One of the biggest exports from Europe comes from Airbus. This European multinational aerospace corporation has earned a reputation for designing and manufacturing commercial aircraft and has also diversified its business into a separate helicopter division and a defense and space division. It competes with Boeing in the commercial aircraft market segment, Leonardo and Textron in the helicopter segment, and Lockheed Martin and Northrop Grumman in the defense segment. The growth prospects for this company have always been promising. Investing in Airbus stock means riding on the growth of commercial aviation and the stability of the defense industries. However, considering both its competitive and political landscape, this might come with added risks on top of the inherent risks that come from stock investing.

Weighing the Takeoff and Turbulence: The Pros and Cons of Investing in Airbus Stock

Pros: Airbus Stock Advantages

The company was established in 1970 as a joint venture of different European aerospace companies. The merger of the French aerospace and defense corporation Aérospatiale-Matra, the German aerospace manufacturer DaimlerChrysler Aerospace, and the Spanish aircraft manufacturer Construcciones Aeronáuticas in 2000 resulted in the incorporation of the European Aeronautic Defense and Space Company and the acquisition of Airbus.

Shares of the company have been listed on the Paris Stock Exchange, the Frankfurt Stock Exchange, and four other regional stock exchanges in Spain since its incorporation in 2020. Nevertheless, to reflect its multinational origin and highlight its European heritage, the European Aeronautic Defense and Space Company rebranded itself to Airbus in 2015.

The company has been at the forefront of the European aerospace industry. It has a significant market share and has benefitted from its duopoly with Boeing in the commercial aviation segment. Its Defense and Space division focuses on aerial refueling and tactical aircraft but has also invested in other ventures that produce space launch vehicles, fighter aircraft, and missiles. The Helicopters division is the largest in the world in terms of revenues and deliveries.

Nevertheless, considering its three divisions, in addition to its investments in other companies, the company has multiple streams of income. It is headquartered in Leiden in The Netherlands and Blagnac in France but has a manufacturing presence across Europe and in Canada, the United States, and China. The following are the advantages of Airbus stock:

• Duopoly and Dual-Revenue Stream: The duopoly in the commercial aircraft market limits industry-wide value sharing to Airbus and Boeing. It is also worth noting that a decline in this market would still keep Airbus afloat because it also generates revenues from its Helicopters and Defense and Space divisions. Investing in Airbus stock provides the benefits of investing in a market leader with diverse sources of income.

• Growth Stock and Defensive Stock: Airbus is a large-cap stock that also has some of the characteristics of growth stock and defensive stock. This is because future growth in both the commercial aircraft and defense markets has remained positive. The specific defense segment also tends to be insulated from boom-and-bust cycles and economic downturns. Airbus can be ideal for both growth investing and defensive investing.

• Established Sales or Order Backlog: It is worth noting that the company maintains a substantial order backlog. This log refers to the outstanding orders or contracts that it has received from customers but has not yet fulfilled or delivered. An established backlog not only enables better production planning and resource allocation but also provides visibility into the future revenue streams and growth snapshot of the company.

• Positive Long-Term Growth Prospect: The growth potential of Airbus stock is promising because of the long-term growth in the passenger aviation market and tourism sector. This means a potential to sustain upward sales of commercial aircraft or passenger planes. It is also worth mentioning that the defense market is also expected to continue to grow in the future because of the increasing military spending of governments.

Cons: Airbus Stock Disadvantages

Airbus is indeed one of the largest aerospace companies in the world and has also an established market presence in the commercial aircraft market but it is not without its internal issues. The company tends to have higher costs. These come from its more expensive labor costs because of its large unionized workforce and expansive workforce distribution, and higher manufacturing costs due to the complexity of its supply chain and production line specialization.

Higher costs can translate to suboptimal profit generation. This means that one of the potential disadvantages of Airbus stock is that it might generate less profits for distributions among its investors. The growth of the stock price might also be slower because some investors might be less willing to pay a premium for a stock undergoing cost pressures.

The company also faces intense competition. Remember that Boeing remains its biggest competitor in the commercial aircraft market. The Commercial Aircraft Corporation of China or Comac is another competitor in the same market with a growing market share in China. The sales of its Helicopters division have also declined while its Defense and Space division has to compete with Boeing, SpaceX, Lockheed Martin, and Northrop Grumman.

Airbus also needs to weather through threats and risks innate to the markets or industries it serves. These include supply chain issues, currency exchange fluctuations, and geopolitical and regulatory issues. This means that investing in the company also potentially exposes its investors to these threats and risks. The following are the disadvantages of Airbus stock:

• High Capital and Costs Requirements: Manufacturing aircraft is a capital-intensive undertaking that requires substantial investment. The overall costs of Airbus also tend to be higher than Boeing and other competitors because of its organizational structure. Investing in the company means financing its high capital requirement and operational costs. This can be rewarding only if the profit margins are substantial enough.

• Fickle Historical Financial Performance: The profitability of Airbus has been a mixed bag in recent years. It secured a record number of orders in 2023 but its net income fell by 11 percent compared to 2022. The higher costs also lower its profit margins. It is still worth noting that the company has been focusing on reducing its cost and its long-term growth potential remains strong because of its position and strong order book.

• Cyclical Commercial Aircraft Market: Another disadvantage of Airbus stock is that it is also considered a cyclical stock. This is particularly true for its commercial aircraft market which is sensitive to global economic conditions, fuel prices, profitability of commercial airliners, and currency exchange fluctuations. Take note that its commercial aviation division remains the biggest contributor to its overall revenues.

• Exposure to Critical Threats and Risks: The company is exposed to several threats and risks that can affect its financial performance. It is dependent on the overall condition of the global economy or specific geographic markets. Airbus can also be affected by supply chain disruptions that can result in delivery delays. It is also exposed to geopolitical and regulatory risks that can disrupt global trade or affect its business operations.