RE:Still making a profit, still pays dividend+buys back sharesLooks like an earnings beat. Came in at 10 cents per share vs estimate of 4 cents.
I wonder how the markets will respond considering their Outlook, especially with major restructuring charges planned for the 3rd Quarter.
Outlook The outlook for Magellan’s business in 2020
The current extreme economic uncertainty resulting from the ongoing COVID-19 pandemic renders it difficult to issue a specific outlook concerning industry and market conditions over the next 12 months and as such, the following market information is subject to a high degree of risk.
According to the International Air Transport Association (“IATA”), the number of daily commercial flights worldwide hit a low point in April 2020 at just below 20% of pre-pandemic levels. By June 2020, the numbers improved by 10% with Asia Pacific and North America leading a slow rebound. Forecasters have published various scenarios for market recovery suggesting that 2019 traffic volumes may not be experienced again until 2024 or 2025 and they speculate that some permanent downward adjustment in demand for new aircraft might occur. Considering the drastic drop in air travel, airlines are cutting their workforces, downsizing fleets, and cancelling and deferring new aircraft orders. According to media reports, commercial aircraft order deferrals in the second half of 2020 ranged from just under one year to almost 3.5 years depending upon the aircraft.
Airbus’ order backlog increased in the first half of 2020 from 7,482 to 7,584 aircraft following deliveries of 196 aircraft and net orders of 298 aircraft. Order cancellations in the period totaled 67 aircraft. Boeing’s order backlog decreased in the first half of 2020 from 5,625 to 5,232 aircraft following deliveries of 70 aircraft and net order cancellations of 323 aircraft. A total of 382 Boeing orders were cancelled in the period, of which 373 cancellations were for 737 MAX.
Airbus has published A320 build rates of 40 aircraft per month effective through the balance of 2020, which compares to a rate of 60 to 64 aircraft per month pre-pandemic. Their A330 rates are down to 2 aircraft per month from 4 aircraft per month and A350 rates down to 6 aircraft per month from 9 aircraft per month. Boeing resumed production of its 737 aircraft in May 2020. The build rate is currently planned at 7 aircraft per month through the end of 2020. The rate is expected to reach 10 aircraft per month by early 2021, then 17 per month by mid-2021 and 28 per month by early 2022. The Federal Aviation Administration and Boeing completed the first 737 MAX recertification flight tests in early July 2020. The aircraft return-to-service date is not expected to be earlier than September 2020. Meanwhile, Boeing is building its 777 aircraft at 5 aircraft per month, down from 7 aircraft per month and is expected to reduce it to 2 aircraft per month in 2021 and return to 3.5 per month mid-2022. The 787 rate is down from 14 to 10 aircraft per month, and will drop to 6 aircraft per month in 2021. There remains a high degree of risk that build rates will change given the difficulties airlines face in resizing their businesses to align with uncertain levels of air travel and given the difficulties in predicting the timing of market recovery.
Defence markets have been mostly unaffected by the pandemic to date as spending was advanced on various programs to help support vulnerable supply chains through the crisis. While this has been positive for the aerospace market, as time goes on, growing fiscal deficits will likely necessitate a re-prioritization of government funds to other areas.
Supply chain and logistics disruptions due to the pandemic have affected Lockheed Martin’s F-35 program. Lockheed anticipates delivering 18 to 24 jets short of the 141 scheduled for delivery in 2020 and aims to accelerate production again as soon as possible.
The bid response deadline for Canada’s Future Fighter replacement program with its three remaining competitors was delayed to the end of July 2020. A down selection is expected in 2020 or 2021 followed by the identification of the selected bidder, which is expected in early 2022. The first aircraft delivery is planned to be in 2025.
The third quarter of 2020 will be challenging for Magellan’s revenue on a year over year basis as COVID-19 continues to impact aircraft production rates over the short and medium term. In response to this impact, in the second quarter of 2020, Magellan initiated plans to right-size our business with major restructuring charges expected in the third quarter of 2020.
Limited market visibility continues to be problematic during this very dynamic period. Any estimate of the length and severity of market impact is subject to significant uncertainty. The Corporation continues to closely monitor the COVID-19 situation and reassess its operating plan as program updates become available.