Summary
• Global air travel demand has eclipsed pre‑Covid levels, pushing airlines to secure aircraft slots through the 2030s; Airbus’s backlog has ballooned to 8,726 jets—about 10 years of production—even with higher planned output.
• Boeing’s ongoing quality and delivery setbacks are driving incremental orders to Airbus, giving the European manufacturer uncommon pricing power and stricter advance‑payment terms.
• Airbus aims to deliver 820 aircraft in 2025 but still can’t dent its backlog; engine supply is improving, and the Spirit AeroSystems asset deal should smooth the narrow‑body and A350 ramps over the next few years.
• High‑margin services revenue rose 14 % in Q1, while Europe’s defense re‑armament lifted Defence & Space orders 30 % YoY, creating a second growth engine that hedges the civil cycle.
• With €11 billion net cash, a $82 billion hedge book, a higher dividend payout ceiling, and valuation near 24× next‑year EPS (PEG ≈ 1), Airbus offers durable free‑cash growth and multiple expansion potential despite supply‑chain and tariff risks.
Introduction
Air travel is back on the growth track. IATA data show global passenger traffic is already at 104 % of the 2019 peak, and the trade group projects another 4 % expansion next year as Asia reopens fully to long haul flights. That demand wave has met a tight supply of new airplanes, because the industry lost two years of output during the pandemic and has not caught up. Airbus’s own figures underline the mismatch: its order book climbed to 8,726 aircraft at the end of Q1, equal to about 10 years of production even after a planned ramp in narrow body output.
Airlines fighting for capacity now lock in delivery slots well into the 2030s, and they are willing to pay premiums or accept strict advance payment schedules to secure their place in line. Boeing’s continuing quality problems only sharpen that imbalance. With fewer credible alternatives, carriers concerned about reliability are steering incremental orders to Airbus, giving it rare leverage on price and contract terms.
Demand Still Outruns Supply
Management’s target of 820 jet deliveries this year may seem ambitious, but it is not enough to clear the backlog. Chief Commercial Officer Christian Scherer confirmed that the company received more wide body commitments in the first quarter than in all of 2022, a telling shift now that international tourism is back in force. Meanwhile, the single aisle A321neo keeps winning head to head contests because Boeing still lacks a true rival.
Those wins arrive on top of a steady drumbeat of incremental top ups from leasing firms that want fresh inventory before mid decade. Industry chatter says lessors have even tried to buy out slots from existing customers, a sign of how tight the market is. The outcome is simple: barring a deep global recession, Airbus is sold out on key models for years, locking in predictable cash.
Breaking Down the Ramp
Building all those planes is the hard part. The narrow body cadence sits just above 50 per month but needs to reach 65 by the end of next year and 75 by 2027. That growth depends on engine makers catching up after parts shortages left about forty completed jets grounded as so called “gliders” in early spring. June data show that number has already fallen as Pratt & Whitney and CFM ship more powerplants, and Airbus says line side component shortages fell 40 % year on year in the quarter.
To take more control, Airbus struck a deal to acquire several Spirit AeroSystems plants that build A350 fuselage panels, A220 wings, and narrow body wing structures. Spirit will actually pay Airbus $439 million to assume the assets, turning a headache into a strategic win. The added vertical integration should smooth output and give better visibility on unit cost just as volumes rise.
The A350 wide body ramp is also moving, though at a measured pace. Management once aimed for 10 jets a month by 2025, but suppliers need more time, so the new plan is 9 a month by 2026 and twelve in 2028. Considering the high list price and robust aftermarket pull through of the A350, even a slower ramp adds healthy margin, because fixed costs are already sunk.
Services Flywheel Adds Cushion
A quiet star of the Airbus story is services. Every jet feeds an installed base that needs parts, upgrades, and digital tools. The Skywise data platform now has more than 16,000 aircraft connected, and customers pay recurring fees for predictive maintenance apps that cut unscheduled downtime. Spare parts pricing has held firm in an inflationary environment, and shop visit rates for new generation engines are rising as the early neo fleet ages into overhaul cycles.
That services flywheel delivered roughly €6 billion in high margin revenue last year and grew 14 % in Q1. Because service sales track flight hours, the rebound in Asia and trans Atlantic markets should give another boost through 2026. Investors often value the civil jet business on book to bill ratios and delivery counts, but the aftermarket is becoming an underappreciated profit stabilizer that deserves a place in any proper stock analysis of Airbus.
