announcement can have a major impact on traders’ decisions as to how they will trade in the Airbus Company shares. Here therefore to assist you in understanding the situation better are a few examples of recent partnerships between Airbus and other major companies.
- Thales: In 2013 Airbus and Thales signed a long term partnership agreement relating to Airbus Flight Hour Services (FHS) and the Tailored Support Package (TSP) for the production of A320, A330, A340, A380 and A350XWB airplanes. This new partnership related to the supply of stopover replacement equipment and components for maintenance services including of course all tests, support and maintenance, plus rental as well as any necessary exchanges and modifications.
- Rolls Royce: In 2015, Airbus and the automobile manufacturer Rolls Royce also decided to become partners in an agreement concerning the specific sector of predictive maintenance for airline companies.
- Safran: The Airbus Group and Safran announced the completion in 2016 of the implementation of their joint venture, Airbus Safran Launchers (ASL) the objective of which was to design and build the next generation of launchers for the Ariane 6 space rocket.
- Dassault Systems: In February 2019 the Airbus group also implemented a major partnership with the French group Dassault Systems that was very similar to that signed a year before with Boeing. This partnership related to the use by Airbus of the 3DExperience digital platform created by Dassault Systems in order to modernise its industrial procedures. This alliance should lead to the implementation of a collaborative platform for all aspects of the constructor’s civil and military products and should enable Airbus to retain its position against its major competitor. This platform should enable the design and creation of certain products and simulate their operation as well as organise their production and organise their maintenance. With this the Airbus group divisions and its sub contractors should be able to work better together in a collaborative manner on the same communal digital platform both more effectively and rapidly as well as being more precise and less expensive.
- China Aviation Supplies Holding Company: In March 2019 it was with a large Chinese group, the China Aviation Supplies Holding Company, that the Airbus group implemented a partnership. This was notably related to the acquisition of 300 Airbus airplanes by Chinese airline companies. More precisely these were 290 airplanes from the A320 range and 10 from the A350 range that were ordered through a contract following a rise in demand from this country’s airlines covering the majority of this market’s sectors notably with the interior national flights, low cost flights, regional flights and international long haul flights. However this partnership opens up interesting future possibilities for Airbus with the Chinese market as analysts predict that China will require more than 7,400 new passenger and freight aircraft during the next 20 years which represents nearly 20% of the global requirement for a single market.
- RATP: More recently, in May 2019 to be more precise, the Airbus Group also signed a beneficial national partnership with the French RATP group concerning a feasibility study of urban aerial mobility services in the Ile de France. More precisely, this new project that integrates well with the larger MaaS sector (Mobility as a Service), if it is successful, should enable the possibility of point to point services for travellers by enabling them to benefit from the most advanced innovative services from both companies in terms of long term and shared mobility, in the same way as with autonomous electric vehicles. Initially, the work completed by Airbus and the RATP will consist of analysing the conditions for developing this type of service with a calculated cost. They will also work on the subject of intermobility and urban insertion with the aim of making futuristic flying cars available to a major part of the population. The two companies will therefore collaborate to create a large ecosystem of pertinent partners to develop this new range of transport vehicles in other major cities around the world.
Introduction and quotation of Airbus shares:
During the last decade the Airbus share price has experienced some interesting fluctuations. We particularly note a general rising trend over the whole period with a low point of 13 dollars in 2009 to a high point of over 130 dollars in 2019. However this overall positive growth has of course experienced a number of downward micro-movements.
An initial peak of 31 dollars was then achieved in 2012 followed by a retreat to 25 dollars in November of the same year. Then we note a new rise towards 57 dollars in January 2014 that was then followed by a technical corrective downturn towards 40 dollars in December of the same year. In the beginning of 2015 we note the start of a new rising trend that continued to a peak of 67 dollars in December 2015 followed by a downturn in July 2017 to 53 dollars.
In 2018, the Airbus share price finally broached the 100 dollars cap at just over 107 U.S. dollars but achieving this resistance level led to a strong downwards correction that brought the asset price to 83 dollars in December of the same year.
Opportunities and Threats
A good analysis of the Airbus share price naturally requires a good knowledge of its strengths and weaknesses. But these strengths and weaknesses will only serve to draw up a portrait of the current group without allowing you to see over the longer term. Therefore, if you are planning to take a position on this action in the near future and in the medium or long term, you must also analyse and monitor the opportunities and threats that will present themselves to the group, the details of which are given below.
