The $24 Billion Deal

In the competitive landscape of aviation, Airbus recently landed a substantial order for new jets, a development that surprisingly didn’t bolster its stock. This Tuesday, Cebu Pacific, a Philippine airline, announced its purchase of up to 152 Airbus A320neo and A321neo jets, direct competitors to Boeing’s 737 family.

The deal, valued around $24 billion based on list prices, is significant, although it’s common knowledge that airlines seldom pay the full list price. The exact amount each airline pays remains confidential.

Despite this significant order, Airbus’ stock dipped by 0.7% in overseas trading, a reflection of the overall market’s weak performance rather than a commentary on Airbus’ performance. Both Airbus and Boeing have successfully generated demand for new jets; their challenge lies in meeting this demand.

With nearly 6,200 and 8,500 unfilled orders respectively, Boeing and Airbus have a combined backlog of over 14,000 planes. At current production rates, it would take more than 11 years to fulfill these orders.

In 2018, Boeing and Airbus delivered about 1,600 planes. However, deliveries declined in 2019 due to issues with Boeing’s 737 MAX jet and further plummeted in 2020 due to the pandemic’s impact on demand and supply chains across the aerospace industry.

In 2023, the pair managed to deliver just under 1,300 planes. The forecast for 2024 is similar, with Wall Street not expecting deliveries to surpass 2018 levels until 2026.

Airbus recently reduced its forecast for 2024 deliveries from 800 to 770 planes, a move that hit investors hard. As of Tuesday, Airbus’ stock had fallen about 11% since the announcement.

Meanwhile, Boeing’s stock was down 0.4% in premarket trading at $185.90 a share, while S&P 500 and Dow Jones Industrial Average futures were off 0.3%.

While an order for Airbus does shift the market share slightly, investors at Boeing have other concerns. As of Tuesday, Boeing’s stock had fallen about 28% year to date, primarily due to an incident on Jan. 5 when an emergency-door plug blew out of a 737 MAX 9 jet operated by Alaska Air. This incident led to slower production and increased regulatory oversight.

Investors are now focusing on production and quality. As Warren Buffett once said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”