Airbus (AIR) operates under three main divisions: Airbus (68.4% of FY14 revenues), the commercial aircraft division; Airbus Defence and Space (21.0%; previously split under Cassidian, Astrium and Airbus Military) and Airbus Helicopters (9.9%; previously Eurocopter).
We expect AIR’s earnings and cash flows to significantly increase from 2016-17 driven by increased production rates of the A320neo (from 2Q16), A330neo (from 4Q17) and A350. Given AIR’s long-term revenue visibility, expected earnings inflection from 2017 driven by maturing new aircraft programmes, and scope for improved shareholder returns (improved dividends and buybacks) in the medium term, we believe that the premium is justified. On the negative side, a stronger USD could impact negatively its business.