First of all, note that the Airbus Group could seize several development opportunities in the years to come and thus improve its growth and increase its share price. Here are the main points that you should analyze in this regard:
- Firstly, we are currently observing, and have been observing for several years now, that the aeronautics market is growing with demand that is constantly increasing. Indeed, it is estimated that demand could increase by more than 22% for the European market in the next twenty years or so. The increase in demand will be even stronger in Asia-Pacific, a market in which Airbus also has a strong presence with more than 34% more demand.
- Although the defence sector is currently the Group's weak point, its strong presence in Asia and particularly in the emerging markets of China and India should enable it to perform well and increase its revenues. Indeed, for these two countries there is a significant increase in defence spending and this could of course benefit the group.
- Another very interesting growth opportunity for Airbus is the current rise in fuel prices. Because of this increase, the group is starting to invest in the development of new systems and aircraft that consume less fuel and are therefore more economical, which could make the difference between Airbus and its airline competitors.
Beyond these opportunities that Airbus could seize to increase its profitability, it is also essential to take into account the threats that may weigh on this value and lead to a slowdown in activity. Here are a few examples of concrete threats that you can analyse:
- First of all, despite an increase in demand from emerging countries for defence, we are seeing the opposite phenomenon from OECD countries, which are tending to reduce their defence spending. A continuation of this phenomenon could therefore be detrimental to the group's results.
- The debt crisis that has hit Europe hard, particularly France, Germany and Spain, has also had a negative impact on the Group, which could lose some of its support for the development of new equipment and systems.
- Finally, account must of course be taken of the admittedly small but increasingly strong competition from the American giant Boeing, which is competing in ingenuity to maintain its leadership position. We will also be watching for the emergence of new Chinese competition this time, which could weigh heavily on the market in a few years' time and cause investors to lose interest in this stock.
The advantages and strengths of the Airbus share as a stock market asset :
First of all, the positioning of the Airbus Group on the global market of the aeronautics, space and defence industry is of course a major advantage. It should be remembered that the group's only competitor remains the American group Boeing, with which it is constantly competing for the leading position.
As we have seen above through the presentation of this company, Airbus is active in various fields, mainly in civil aeronautics, of course, but also in defence and space and helicopters. This division of the group's activities into different segments and subsidiaries provides a form of protection against the risk associated with one and the same topical sector.
The fact that the sector of activity in which the Airbus Group operates is not very competitive is of course another advantage that you must take into account here. Indeed, it should be noted that this sector of activity is a sector with high barriers to entry and therefore limits the number of new players. This characteristic also makes it easier for the group to set prices that allow comfortable margins.
We also appreciate the good visibility offered by the Airbus group with regard to its future revenues. Indeed, the group's order book offers visibility over several years.
The Airbus group also offers the advantage of having an interesting positioning from a geographical point of view with sales in many countries of the world but above all a good presence in emerging markets which today represent more than half of the company's activities.
Finally, for several years now, the Airbus group has been pursuing a policy of increasing the rate of redistribution to shareholders, which naturally attracts investors.
Disadvantages and weaknesses of the Airbus share as a stock market asset :
Firstly, it is regrettable that the Airbus Group has a poor distribution of its turnover among its various subsidiaries. Indeed, it should be recalled that the vast majority of the group's revenues still come from the sole activity of commercial aircraft construction. A loss of momentum or a drop in demand from this sector could therefore present a major risk to the profitability of the Airbus group.
Similarly, the Airbus group must, in order to compete with its American competitor, be increasingly innovative. To do so, it must therefore invest a great deal of money in research and development, which has a major impact on its results. Indeed, it should be remembered that the group's current investments in R&D represent more than 4% of the company's total turnover, despite numerous efforts to reduce these expenses.
Although the Airbus group enjoys a strong reputation and a certain success in the field of commercial and civil aviation, it is regrettable that it is not able to achieve the same success in the field of aviation and military systems. Of course, we recall the Group's persistent difficulties with the commercial failure of its A400 aircraft in 2016, which weighed very heavily on Airbus' overall profitability by leading to significant costs.
In the space sector, Airbus may also fear stronger competition than in other segments. Indeed, the Space X group has been facing very strong competition for several years now, which could lead to a further loss of market share in the years to come.
Finally, the Airbus group's last weak point concerns its strategic control of operating profitability. This profitability has disappointed investors a great deal in the past years and, although it has been better controlled in 2018, investors are more cautious about publishing future financial results.