Intensifying Climate Policies And Supply Disruptions Will Erode Margins

Key Takeaways

• Rising regulatory, supply chain, and integration challenges threaten margins, production targets, and financial visibility for Airbus.
  
• Emerging market competitors and shifting travel trends risk eroding market share, pricing power, and long-term revenue growth.
  
• Diversified growth across commercial, defense, and services segments, alongside mitigation of tariff risks, supports strong long-term earnings potential and financial resilience.

Catalysts

Engages in the design, manufacture, and delivery of aeronautics and aerospace products, services, and solutions worldwide.

• Intensifying global decarbonization mandates and stricter climate policies may sharply elevate research and compliance costs while simultaneously limiting total market demand for conventional commercial aircraft. This could undermine Airbus's long-term revenue base and compress net margins as emissions targets become increasingly restrictive.
  
• Persistent supply chain complexity and geopolitical trade friction, especially from shifting global tariff regimes and protectionist policies, pose an ongoing risk of operational disruption, cost inflation, and delivery delays. This threatens both near
• and long-term earnings visibility and increases the risk of missed production targets.
  
• Execution risk surrounding new aircraft programs and the multi-year integration of Spirit AeroSystems is high. Any recurring cost overruns, extended ramp-up delays, or complications in absorbing critical supplier activities could lead to sustained erosion of operating margins and free cash flow into the latter half of the decade.
  
• Demographic changes in developed markets, including an aging population and the acceleration of remote work trends, may result in structurally weaker demand for air travel over the long term. This reduces the future order backlog and results in lower revenue growth expectations.
  
• The increased ambition and growing capabilities of new aerospace manufacturers in China, Russia, and other emerging economies threaten to erode Airbus's near-duopoly position, potentially forcing price concessions and reducing both future addressable market share and the company's long-term pricing power, weighing on revenue and net profitability.

Airbus Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Airbus compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Airbus's revenue will grow by 9.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 6.3% today to 7.1% in 3 years time.
• The bearish analysts expect earnings to reach €6.5 billion (and earnings per share of €8.23) by about July 2028, up from €4.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 20.0x on those 2028 earnings, down from 32.6x today. This future PE is lower than the current PE for the GB Aerospace & Defense industry at 40.7x.
• Analysts expect the number of shares outstanding to decline by 0.53% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.09%, as per the Simply Wall St company report.

Airbus Future Earnings Per Share Growth

Risks

• Global air traffic and international passenger travel are continuing to accelerate, with Airbus seeing a record backlog of 8,726 aircraft and robust order momentum, which could support higher revenues and cash flows over the coming years.
  
• Strong multi-year growth in the Defence and Space segment, a record order intake in Q1, and increasing European defense budgets provide Airbus with additional, diversified revenue streams and earnings stability beyond commercial aviation.
  
• The successful ramp-up of key programs such as the A320neo and the planned production increases for A350 and A220 families, combined with a large, diversified backlog, underpin future top-line and operating margin growth.
  
• Airbus is actively mitigating potential tariff headwinds through portfolio diversification, legal exemptions, supply chain localization, and logistics optimization, indicating the financial impact of recent tariffs is likely to remain contained and not materially affect earnings or cash flows in the near to medium term.
  
• Expansion into services, digital solutions, and a commitment to investing in sustainable aviation technologies is increasing the company's recurring, higher-margin revenue base and could boost long-term earnings resilience.

Valuation

• The assumed bearish price target for Airbus is €141.26, which represents two standard deviations below the consensus price target of €188.39. This valuation is based on what can be assumed as the expectations of Airbus's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €229.0, and the most bearish reporting a price target of just €140.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €92.2 billion, earnings will come to €6.5 billion, and it would be trading on a PE ratio of 20.0x, assuming you use a discount rate of 6.1%.
• Given the current share price of €183.38, the bearish analyst price target of €141.26 is 29.8% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.