The consequences of the Ukraine war for Airbus

Frankfurt On February 24, an A350 left the delivery airport of the manufacturer Airbus in Toulouse for Moscow. At this point, the wide-body jet is already fully owned by Aeroflot – luckily for the Russian airline, it turns out. A few hours later, the extradition would have violated EU sanctions.

The ninth of the 22 A350s ordered by Aeroflot is likely to be the last aircraft in the long term that the European aviation group will hand over to customers in Russia. Because of the attack on Ukraine, European companies are banned from delivering aircraft parts or complete aircraft to the country.

The end of the pandemic is only just beginning to appear when the conflict in Ukraine threatens to rob the industry of any hope of recovery. No wonder the Airbus share price fell by a good 20 percent to EUR 92.47 between February 25 and March 7.

It is surprising how quickly concerns about Airbus’ business on the market have apparently disappeared. The share now costs almost 100 euros again. Many analysts have issued a “buy” or “overweight” rating. UBS’s Celine Fornaro refers to management’s statements that they have the situation under control.

Top jobs of the day

Find the best jobs now and
be notified by email.

Is such an assessment justified? A look at the facts: The European group does not have to fear that many jets will remain in the yard due to the loss of Russian customers such as Aeroflot or S7. Aeroflot will no longer be able to take delivery of 13 Airbus 350s. According to Airbus, there are also around 40 short- and medium-haul jets that Russian leasing companies have ordered. These include, for example, A320neo aircraft for the airline S7. Airbus can no longer deliver civilian helicopters to Russia either.

Lufthansa is interested in Aeroflot jets

According to the list price, the machines still planned for Aeroflot alone have a value of around four billion euros. But the chances are good that the European group will not stay on the planes.

Lufthansa boss Carsten Spohr has already expressed an interest in one or the other A350 that has not yet been fully painted. “I expect further interesting market opportunities for the Airbus A350 and Boeing 787 from the withdrawing Russian airlines,” said Spohr last Thursday. Even with short and medium-haul jets, Airbus can succeed in placing the machines that become free with other airlines. So-called delivery slots for the well-selling A320 family are in demand.

>> Read about this: “Worst-case scenario”: Leasing companies have to fear for planes because of the Ukraine war

The Airbus headquarters in Toulouse are relatively relaxed about the possible consequences of the crisis. “We are closely monitoring the situation with our partners, customers and suppliers,” it says. Of course, Airbus will comply with the sanctions. But it is still too early to comment on concrete consequences that may now threaten.

The problem is not trivial: Even if aircraft that have already been ordered can be accommodated elsewhere, this is initially just a shift in the order book. The largest European airline group will no longer order A350 planes that Lufthansa will take over at short notice.

The duration of the war is crucial. In its second week, the conflict has plunged global energy markets into chaos. This has several implications for aviation: fuel for aircraft is becoming more expensive, which is a burden for the airlines. They already have to adjust their balance sheets, which have been badly hit by the pandemic, which could take longer.

Added to this is the rising inflation rate. This is shrinking the budgets of private households – which will also affect the travel industry. There is still no sign of consumer restraint. According to the German Travel Association (DRV), the weekly booking figures in travel agencies and on online travel portals currently exceed the level of the respective comparison week in 2019 – and are therefore above the pre-Corona level.

But that could change quickly. “The war will pose an additional challenge for our industry alongside and after Corona,” admitted DRV President Norbert Fiebig on Tuesday of this week.

Delayed airline deleveraging, combined with collapsing demand for tickets, could result in orders for jets being pushed back. That was already the case at the beginning of the pandemic. Analysts also warn of this. UBS analyst Fornaro writes in her study that the production rate for the construction of civil aircraft could rise more slowly than expected.

There is also a risk of a shortage of raw materials, especially aluminum and titanium. In the case of titanium, Russia is the third largest producer in the world behind China and Japan. According to Airbus, it has a supply contract with the Russian company VSMPO, but also uses supplier companies that buy titanium in Russia.

shortages of raw materials

While Boeing has now announced that it no longer wants to purchase the metal from Russia, Airbus intends to continue buying there. One is secured in the short and medium term, it is said in Toulouse. However, the experts at the management consultancy H&Z from Munich, which specializes in aviation, see risks: Considerable price increases are to be expected.

It is still by no means certain that Airbus boss Guillaume Faury can keep his ambitious forecast for the current year. He wants to deliver 720 commercial aircraft in 2022, after 611 jets last year. Adjusted earnings before interest and taxes (EBIT) are expected to rise from 4.9 to 5.5 billion euros. However, these expectations were formulated in mid-February with the proviso that there will be no new upheavals in the economy and in air traffic. Russia had not yet invaded Ukraine at the time.

On the other hand, the conflict also offers opportunities for Airbus. The states in Europe want to improve and upgrade their armed forces. The aircraft and engine manufacturers would benefit from their defense business, writes David Perry of JP Morgan in a recent study. According to his estimates, the division will account for 22 percent of sales at Airbus in the current year. Reason enough for Perry to leave the stock at “overweight” for the time being.

More: After the crisis is before the crisis: Because of the war, Lufthansa does not dare to make any predictions

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.