Rising Climate And Supply Chain Risks Will Erode Aerospace Margins

Key Takeaways

• Tightening climate regulations and green technology challenges threaten future revenue growth, profitability, and margin improvement prospects.
  
• Supply chain fragility and supplier consolidation increase costs, operational risks, and working capital strains, intensifying earnings volatility.
  
• Strong global demand, innovation, and diversification efforts position Airbus for sustained growth, margin expansion, and resilience amid evolving industry and sustainability trends.

Catalysts

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

• Despite a current strong aircraft order backlog and stated growth in air travel demand, the risk of increasingly stringent climate regulation and carbon emission restrictions threatens to suppress long-term air travel volume, which could weaken Airbus's future order pipeline and limit revenue growth over the coming decades.
  
• A persistent buildup in inventories, inflating working capital requirements and free cash flow constraints, reflects deeper supply chain fragility-particularly engine delivery disruptions-that are far from resolved and could worsen if global protectionist policies or trade fragmentation escalate, further constraining profitability and cash generation.
  
• While Airbus benefits from a duopolistic commercial jet market today, strategic overreliance on this structure carries latent risk: if a viable third competitor such as COMAC or a new entrant from an emerging market gains traction over the next decade, Airbus's pricing power and net margins could be significantly compressed.
  
• Ongoing industrial and technical difficulties in both scaling and integrating next-generation green aircraft technologies are likely to keep R&D and capital expenditures elevated for years, making it increasingly unlikely these investments will generate meaningful offsetting revenue streams or lift margins in the foreseeable future.
  
• The accelerating consolidation of suppliers in the aerospace value chain exposes Airbus to higher input costs, weaker negotiating leverage, and greater operational disruption risk; together with unresolved cybersecurity and digital infrastructure vulnerabilities, these industry dynamics threaten gross margin erosion and heightened volatility in earnings.

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 9.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 7.0% today to 7.1% in 3 years time.
• The bearish analysts expect earnings to reach €6.5 billion (and earnings per share of €8.27) by about August 2028, up from €4.9 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 20.3x on those 2028 earnings, down from 28.3x today. This future PE is lower than the current PE for the GB Aerospace & Defense industry at 34.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.2%, as per the Simply Wall St company report.

Airbus Future Earnings Per Share Growth

Risks

• Robust long-term global air traffic growth is expected, as highlighted by Airbus management referencing their global market forecast and strong demand for both growth and fleet replacements, which supports steady increases to the commercial aircraft order backlog and could underpin revenue and earnings growth.
  
• Structural demand for new, fuel-efficient aircraft is being driven by airlines' fleet modernization and sustainability requirements, demonstrated by the high proportion of A321neo, A220, A330, and A350 orders in the backlog and strong take-up at air shows, which may sustain premium pricing and margin expansion.
  
• Airbus is rapidly advancing the industrial ramp-up for its most profitable programs, with new assembly lines and targeted increases in monthly production rates for the A320neo family and A220 through 2027, which could lower unit costs and drive higher operating leverage and net margins over time.
  
• The Defense & Space and Helicopters divisions are delivering improved profitability, successful execution of turnaround plans, and expanding order books, providing diversified revenue streams that enhance earnings resilience beyond civilian aviation cycles.
  
• Progress in digital transformation, supply chain integration, and leadership in sustainable aviation technology-including emerging opportunities in drones, unmanned aerial vehicles, and next-generation fuel systems-positions Airbus to capture secular growth trends, supporting long-term revenue and margin tailwinds.

Valuation

• The assumed bearish price target for Airbus is €140.0, which represents the lowest price target estimate amongst analysts. 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 €244.0, 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 €92.7 billion, earnings will come to €6.5 billion, and it would be trading on a PE ratio of 20.3x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of €176.22, the bearish analyst price target of €140.0 is 25.9% 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.