This week saw a flurry of activity in the Aerospace industry with the Paris Air Show being held over the week. This week-long bi-annual event is full of impressive displays by aerospace companies across the globe. Companies participate to show-off their latest technology and usually walk away with closing bulk orders making it an important trade event in the industry. One of the prime highlights of the event is the rivalry between Boeing and Airbus, with both companies presenting a variety of commercial aviation displays while trying to gain an edge over each other.
The total orders placed for commercial jets between Boeing BA +0.28% and Airbus at this years show stood at an impressive $107 billion in orders and commitments, though it remained under the $134 billion threshold set at the previous Paris Air Show held two years ago. The decline in total orders was anticipated by the industry as both Boeing and Airbus have hefty backlog in commercial jet orders. In the most recently reported figures, Airbus and Boeing’s backlog stood at over 6,300 and 5,700 commercial jets, respectively. This considerable backlog means that it will take longer for the companies to fulfill the orders placed by customers at current production rates and in turn reduce the inflow of new orders from customers. While both Boeing and Airbus are contemplating an increase in their production rates, they are faced by supplier capacity constraints. Suppliers to the two commercial jet manufacturers feel their capacity is already pretty tapped out. Hence, supporting further increases in production rate will be hard for the suppliers to achieve.
Boeing’s stock price increased by over 2% over the week, moving from approximately $142 to $145. Our current price estimate for Boeing is $137.68, approximately 5% below its current market price.
See our complete analysis for Boeing here.
Airbus Beats Boeing In Total Orders But Boeing Retains Leading Position In Higher-Margin Jets
At this years Air Show, Airbus has emerged to be the winner in terms of total orders and commitments secured. Airbus’ proportion of the total $107 billion orders stood at approximately 53%, amounting to approximately $57 billion for 421 aircraft. In comparison Boeing’s proportion of total orders stood at 47% or $50.2 billion for 331 aircrafts. Airbus achieved this edge over Boeing in a last-minute deal with Dutch leasing company WizAir. This deal for 110 A321NEO narrow-body jets is valued at over $12.5 billion at list price. This deal was the show’s biggest single order and pushed Airbus over Boeing in terms of total orders and commitments secured at the Air Show. It is important to note, however, that this order is only provisional and still requires shareholder approval.
A quick glance at the total number of aircraft and dollar value of deals secured by both Airbus and Boeing shows that Boeing secured higher dollars per aircraft as opposed to Airbus. This conclusion is supported by the fact that overall Boeing secured more deals for their higher priced wide-body planes than did Airbus. Airbus’ success at the event, on the other hand, was driven by large orders of their narrow-body planes. Boeing’s win over Airbus in the wide-body planes segment is notable because these planes bring in higher margins as compared to their narrow-body counterparts. The orders for wide-body jets come as welcome news for Boeing, especially at a time when the manufacturer was contemplating slashing production rates of the higher margin yielding jets. The U.S. based manufacturer is now hoping it will be able to avoid cutting output, specifically in its 777 jetliner program.
Boeing’s Yet To Be Produced Middle-of-the-Market Jet Captures Industry Attention
A key focus at the show was Boeing’s envisioned middle-of-the-market jet, which will replace Boeing’s discontinued 757 jet airliner. It is expected to be launched only in or after 2020 and was received with a great deal of excitement. The MOM, which is expected to be a 220-seat jet, will be larger than the single-aisle jets but smaller than the wide-body jets offered by Boeing. The idea behind this jet would be to optimize profits for low cost carriers as it is expected to offer greater efficiency. It is anticipated that this plane will be able to fly more than 5,000 miles, which is 20% more than the discontinued 757 jets. The central idea behind this planned jet is to provide the efficiency of single-aisle jets at higher capacity.
The last time Boeing developed an aircraft from scratch was in 1995. However, intensifying competition from Airbus’ single-aisle jets justifies Boeing’s need to revisit the drawing board once again. In this entire process, the most crucial point for Boeing will be to limit costs in production of this jet. The MOM jet cannot be priced high like a wide-body jet since it provides lower capacity. Also, if acquiring the MOM over single-aisle jets requires too high a premium airlines will shy away from ordering it. Overall, the program has garnered interest in the market, showing that the need for such a jet could exist, which is good news for Boeing. However, the entire project is still right in the beginning of its early stages. Hence, it is too early to comment on the potential impact this jet could have, both on the market dynamics and on Boeing. More clarity on this jet is expected to be achieved over the next couple of years.
[“source – .forbes.com”]