Europe open: Aerospace stocks drop as Airbus cuts forecasts

European stocks were mostly lower on Tuesday with heavy falls in Frankfurt and Paris outweighing a more subdued performance elsewhere with heavyweights Airbus and Merck leading the decline.

The pan-European Stoxx 600 index was down 0.4% early on at 516.96, with the Dax and Cac 40 providing a drag, down 1.1% and 0.6% respectively. London's FTSE 100 was up 0.1%, while Madrid's Ibex 35 and Milan's FTSE MIB both fell 0.3%.

Airbus and Merck were the heaviest fallers on the Stoxx 600 with both stocks falling around 10% within the opening hours of trade.

Merck plummeted after the biopharma group called time on a cancer drug trial of lack of efficacy. The company stopped its trial of head and neck cancer treatment xevinapant, marking "another surprising setback for the healthcare pipeline", according to analysts at Barclays.

Airbus was out of favour after cutting its full-year earnings targets as a result of a "degraded operating environment", meaning it would only deliver around 700 aircraft this year, compared with previous guidance of 800. Annual EBITDA is now expected to be €5.5bn, down from earlier guidance of €7bn.

Sentiment in the travel and aerospace sector was also dented by news overnight that a Boeing plane operating a Korean Air flight heading for Taiwan dropped 25,000 feet in five minutes after a fault with its pressurisation system, adding to more woes for the American aircraft manufacturer.

Meanwhile, US prosecutors recommended overnight that the Department of Justice bring criminal charges against Boeing for violating a settlement related to two fatal crashes in 2018 and 2019.

Aerospace and engineering firms were all in the red in Europe, with MTU Aero Engines, Melrose, Rolls-Royce, SAFRAN, Trelleborg and Dassault Aviation all among the worst performers on the Stoxx 600.

Economic data was relatively thin on the ground on Tuesday, with revisions to first-quarter GDP in Spain the only notable release. The economy expanded by 0.8% in the first three months of 2024, up from the initial estimate of 0.7% and the 0.7% growth seen in the fourth quarter – marking the strongest quarterly growth in nearly two years. The annual growth rate was also revised 10 basis points higher to 2.5%.