This article was first published on GuruFocus.
Airbus (EADSY) surprised investors as it lowered its 2025 aircraft delivery target after discovering a production glitch on its A320 family of aircraft that now requires extensive inspections, while investors are still trying to price in the price. Management’s current target is to hand over about 790 units this year, 30 units less than the previous target, citing supplier quality issues with Spanish Sofitec’s fuselage panels. The changes come days after Airbus urged operators of some 6,000 A320 jets to implement software revisions to address how flight control computers interact with onboard systems. Although Airbus stuck to its financial guidance, a series of fast-moving issues rattled markets, before shares recovered some ground after rebounding to hit 2.1% in early trading in Paris.
Analysts said the latest cuts could be a reality check on how tight global aerospace supply chains remain. Goodbody’s Dudley Shanley writes that the ramp required to reach the original 820-plane program may be too aggressive, especially as Airbus continues to deal with shortages from engines to cabin interiors. The restrictions have forced the company to build partially completed gliders awaiting parts, resulting in more than 600 affected A320 aircraft on the production line and in the active fleet currently undergoing panel inspections. It also marks the second year in a row that Airbus has had to cut its delivery targets, reflecting ongoing bottlenecks despite the company achieving a reduction target of about 770 aircraft last year.
Even so, Airbus reiterated its forecast for adjusted earnings before interest and taxes of about $7 billion and free cash flow before customer financing of about $4.5 billion, a stance that investors may interpret as an attempt to stabilize year-end sentiment. The new panel inspection follows an earlier maintenance outage related to Pratt & Whitney engines on A320neo aircraft, which temporarily grounded hundreds of the airline’s aircraft. AirAsia founder Tony Fernandes said the latest events could serve as a reminder that competitive and quarterly pressures could prompt vigilance in the manufacturing sector, calling it a warning to an industry still experiencing a fragile recovery. For investors, the revised delivery schedule could highlight how even small breaks in supply chains can quickly grow for a manufacturer like Airbus that faces risks on a global scale.