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- We expect that deliveries of Airbus' commercial aircraft will continue to rise, topline will grow, profitability and cash flows will remain robust and importantly, Airbus will return to an
- At the same time, we expect that the group's helicopters and defense and space divisions will exhibit topline growth and gradual margin improvement in 2022 and 2023.
- We are therefore revising our outlook to stable from negative and affirming the 'A/A-1' ratings. - The stable outlook on Airbus reflects our view that the group will continue to benefit from positive demand with increasing deliveries over the next two years. Our view is that the group will at the same time maintain considerable financial flexibility at the current rating level, as well as a credit-supportive financial policy. We regard adjusted leverage ratios of funds from operations (FFO) to debt above 60% and debt to EBITDA of less than 1.5x as consistent with the ratings.
A strong set of financial results in 2021 has laid the foundation for a brighter 2022 and 2023 for Airbus. The collapse in flying hours caused by the arrival of the pandemic in 2020 and subsequent swift reduction in demand for new aircraft resulted in original equipment manufacturers (OEMs)--including Airbus--lowering production rates and engaging in major restructuring and cost cutting programs. Many commercial aerospace manufacturers are about one-third smaller (by revenues, production capacity, or production rates) than they were pre-pandemic. Since then, flying hours have continued to recover. Demand for new narrow-body planes is rising, fueled by recovery in domestic and regional air travel, but demand for wide-bodied aircraft remains subdued as these aircraft service international routes where demand is not expected to recover as quickly as domestic or regional routes. Due to measures taken in 2020 and 2021, Airbus was well placed when the recovery began and delivered more aircraft than we expected in 2021 (611 in total for the year). Revenues grew and profitability improved significantly above our expectation, primarily thanks to a solid operating performance, supported by the full benefit of restructuring measures taken through the pandemic (including a 10,000 headcount reduction) and the release of provisions that the group booked in 2020. Demand for narrow-body aircraft will significantly outstrip demand for wide-body aircraft until at least 2024. We anticipate that deliveries of Airbus' commercial aircraft will continue to rise to comfortably more than 700 aircraft in 2022 and towards 850 aircraft in 2023. A ramp-up in the production of the group's popular and profitable A320 family will be the primary growth driver, with Airbus targeting a production rate of 64 per month by the summer of 2023. Production rates of the A220 will also rise, albeit at a slower pace (the current rate is about five per month and we envisage this gradually rising to about 10 per month by the middle of the decade) and Airbus will continue to work towards achieving breakeven profitability on this platform. We expect that rates of the A330 and A350 will remain relatively flat until international routes open and demand for wide-body planes starts to recover to pre-pandemic levels. Overall, we expect that total Airbus aircraft deliveries will return close to pre-COVID levels through 2023, albeit we expect the mix to be much more heavily weighted towards the A320 family than before the pandemic. Helicopter deliveries are already at pre-pandemic levels (338 in 2021 versus 332 in 2019) and we expect a continued good growth rate, at comfortably more than 350 per year but not quite reaching 400 over our two-year rating horizon.
Despite expected good growth and positive free operating cash flow (FOCF) generation, 2022 and 2023 are not without their challenges. Despite forecasting a strong operating performance, we expect that Airbus will exhibit some
Management expects no meaningful impact on demand for aircraft or production rates because of the conflict or the threat by
On the narrow-body side, the exposure to
Rolls-Royce is developing the Ultrafan which is being tested through 2023 but will likely enter service only at or after the end of the decade, PW's ultra-bypass technology could result in new engine technology but with a potential entry to service in 2033 and CFM's RISE concept is a completely new design. It is therefore hard to envisage a new aircraft platform entering service before 2035.
The stable outlook on Airbus reflects our view that the group will continue to benefit from positive demand with increasing deliveries over the next two years. Our view is that the group will at the same time maintain considerable financial flexibility at the current rating level, as well as a credit-supportive financial policy. We regard adjusted leverage ratios of FFO to debt above 60% and debt to EBITDA of less than 1.5x as consistent with the ratings. Ratings downside could materialize if Airbus underperformed our expectations in 2022 and 2023. This could be caused by a new COVID-19 variant materially impacting the industry again, if production ramp ups are not successfully executed as planned, or if the supply chain cannot keep pace with Airbus' ambitions. Pressured profitability, a return to an
Ratings upside could materialize if we saw continued recovery in the wider commercial aerospace industry supporting higher demand for new planes, with Airbus smoothly ramping up production and deliveries beyond our current base case. We could upgrade Airbus if we expected less volatility in the group's absolute EBITDA, with management keeping a good grip on costs associated with the A321XLR and A350F and no new cost overruns or exceptional charges on existing platforms (such as the A400M), while the group continued to post a net cash position and exceptional liquidity.
Environmental, Social, And Governance E-2, S-3, G-2 We consider Airbus' exposure to ESG factors to be in line with that of its peers and the overall industry. Airbus is one of two global manufacturers of large jetliners; its commercial aircraft segment accounted for about 71% of sales in 2021 (followed by defense and space with 18% and helicopters at 11%). We are revising our Social indicator to S-3 from S-4, reflecting how Airbus is recovering from the pandemic and posting improved operating and financial results.
Social factors are a moderately negative consideration in our credit rating analysis for Airbus. The pandemic resulted in a material decline in demand for air travel and new aircraft, with Airbus cutting production rates in 2020 and exhibited an overall cash burn of about
The group faces long-term environmental risks related to the regulation of aircraft-induced greenhouse gases and nitrogen oxide emissions. However, these factors are a neutral consideration in our credit rating analysis. Airbus can meet current regulations with existing technology. Although there is a longer-term risk (15-20 years) that tighter emissions regulations may require increased investment, we believe that its engine manufacturers would bear the brunt of the financial cost. We do not currently forecast a slowdown in the growth of air travel due to environmental considerations. Rather, we believe that by replacing their existing fleets with newer-generation aircraft, the airlines will reduce their fuel consumption and emissions. For example, according to Airbus, its most sold aircraft, the A320neo, will offer up to 20% savings in fuel burn per seat compared with the previous A320.
We view Airbus' governance as satisfactory, which reflects its extensive planning process and ability to adapt to operational issues and changing market conditions.
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