Gadfly

Boeing and Airbus: Cash Position

The U.S. giant's cash flow eclipses its European rival.
From
Photographer: SeongJoon Cho/Bloomberg

Dodgy engines on the all-important A320 Neo passenger jet; a $1.6 billion charge on the ever-problematic A400M military transporter; bribery probes. Whatever. Investors looked beyond all of the troubles surrounding Airbus SE on Thursday, pushing its shares up by almost 10 percent after a surprisingly strong set of financial results.

"We're used to doing crisis management here," soon-to-depart boss Tom Enders said. It seems the stock market shares his sanguine view of life.

Analysts were particularly reassured by the company's free cash flow. On Airbus's own measure, which excludes M&A and customer financing, it reached 2.95 billion euros ($3.7 billion) in 2017, about twice what it was in 2016. The company predicted it would be at a similar level this year -- better than feared given the problems with the A400M and A32o Neo. 

Adopt the Cash Position

Using its own measures, Airbus has improved its cash flows

Source: Company presentation

(i) Excluding working capital change, contribution to plan assets of pension schemes and realised FX results on Treasury swaps. (ii) Excluding change in securities, change in cash from changes in consolidation, contribution to plan assets, realised FX results on Treasury swaps, bank activities and, in 2016, reclassification of certain trade liabilities.

As veteran aerospace analyst Sandy Morris of Jefferies points out, it's hard for shareholders to get too downcast about all the difficulties "when slide 17 in today's presentation states: 'Earnings and free cash flow taking off!'." 

Still, amid all the joy, it's worth doing a little compare-and-contrast with Airbus's bitter rival, Boeing Co. If you want to see a stonking cash flow performance, here you go:

Flying Cash Machine

Boeing is generating more and more free cash each year

Source: Bloomberg

Free cash flow as defined by Bloomberg

On operating cash flow, too, Boeing is knocking it out of the park, generating $13.3 billion by that measure in 2017.

There's an explanation why Airbus is so far behind on cash. Its aircraft programs are less mature than its U.S. competitor's, meaning they're less profitable. Airbus's large inventory, which expanded last year, eats into its cash balance.

The hope among investors is that this gap will narrow over time as the European company starts to make more money from each plane. Boeing's cash boom explains why its shares have done much better, and now trade at about 24 times future earnings -- compared to 21 times at Airbus.

Old Rivals

Boeing shares have comfortably outperformed those of Airbus

Source: Bloomberg

While it's all very good being experts at piloting through crises, they do take a toll.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE