Boeing and Airbus under threat as global rivals prepare to pounce
WASHINGTON, DC – In the battle between global aviation behemoths, the war between American manufacturer Boeing and its European competitor Airbus may have a surprise winner: neither of them.
Last week, both companies published downbeat quarterly earnings results, and scored only modest orders for new jets at the annual Farnborough Air Show.
Meanwhile, in Brazil and China, competitors are beginning to circle, raising the possibility that seismic shifts lie ahead for the commercial aviation industry over the next decade.
Boeing is in a far worse place than Airbus. Quarterly results reveal that only its global services division is showing a profit, as it works overtime to fix mechanical and safety errors that have brought the company to its knees.
Deadly accidents involving its 737-Max aircraft, and whistleblower claims alleging production safety issues with its 787 jets continue to take a toll, with outgoing chief executive Dave Calhoun telling investors last week that “we have more work ahead”.
That includes determining how much cash the company is losing.
Chief Financial Officer Brian West warned Boeing will burn through at least $1bn (£782m) a month in the third quarter, but was unwilling to hazard a guess at the state of the business by the year’s end. “I’m just not smart enough right at this moment to say whether it’s $5bn or $10bn,” West told analysts on an earnings call.
At Farnborough last week, Boeing unusually offered no commercial aircraft flight demonstrations, but pledged again to address the safety issues.
In July, Boeing agreed to plead guilty to a criminal fraud conspiracy charge and pay a $243.6m (£190m) fine to the US government over two 737-Max crashes that killed 346 people.
Last week, a new CEO was unveiled. Kelly Ortberg, former chief executive of Collins Aerospace – a highly regarded aviation and defence components supplier – will start work on Thursday, and immediately have his hands full.
Farnborough yielded just 96 commitments for Boeing, including Korean Air’s pledge to buy 50 wide-body planes. But it already has a supply backlog of almost 5,500 jets as it struggles to produce planes rapidly enough to meet soaring post-Covid demand amid heightened US government oversight of its activities.
Airbus must climb an even higher mountain. “There is a lot of demand for short-term deliveries,” its chief executive Guillaume Faury told Bloomberg last week, citing 8,500 plane orders the company is racing to complete. He warned that Covid-related supply chain issues were still proving difficult to overcome.
“We are trying to find the right speed of ramp-up that is a compromise between very strong demand … and the ability of the supply chain to deliver,” Faury said, adding that suppliers “are delivering systems that arrive late in the final assembly lines, so we have limited ability to react to their difficulties. We are now focused on fixing those issues”.
Airbus dramatically out-performed Boeing at Farnborough, scoring 266 orders. While fewer than the 826 it reaped during last year’s Paris air show, Airbus is not battling a crisis like Boeing, allowing its executives and engineers to relentlessly focus on fulfilling orders.
But international competitors are now seeking to take advantage of both firms’ difficulties. Brazilian manufacturer Embraer, whose regional jets seat a maximum of 145 passengers, has seen shares rise 85 per cent this year amid persistent rumours it may unveil plans to build larger aircraft.
China has aspirations to take on Airbus and Boeing. State-owned aerospace giant Comac received an estimated $70bn (£55bn) in government subsidies to build the C919, a rival to Boeing’s 737 Max and Airbus’ A320.
China Eastern Airlines has taken delivery of five C919s and the company has more than 1,000 orders on the books. It’s a slow start, but Beijing’s ability to instruct the country’s airlines to buy Chinese-made jets will give Comac a boost.
Analyst Rob Morris of Cirium Aviation Analytics says “the door is open for Comac” to be a global competitor, but it will take longer than the Chinese manufacturer is projecting.
“The pace at which Comac will walk through that door is relatively slower than Airbus walked through the same door more than 30 years ago.”
He says it will be “a very long time” before the battle between Airbus and Boeing becomes a three-way wrestling match.