With the trade war between the US and China heating up, everything is being put under a magnifying glass for obvious reasons. One of the companies that seemingly could get hurt easily is Boeing (BA). China is probably the biggest driver of growth for Boeing and Airbus (OTCPK:EADSF/OTCPK:EADSY), so it is clear where the US could get hurt… directly in one of the most advanced and cash flow intensive industries.
In this report, I want to comment on a piece that has been published on TheStreet (TST) and has been used by Seeking Alpha to populate their news section for Boeing and Airbus. In my view, the report contains some pretty big mistakes and because I think readers on and outside of this platform should have access to accurate information I will be commenting on the mistakes in the report and invite you to share it to spread accurate or at least more accurate information.
Airbus A380 or not?
The report states the following:
Philippe has also been trying to secure an agreement to sell 180 Airbus A380 jets to the state-controlled China Aviation Supplies Holding Co, which carry a list price of around $18 billion, that was first floated by French President Emmanuel Macron earlier this year.
What is important to note is that under the assumption that Airbus is trying to sell 180 Airbus A380 jets to China, the list prices do not fetch. An Airbus A380 carries a sticker price of $445.6 million, which means that the list price for 180 jets would be $80.2B which is nowhere close to the $18B quoted.
Also the price after customary discounts of $31.5B comes nowhere close to the $18B figure. I think it is safe to conclude that from demand point of view as well as a mismatch in quoted prices there is no such thing as a sale of 180 Airbus A380s to China. If such a big deal would have been pending, it is highly likely we would have heard rumors about it. The only thing that has been discussed is a potential Chinese participation on the Airbus A380 program, something that would make it more attractive for China to order the superjumbo, which is something that I discussed in an earlier report.
Where do the 180 jets come from?
The second part to look at is where the rumor for 180 jets comes from and why it surfaced now. That is actually quite easy. Recently an order from China had been in doubt after French and German ambassadors addressed the Nanking Massacre, which is a sensitive subject to bring up. Airbus has put effort to save that deal and the deal that had to be saved was the one announced in January of this year, where China and President Macron of France acknowledge that they were close to on agreement for the purchase of 184 Airbus A320 jets. Somewhat unsurprising 184 Airbus A320ceo aircraft cost $18.2B at list prices, which is the list price TheStreet quoted for 180 Airbus A380s. So these list prices do match reasonably well, though it can be assumed that most of the aircraft ordered will be for the Airbus A320neo family which carry a higher sticker price.
As far as I can see, the article from TheStreet draws a picture in which Boeing is about to lose an order due to the trade war between the US and China. Reality is a whole lot different, this deal was Airbus’s to lose and related to a preliminary agreement for 184 single-aisle jets announced in January of this year. I think by putting this in the trade war context a wrong image is being sketched. Shares of Boeing should be down because of the broad trade war concern, not because of the somewhat uninformed piece put out by TheStreet.
Concerning the Airbus A380, the only talks that have taken place are talks for a participation on the program but certainly no talks for as much as 180 superjumbos have taken place, which would have been three times the minimum demand Airbus expects for the jet in China. As big as the Chinese market is, even the Chinese market cannot absorb that many superjumbos and is likely better served with the Airbus A330neo and Airbus A350.
For readers, this once again shows that doing your own due diligence and having access to multiple (news) sources is incredibly important.