(News Bulletin 247) – The International Aeronautics and Space Show (SIAE) opens its doors to professionals this Monday. During this prolific event both in terms of orders and communications from listed groups, several points will need to be monitored.

After four years of absence due to the pandemic, the International Air and Space Show in Le Bourget (SIAE) is making a comeback. A flagship event for the aeronautics industry and for the specialized media, this show should not be overlooked by investors.

Bank of America considers that this event could be a catalyst for Airbus shares, particularly in terms of its production targets (or even lower). The bank recalls that these major air shows are traditionally accompanied by numerous communications that can propel aircraft manufacturers.

“There is always an accumulation of announcements during this show. At the level of orders, obviously, but not only. All the major players are present and communicate a lot, some of them organizing mini-day-investors”, recalls Chloé Lemarié, analyst of the European aeronautics sector at Jefferies.

Here is an overview of the main points to watch on the stock market.

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>Orders (obviously) in shambles

A number of orders could be unveiled and/or confirmed during this show, which is usually a major provider of contracts. It is always difficult to really count them, because the aircraft manufacturers can announce different types of commitments ranging from the simple exercise of an option, to the firm order, passing through the declaration of intent, the memorandum of understanding, the conversions from one model to another, or purchasing rights. Or simply reveal the identity of a client whose order was already recorded in the order book. According to a count by the Agefi-Dow Jones agency, in 2019, Airbus had garnered 363 aircraft in total and Boeing less than 300. But firm orders only amounted to 149 Airbus and 20 for the American group.

The harvest could be more impressive during this 54th edition of Le Bourget. The Turkish Airlines mega-order of up to 600 planes is unlikely to occur at this show as it depends on a Turkish government decision expected in two months, Reuters reported last week. However, a number of press reports have mentioned other major contracts to come, at least part of which should materialize during the show. This is the case, for example, of a widebody order from Emirates, a mega-announcement from the Indian company IndiGo (500 single-aisle aircraft mentioned) or large orders from Japan Airlines and its competitor All Nippon Airlines. Bank of America also lists articles evoking contracts from Finnair, Riyadh Air, Vietnam Airlines or Pegasus Airlines.

However, the market is already well aware of the strength of demand for smaller aircraft and more attention could be focused on larger aircraft. “On single aisles, aircraft manufacturers’ order books are really full. I see more catalysts at the widebody level, where new contracts could give a better idea of ​​Airbus’ production ramp-ups and Boeing on these programs, and therefore of their operational leverage”, explains Chloé Lemarié, analyst at Jefferies.

“At the moment Airbus is close to financial equilibrium on all of its wide-body programs (A330, A350)”, she recalls.

“Beyond aircraft orders, it will be interesting to see engine orders as Pratt&Whitney’s (P&W) GTF is currently experiencing difficulties. It will therefore be interesting to see which contracts P&W could announce on the one hand and CFM International [coentreprise de General Electric et Safran, NDLR] on the other hand”, continues the analyst.

Remember that P&W, which belongs to the American Raytheon Technologies, is the direct competitor of CFM International to equip the Airbus A320 Neo.

> Supply chain comments

Bank of America summarizes it well: “the question that will arise during the show will not be that of demand, but rather that of supply”. “With the entire industry gathered at Le Bourget airport, we will have a better understanding of the trajectory of the recovery, of aircraft production rates in the short and medium term, as well as possible shortages”, continues the bank.

This will be an opportunity for Airbus to take stock of the state of its supply chain, which is suffering from various problems, whether in terms of recruitment or parts. This slows down the increase in production rate and therefore its aircraft deliveries, the moment when an aircraft manufacturer receives most of the cash linked to the sale. The European group will hold a conference with investors on Wednesday.

“This will be THE big topic that the market will follow for Airbus. The whole question will be to know where the tensions are and what will be the time for the resolution of the difficulties on the supply chain and if the management will confirm the date on which they aim for a rhythm of 65 A320 family aircraft produced each month, i.e. by the end of 2024”, explains Chloé Lemarié.

“For the time being, the group’s communication on these difficulties is not easy to read. When we listen to the engine manufacturers, the tensions on the boilerwork part improve a little while we hear more cautious bells ringing on other products such as cabin interiors. In addition, there are still difficulties with certain electronic components”, she explains.

May deliveries, published last week, however, proved encouraging, giving credibility to the European company’s annual target of 720 units.

Bank of America expects the group to reiterate all of its production targets for single-aisle and jumbo jets at Le Bourget.

“We consider this to be a particularly important point for the medium-term bullish scenario on Airbus stock, as increasing production rates is essential to increase margins (through leverage operational) and improving the generation of free cash flow. This last point is also crucial for Airbus to reach a net cash position of more than 10 billion euros, which, once reached, should allow to proceed to share repurchases”, explains the bank.

It should be noted that Boeing is not spared from the difficulties either, the American group having notably reported in April problems with one of its suppliers of fuselage elements which will penalize deliveries and production in the short term. The managing director of the American group, Dave Calhoun, recently estimated that the logistical tensions of the sector could continue next year, even, he estimated, until the end of next year.

> The Airbus A220 program

This point is specific to Airbus. Financial analysts are awaiting the announcement of the launch of a stretched version of the A220, a single-aisle program that Airbus took over in 2018 from Canadian Bombardier Transport, when this range of aircraft still bore the name CSeries. Quoted by Reuters, an Airbus spokesman however last month dismissed the idea of ​​an announcement at the SIAE, however echoing the statement of the group’s “super VRP”, Christian Scherer, who had indicated that the question was “when” this aircraft would be launched, not “if” it would be launched.

“Although Airbus has publicly stated that it does not plan to launch the A220-500 [la potentielle version allongée de l’appareil, NDLR] at the Paris Air Show, we expect it to become an increasingly important part of the market,” said Bank of America.

“Airbus should not immediately announce the launch of a stretched version of the A220 but could give indications on the conditions that the group expects to launch this version. Such a decision would give more scope to this family in the placing on the niche of 170 seats”, considers Chloé Lemarié.

Other subjects are on the table for this program, for the time being in deficit and whose break-even point should be crossed around the middle of the decade, according to Airbus projections.

“Airbus is aiming for monthly production of 14 aircraft per month by the middle of the decade, but for the time being the order book on the A220 is not full enough to justify this ramp-up. This while the GTF engine – that of Pratt & Whitney, the only choice to equip the plane – is currently experiencing setbacks”, underlines Chloé Lemarié. Guillaume Faury, the executive chairman of Airbus, has also recently declared to Aviation Week that he was in favor of a second type of engine being able to equip the A220, in the long term.

“We will therefore have to monitor what Airbus says on the level of demand and on the potential new elongated version”, concludes the Jefferies analyst.