Aircraft Manufacturers - A Battle for Market Share or Airbus and Boeing's Different Directions?

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So far, aircraft manufacturers have mainly been discussed in the “I bought/sold recently” thread, thus missing out on speculation and precise analyses. However, quite a few forum members seem to follow either Airbus or Boeing, with the most knowledgeable even following smaller manufacturers.

The coronavirus makes the topic particularly interesting. Airbus has descended from the €135 level to the €60 level, while Boeing’s flight stalled at the $330 level, after which its landing gear met resistance at the $150 level. For Airbus, for example, this amounts to over 50 billion euros in market value. Is the impact of the coronavirus really this significant? Airbus has a production backlog of about 7700 aircraft, which will take 8 years to complete. A temporary dip in the demand curve should be caught up within the next 8 years.

Airbus is likely to further strengthen its market position in narrow-body aircraft (A320 now around 60%), and the ongoing crisis will further complicate Boeing’s competitive position against Airbus’s flagship A321XLR. Boeing’s ongoing problems with the 737 Max will not help in building credibility, and a huge portion of resources is going into fixing problems, while others focus on future development.

In wide-body aircraft, the Dreamliner is at least for now more popular in terms of order numbers than Airbus’s competitor A350. For example, American Airlines demonstrated the importance of fleet commonality a couple of years ago by canceling an order for 20 A350 aircraft and switching them to Dreamliners. In larger aircraft, Airbus’s A380 is in its infancy compared to Boeing’s “Heavy,” the jumbo jet. What is the future for the largest aircraft, will/does Airbus want to renew the A380?

Airbus’s and Boeing’s market shares also vary by continent. For example, last autumn, the Indian low-cost airline IndiGo ordered 300 narrow-body aircraft, valued at approximately 30 billion. Airbus won the competition that lasted for a longer period. This is just one of several larger deals recently.

Market areas currently:

Boeing:

  • North America 48%

  • Asia 28%

  • Europe 14%

  • Middle East 10%

Airbus:

  • Asia 40%

  • Europe 30%

  • North America 19%

  • Middle East 11%

From the demographic distribution, it can be noted that Airbus’s market position is more in developing countries. On the other hand, Boeing’s strength, for example in North America, can provide security and more stable results in the coming years, but in the long term, the economic development of Asian countries and the speculated massive increase in Asian travel, especially concerning China (also speculated in the case of Finnair), support interesting market prospects for Airbus.

Both companies also have operations outside passenger air traffic, including in the military sector, helicopters, and space projects. Especially Boeing’s importance to the USA is so immense that, despite major problems, the company will certainly not be allowed to collapse. The markets are not currently pricing in very rosy prospects for either company - for example, Airbus’s valuation of around 11 P/E, depending on 2021 forecasts, indicates disbelief in future deliveries and practically leaves future growth drivers unvalued.

The coronavirus will certainly reshape air traffic, but considering the overall picture, will flying disappear from the world? Remote meetings etc. will likely become more common, but especially with the huge volume from developing countries, one could imagine the future being even more about flying.

Could we get thoughts, ideas, and analysis on aircraft manufacturers here? Of course, airlines outside the duopoly will also be considered. :wink:

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I see Airbus as the winner in aircraft manufacturing, but the US’s share/interest in Boeing should not be underestimated (due to the defense industry).

Does anyone know how Airbus’s orders work, for example? How much is paid in advance, what are the penalties for possible cancellations, etc.?

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It would be interesting to get facts about the current average age of the aircraft in use by these two companies. Because if airlines collapse and flying slows down due to changes or recession, how many planes are already out there as idle circulating units? Will the need for new planes change so that not as many new ones are needed, and even orders might be canceled or at least new orders would stall? Only questions from me, no facts or answers.

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This is particularly interesting and I need to delve into it more when I have time. Aircraft are inherently very long-lived, which is practically evident in many airlines’ old fleets, and often these are then sold for private use to rock stars, etc. :smiley: The maintenance side is also inevitably interesting, how much it generates ongoing cash flow, e.g., in the form of spare parts, etc. The financial aspects are naturally interesting, e.g., in new sales (large savings, e.g., in fuel, create a well-justified purchase/leasing situation even in a weaker market), although economically viable repair measures can also be made to old fleets, for example, by reshaping wingtips, etc.

