3 Reasons to Buy Airbus Group NV

I’m going to do my best to resist making any “crash” references when talking about the stock price of the world’s second-largest airplane manufacturer… but it will be hard, because the stock of Airbus Group NV (ETR:AIR) (FRA:AIR) really did take a beating throughout 2014, with shares dropping more than 25% over the course of the year.

Although management has indicated that there may still be some tough times ahead, they also seem to think the worst is behind them. Here’s three reasons the stock may be a buy.

1) Airbus ain’t going anywhere

Analysts often talk about a company having a competitive “moat,” which refers to some sort of barrier that prevents a competitor from stealing its market share. This moat can take many forms, like patents or reputation, or a high cost to enter the market.

And in the case of large aircraft, the costs are staggering. Merely designing and developing a new airplane can cost north of $25 billion (yes, you read that right: billion with a b), as was the case with Airbus’s A380 and Boeing’s (ETR:BCO) (NYSE:BA) 787 Dreamliner. And that’s all up-front costs, much of which has to be absorbed before a single order for the new plane is placed. And with the cost of a single aircraft measured “only” in the hundreds of millions, one needs to be confident of selling hundreds if not thousands of planes to make the investment pay off.

Needless to say, some startup company is incredibly unlikely to try their hand at large aircraft design and construction. Even if they did, would you buy a ticket to ride in a plane designed and built by an untested company with no track record? Neither would the major airlines, meaning Airbus and Boeing have a virtual lock on the industry. Which is a very good place for a company to be.

2) The orders are rolling in

But even if Airbus and Boeing are the only two competitors in this space, Airbus could still lose out to Boeing, right? And, in fact, sales of Boeing’s 787 Dreamliner have been trouncing those of Airbus’s A380, part of the reason Airbus’s stock has done so poorly.

But these numbers only tell part of the story. In fact, in 2014, Airbus actually had more orders than Boeing… for the second year in a row. This is due primarily to strong sales of its smaller A320 line. Airbus’s backlog – the value of ordered planes not yet delivered – has swelled to nearly $1 trillion (yes, you read that right: one trillion with a t). And now, even the Airbus A380 may be seeing a glimmer of hope, as Dubai-based Emirates Airways – already the primary buyer of A380s – has publicly committed to purchasing 100 more of them, worth more than $43 billion, if Airbus will commit to an engine upgrade.

3) Production increases on the horizon

All these orders highlight one of Airbus’s big challenges: With its backlog growing, it needs to ramp up production and lessen delivery delays in order to fulfill those orders. And this is something it’s struggled with in recent years. Just this week, for example, Airbus announced delays in delivery of its A400M military transport plane.

However, there is a potential upside here: if Airbus announces production increases, the stock will likely benefit. And one can expect production increases to be announced sooner rather than later. Airbus CEO Fabrice Brégier said that the company could decide “before July” on whether to increase production of the A320. The Wall Street Journal speculates production increases would be announced at the end of February, when the company reports its full-year numbers.

The Foolish Bottom Line

Certainly, there are many reasons to be skeptical of Airbus stock right now, but there are also potential bright spots. I am still not convinced, however, that the stock is worth buying (you can find my full bearish take here). However, there’s definitely a bullish case to be made as well, so it’s one I plan to keep my eye on, particularly as full-year results are announced late next month.