For years, I’ve been skeptical of the inflated valuations in software stocks. Sure, software businesses scale beautifully—zero marginal costs, global reach, minimal barriers to growth. But capital-intensive, low-margin industries like manufacturing, especially ones that require factories and complex supply chains, have been largely overlooked by investors chasing digital scalability.
As a contrarian by nature, I am looking for businesses that are more traditional, more capital-intensive, precisely because of how difficult it is to break into.
Business:
Airbus divides its business into three main segments:
1) Commercial Aircraft (~70-75% of total revenue)
Primary driver of revenue.
Main aircraft families: A220, A320neo, A330neo, A350, and A380 (now discontinued).
A320neo family is the key volume product—most profitable, high demand globally.
Revenues come from aircraft sales and aftermarket services (maintenance, parts, upgrades).
2) Airbus Helicopters (~10-12%)
Civil and military helicopters.
Important globally but smaller in scale vs. commercial aviation.
Strong recurring revenue from maintenance and service contracts.
3) Airbus Defence and Space (~12-15%)
Military aircraft: e.g., A400M transport, fighter jets (Eurofighter Typhoon, stake in others).
Space systems: satellites, launch services (Ariane 6 via ArianeGroup).
Exposure to European defense budgets, some export markets.
Geographic Exposure (by Revenue)
Europe (~35-40%): Home market, strong with EU airlines, defense customers.
Asia-Pacific (~30%): Fastest growing market for air travel; major customers include airlines in China, India, and Southeast Asia.
North America (~20-25%): Important for both commercial sales (e.g., A321neo sales to US airlines) and defense customers.
Middle East (~5-7%): Key airlines like Emirates, Qatar Airways are Airbus customers.
Latin America & Africa (~3-5%): Smaller share.
Annual Production Capacity
Single-Aisle (A320 family):
Goal by 2026: ~75 aircraft/month (as of 2024, ramping up around 50-60/month).
Widebody (A350, A330neo):
A350: Targeting ~10/month in coming years.
A330neo: ~3-4/month.
A220 (formerly Bombardier CSeries):
~14/month targeted by 2025–2026.
Helicopters and Military Aircraft:
Much smaller scale, demand more stable and defense-contract based.
Order Backlog (as of 2024)
Commercial Aircraft Backlog:
Over 8,726 aircraft as of Q1 2025.
Majority are A320neo family, with significant A350 orders too.
Roughly 16 years of production at current rates.
Financials:
Revenue (2024): ~€65 billion
EBIT (2024): ~€6.8 billion → EBIT margin ~10.5%
Net Profit (2024): ~€4.8 billion → Net margin ~7.4%
2025 Guidance: €7 billion EBIT → ~8–9% net profit margin expected
Airbus operates with higher margins than historical averages (4–6%), reflecting strong demand, favorable pricing, and better operating leverage on increased production.
Margins are healthy but not in the range of software or high-margin industries, reflecting its capital-intensive business.
Debt and Balance Sheet Strength
Gross Debt (2024): ~€13.9 billion
Cash & Equivalents (2024): ~€23.6 billion
Net Cash Position: +€9.7 billion (Net cash, not debt)
Airbus maintains a net cash balance sheet, meaning it has more cash than debt.
Effectively debt-free from an interest burden perspective.
Free Cash Flow (FCF)
Free Cash Flow (2024): ~€3.5–4 billion
FCF Conversion (EBIT → FCF): ~50–60%, reflecting working capital fluctuations, particularly from inventory buildup during production ramp-ups.
Airbus's capital expenditure (CAPEX) in 2024 totaled approximately €3.67 billion (industrial capex additions), roughly 87% of the net income of the year.
The fact that this is a capital-intensive business remains true, as a result, recent dividends are around 30% of EPS.
Valuation:
Commercial aviation might often appear cyclical, but when you zoom out, certain structural forces make long-term demand for aircraft far more predictable than luxury goods or short-term discretionary consumption. One of the clearest examples of this structural demand is found in the global commercial fleet replacement cycle.
Modern commercial aircraft typically last 25 to 30+ years, but many are retired earlier due to the escalating costs of maintenance and the operational inefficiency of older technology. This dynamic alone means that approximately 4% of the global fleet must be replaced every year just to keep the industry in motion. When you add projected 3% annual fleet growth to support increasing global passenger demand—driven primarily by emerging markets—you arrive at an annual required production capacity of roughly 7% of the existing fleet size.
With Airbus operating an installed fleet exceeding 14,000 aircraft, this math suggests an annual replacement and growth demand of about 980 aircraft per year just for Airbus products alone. Compare that to Airbus's 2025 delivery guidance of 820 aircraft, and it's clear: Airbus has a supply problem, not a demand problem. The company will likely be constrained by production capacity for at least the next decade.
The Emerging Challenge: COMAC
While Airbus and Boeing continue to dominate the market, COMAC, the Chinese state-backed commercial aircraft manufacturer, has been making its first tangible steps into this duopolistic market. With 19 COMAC C919s delivered so far—all serving domestic routes in China—and more than 1,000 orders on the books, COMAC is a credible long-term challenger.
Yet, hurdles remain. Full certification in Western markets, integration with global supply chains, and brand trust among international carriers are challenges that will take years, if not decades, to overcome. For the foreseeable future, COMAC will likely serve China's domestic market first before challenging Airbus and Boeing globally.
The Cultural Momentum of Air Travel
While it is reasonable to expect pullbacks in discretionary consumption—things like designer handbags or branded sneakers—air travel is increasingly seen as essential. In a world marked by diaspora communities, global workforces, and cultural prioritization of experiences over possessions, people are unlikely to cut back meaningfully on vacations and family visits. Even in an inflationary or recessionary environment, demand for meaningful travel has shown impressive resilience.
Airbus is guiding for €7 billion in EBIT in 2025, with minimal net interest expenses and an effective tax rate around 25%, leading to a projected €5.25 billion in net profit. With a market cap of approximately €132.5 billion, this translates to a forward P/E ratio of roughly 25x, or an earnings yield of about 4%.
For an industry with effectively only two global suppliers, facing secular growth trends, and increasingly resembling a necessity rather than a luxury, this valuation looks fair. It isn’t a bargain, but it isn’t exuberantly priced either. If shares were to correct by 10%, that would push the forward earnings yield closer to 4.5–5%, making it an attractive entry point for long-term investors.