Defense Renaissance
Europe’s security rethink has turned Airbus’s once sleepy military arm into a growth story of its own. Berlin is spending its €100 billion supplemental fund, Warsaw puts 4 % of GDP into defense, and Paris continues to push for strategic autonomy. That money finds its way into programs like the Eurofighter Tranche 4 upgrade, the Eurodrone surveillance system and the Future Combat Air System, all projects with Airbus leadership or key workshares.
The Defence & Space division posted €2.6 billion in Q1 orders, up 30 % from a year earlier. Margins were still muted at under 3 % on EBIT adjusted, but restructuring costs from a 2024 head count program are nearing completion. Management targets mid single digit returns by 2027 as volume scales and a larger mix of service contracts kicks in. Because these contracts are backed by sovereign credit, cash conversion is reliable, making the segment a hedge if the airline cycle cools.
Cash, Hedges, and the New Dividend Stance
Airbus exited March with €26 billion of gross cash and €11 billion of net cash. That fortress balance sheet is unusual in heavy industry and gives optionality. The board already raised the payout ceiling to 50 % of earnings, and buybacks are on the table once the Spirit transfer settles. With management guiding €4.5 billion in free cash flow this year, the company could fund both growth capex and a rising dividend without tapping debt markets.
Currency risk is also handled. The hedge book totals $82 billion at an average 1.21, covering most expected dollar inflow through 2030 and muting earnings swings. While that creates a negative mark to market item on the balance sheet today, the non cash accounting impact reverses as contracts roll off, as evidenced by Q1’s €600 million net financial gain when equity stakes and hedges moved in Airbus’s favor.
Valuation Through Another Lens
Airbus trades near 24x next year’s consensus EPS—hardly cheap, but investors need to weigh that multiple against growth and quality. Earnings should expand at a compound 20 % rate for at least 3 years as volume rises and services scale, putting the PEG ratio near 1. Free cash flow yields about 4 % on this year’s guide and over 5 % on 2026 street numbers, higher than the yield on most European industrial peers with slower growth.
A quick sum of the parts view adds perspective. Assign 14x EBITDA to the commercial business, in line with rail and truck makers that have lower margins yet similar cyclicality, and 12x to Defence & Space, in line with pure play European defense firms. Add the net cash and the calculation lands above €200 per share, suggesting present levels still embed little credit for a smoother production ramp or for defense order upside. That gap widens if Airbus truly restores its pre COVID 10 % operating margin late in the decade.
Sustainability Efforts That Can Pay Within 5 Years
Green aviation tech often feels far away, but Airbus has a concrete path to monetize sustainability inside our 3 to 5 year window. Its A321XLR uses a modified fuel tank to give trans Atlantic range on single aisle economics, cutting fuel burn per seat by about 30 %. That aircraft enters service next year with 550 firm orders. Airbus also sells Sharklet wingtip retrofits and cabin densification kits that extend fleet life and lower emissions, both high margin options already flowing through the services line. While true hydrogen flight is a decade off, these nearer term offerings satisfy airline ESG goals now and create incremental revenue without major R&D risk.
Risks Revisited
Tariff risk cannot be ignored, yet recent talks between Brussels and Washington have cooled tempers, and Airbus’s U.S. assembly line can mitigate worst case scenarios. Supply chain issues remain the more immediate threat, but the Spirit carve out and direct supplier loans reduce that exposure month by month. A severe recession would prompt airlines to defer new jets, but backlog depth and early delivery penalties provide a cushion. On the defense side, peace in Ukraine would slow incremental orders, though existing contracts would still run for years.
Investors should also watch the A400M transport program, historically a drag due to cost overruns. After fresh talks with customer nations, the project is stabilized, and no new charges were booked in Q1. Still, any slip in capability deliveries could revive provisions. For now, management signals that technical milestones are on track.
A Compelling Long Term Flight Path
When viewed through a wide lens, Airbus offers a rare mix: duopoly pricing power, a booming aftermarket, large optionality in defense, and a balance sheet strong enough to fund both innovation and shareholder returns. The current share price reflects some of that quality, but not all. If the company meets its 2025 guide—and the improving data indicate it can—the market will need to revisit its valuation framework. Every year of execution brings a clearer line of sight to double digit margins and durable cash generation, elements that deserve a higher multiple than cyclic industrials receive today.
Investors could wait for a pullback, yet history shows that missing the early legs of an aerospace up cycle often means chasing the stock higher later on. Given firm demand, rising production, and a defense tailwind that is only gaining force, this stock analysis supports a confident Buy call. Patience may be required, but the longer runway belongs to Airbus, and the journey still looks underpriced.