That profit thing

Airbus has got the sales. Now how about profit?

The European aircraft maker won over Japan Airlines, one of the few remaining Boeing-only carriers. The order of 31 A350 jets confirms the string of Airbus' recent sales successes over its US competitor. Now it should get to work on what its rival does better: profit.

The landmark success underscores Airbus' success in gaining market share from Boeing. Even before the JAL deal, 2013 orders at Airbus were way ahead of the company's internal targets. It may sell more than 1,200 jets this year - a fifth more than originally planned. This outperformance is not just a blip: since 2009, the European group has secured 16 percent more new orders than the American, due to delays and technological glitches on the 787 "Dreamliner". Airbus' order backlog has swollen to more than 5,300 planes - enough to keep the company busy for the next eight years.

The share price of the plane maker's parent company EADS, soon to be renamed Airbus Group, has risen 90 per cent in a year, reflecting booming sales as well as changes in governance which limit the influence of governments like France or Germany.

Yet EADS only trades at 5.3 times next year's Ebitda, a 38 percent discount to Boeing. Compared to a wider industry average, the valuation discount on EADS is only slightly smaller.

Investor scepticism is justified for two reasons. EADS may have become more independent from European politics, but it isn't yet the "normal" company its CEO Tom Enders would like it to be. Furthermore, profit at Airbus has not grown as impressively as its order and sales. The group's commercial aviation unit earned a meagre operating margin of 3.2 per cent in 2012. While this was better than 2011's poor 1.8 per cent, it is still far from Boeing's own 9.6 per cent. Airbus' Chief Executive Fabrice Bregier promised in June to double the division's profit margin by 2015. The lacklustre sales of signature jet A380, which appears to lose ground to a new generation of extremely efficient two-engine long-haul jets like Boeing's 787 and Airbus' own A350, could well make that target difficult to hit.