Implications Of 2018 Boeing And Airbus Orders

Boeing (NYSE:BA) had a blowout first half with 460 orders compared to 206 for Airbus ADR (OTCPK:EADSY) which is a 70/30 split. Converting these orders to future revenue using estimates of real sales prices rather than the artificial list prices makes the situation look even worse for Airbus. Boeing received $45 billion of revenue, which is $28 billion more than Airbus. Is the situation as grim as it looks from this order report? No. Airbus is the dominant supplier of single aisle aircraft with the 320 series. However, the orders demonstrate that the 330neo and 350-1000 are not competitive. Airbus management is being early retired to remove the cloud over the company from the bribery of airline and government officials. New management needs new product strategy to reassure investors in order to counter the 797. The resources to support wide body aircraft are limited, but the single aisle growth will increase near term profits.

The following table compares the order and revenue results from first half 2018 order activity.

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737/320

The Airbus 320 trailed Boeing with 156 orders to 319 for the 737. Through 2017, Airbus had 60% of the single aisle market. Last year, Airbus beat Boeing by 309 orders. So, why the change? Airbus’s sales chief retired at the end of 2017, but he went out in a blaze of glory, selling 1054 320’s a record that will stand for a long time and leaving the new Airbus head of sales, Eric Schultz, with a thin prospect list. Jim McNerney, Boeing’s former CEO, liked to say that Airbus’s lead in introducing the re-engineered would mean that they would lead in sales but when 737 customers came to order, the new generation of 737 Boeing would regain share. A new larger version 737-10 will enter service in 2020, which has helped Boeing’s sales. Another problem with Airbus’ earlier market introduction is that orders for the previous generation of 320 are gone and GE (NYSE:GE) and Pratt and Whitney (UTC) are behind schedule on engine deliveries. So now, Airbus has 100 aircraft completed but undeliverable for lack of engines. It does not help sales when the existing orders cannot be delivered. Boeing is rapidly running out of orders for the previous generation of 737 so they have a risk of a similar problem.

On balance, Airbus has a larger single aisle order backlog than Boeing. Both companies are sold out through 2023. Both are planning to increase production but are constrained by engine suppliers. Airbus should hold the lead in this market for the next decade.

Wide Bodies

The 767 is only built as a freighter but it is doing well because the freight business is growing again. Airbus introduced the 330neo as a cheap counter to the 767. It has been delayed by engine problems and only 214 orders were received. Boeing replaced the 800 version of the 330neo with a 787 leaving Airbus with test aircraft but no orders. The higher oil price makes this aircraft less competitive against the 787. This model is not competitive and a replacement is needed.

The 350 was designed to compete with both the 787 and the 777. The smallest model was too heavy to compete with the 787-9 so it was cancelled. The 350-900 has a wider cabin than the 787 and a long range. Airbus received 679 orders mostly for long route. It has a niche but it is narrow. In 2018, it received 28 orders compared to 83 for the 787.

The 350 -1000 is designed to compete with the 777. It was intended as a 777-300 killer. However, the new 777X with a more efficient engine, is scheduled to enter serv

ice in 2020, but has stalled its progress. It has only 168 orders in 2018. The 777 received 24 orders, but the 1000 received none.

Eric Shultz released a study demonstrating that the 321 and 330 can meet the airlines requirements and there is no need for the 797. However, almost no one believes that. After it is announced, Airbus will need to craft a response. The market above the 320 has to be the main priority to support the single aisle niche. However, the road map could include efforts to fix the wide body weakness.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source : https://seekingalpha.com/article/4186594-implications-2018-boeing-airbus-orders

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