Airbus A320neo

Airbus Group Has a Big Backlog – and That Could Be a Problem

Airbus A320neo

So wrote Airbus Group Chief Executive Officer Tom Enders in a Feb. 27 press release describing Airbus’ financial performance in 2014. And in those few words, he summed up both the opportunity and the risk for Airbus shareholders.

Opportunity and peril

On one hand, yes, Airbus’ performance in 2014 was truly impressive. Sales grew 5% at the European airplane builder, while earnings per diluted share soared 61% year over year — twice the earnings growth seen at archrival Boeing . According to S&P Capital IQ data, Airbus is now earning more than a 6.2% profit margin on its commercial aircraft — nowhere near Boeing’s impressive 10.7% Commercial Airplanes operating margin, but a vast improvement over the mere 4.1% margin Airbus pulled down in 2013.

And yet, the comparison to Boeing is even more telling when you consider that, after multiple years of strong airplane sales, both Boeing and Airbus now suffer from the same existential dilemma:

Too many planes on order. Not enough time to build them.

A “nice” problem to have…

A couple of months back, we reviewed Boeing’s backlog situation for you, describing how a monster tally of 5,789 planes remaining to be built left Boeing with a backlog of work to be done stretching out, for at least one model of plane, as far as 7.4 years. But if you think that’s a “nice” problem to have — a 7.4-year-long guaranteed revenue stream — you’re going to love Airbus’ problem. As described in the company’s recent earnings release for 2014, Airbus’ backlog now stretches past “> 10 years of deliveries.” It’s probably even longer than that now — Airbus says it received a net 28 new orders for aircraft in February, and now has customers awaiting delivery on 6,332 planes.

Addressing this gap between order backlog and order delivery (which grew just 0.5% last year), Airbus announced plans to increase production of its most popular plane, the A320 single-aisle commercial jet, to 50 planes per month in 2017. If that doesn’t solve the problem, the company says it may have to up the production rate to 60 per month — two planes per day.

…but a problem nonetheless

Of course, the A320 is just one of Airbus’ plane models, and only one part of the dilemma Airbus faces. Let’s take a look at the rest, calculating from what we know about Airbus’ order backlog, its current plane production rates, and its announced plans for future production rate increases:

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