Airbus backlog gains pricing power with BofA expecting higher margins

Airbus is poised for significant margin expansion, with Bank of America analysts projecting mid-teens commercial margins by the decade's end, driven by a backlog increasingly filled with higher-priced aircraft contracts. The shift from older, cheaper orders to newer, more expensive ones, particularly for widebody A350s and the A321, coupled with limited competition and improved pricing discipline, is expected to meaningfully lift gross margins from 2028 onwards. BofA raised its price target on Airbus shares to €270, anticipating that this enhanced pricing power will support higher future earnings and valuations, positioning Airbus similarly to engine manufacturers who have already seen market rewards for such strength.

Analysis

Airbus is poised for significant, long-term margin expansion driven by a structural shift in its order backlog and pricing power within its duopolistic market. According to a Bank of America analysis, the company is transitioning from older, lower-priced contracts to newer agreements that lock in substantially higher prices, particularly for its widebody A350 and popular A321 models. This shift is expected to meaningfully elevate gross margins from 2028 onwards, with BofA projecting mid-teens commercial margins by the end of the decade. The improved pricing discipline, a factor BofA believes is not fully appreciated by investors, stems from renewed demand and limited competition from Boeing. This fundamental strength prompted BofA to raise its price target on Airbus to €270 from €244, suggesting that as with engine manufacturers, the market may begin to reward Airbus with a higher valuation for its enhanced pricing power.

Key Decisions for Investors

• Investors with a long-term horizon should view the analysis as a bullish thesis, as the projected margin expansion from 2028 onwards appears to be an underappreciated catalyst.
• Consider initiating or adding to positions, as the firm's structural pricing power in a duopoly could justify a valuation re-rating similar to that already seen in aerospace peers like engine makers.
• Monitor quarterly reports for evidence of gross margin improvement and management commentary on the pricing environment to validate that the transition to higher-profitability contracts is materializing as projected.