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From what I’ve read on the subject, analysts believe that the price of oil affects in the short term how old the fleet is that is worth flying. In other words, at the moment it might be worth using older equipment and postponing the deliveries of ordered aircraft, but it’s hard to say if this will have any impact on new aircraft orders made years from now.

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Just a few days ago, I read some kind of analysis about airline companies in some media, but I can’t find that analysis anywhere anymore. In any case, the content of the analysis left a very similar general impression to the excellent opening post of this thread.

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Let’s comment a bit more on the narrow-body vs. wide-body issue. Boeing does better with wide-body aircraft, but the current trend favors twin-engine narrow-body aircraft, which is Airbus’s strength. I read that when the A380 was being designed, they made a guess that airports would become congested, and a large aircraft would allow efficient utilization of airport fees. This guess was apparently wrong, and airports haven’t become congested, and to fill the planes, seats have to be sold at a discount. Only Emirates currently operates the A380 on a large scale because it can utilize its Dubai hub for transfer traffic. I’m not sure what the future will be regarding point-to-point and hub traffic.

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  • Airbus 2019 Summary

  • Of Airbus’s 70 billion euro revenue, aircraft account for 55 billion, Airbus Helicopters 6 billion, Defense and Space 11 billion, and Ariane 3 billion.

  • It is worth noting that the arms industry is a huge business, and Boeing is the world’s second largest in it (about 30 billion USD), and Airbus is Europe’s second and the world’s seventh largest player.

  • Airbus and Boeing have a duopoly with a deep moat, and the situation is interestingly divided in that Airbus dominates the narrow-body market and Boeing the wide-body market. There is no immediate fear that Embraers, Bombardiers, or Tupolevs would steal market share.

  • The coronavirus is only a slowdown that does not change the general trend that the aviation industry is growing at a rapid pace, and there will be significantly more aircraft in the sky in the coming decades than today.

If one wanted to invest in these with more than just play money, it would be wise to understand the company’s situation more deeply:

  • Airbus has had production problems that are likely to continue in the future. This is, in my opinion, Airbus’s most significant problem now and in the future, as money comes from finished products, not orders. As I understand it, for example, Finnair would like to see Boeing MAXs released from the grounding, either a) to get a competing offer and a more favorable price for new narrow-body aircraft, and/or b) Finnair does not want to wait for years for Airbus’s queue to clear.
  • Airbus Defence and Space is planning a restructuring because things have not progressed as desired:

“Order intake, EBIT (profit) and cash are of such a concern that our short-term performance is starting to jeopardize our long-term perspective,” Airbus Defense and Space CEO Dirk Hoke said in a letter to employees.

  • No new orders for Airbus in February
  • 296 orders in January (274 after cancellations, etc.)
  • 55 aircraft delivered in February, 86 deliveries YTD.
  • The aviation industry is stalling more than expected
  • Interesting article on the errors that led to the catastrophic A380 failure
  • In summary, I would blame management’s misjudgments; according to the article: “The rapid demise of the Airbus A380 is a complex tale of missed connections, a changing market and, ultimately, a staggering lack of demand for the largest commercial airplane ever built.”

How payment occurs is still a bit of a mystery to me (these surely vary by contract). There was an interesting article on Seekingalpha on the topic, from which the conclusion, if I remember correctly, was that even though there are more than enough orders in the pipeline, the lack of new orders due to the coronavirus is problematic. I would guess the reason is a cash flow dip caused by decreasing deposits and pre-payments:

  • Generally, the majority of the payment occurs upon delivery
  • However, deposits and pre-payments are standard practice. According to experts, the deposit amount is about 5% or more, which reserves a slot in the queue.
  • Regarding pre-payments:

Airlines have to make further down payments as the clock ticks down to delivery, especially from about 24 months out. By delivery day, an airline has typically paid 20 per cent of the aircraft’s net value but this can be as high as 50 per cent.

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Great opening! I’ve been considering adding both Airbus and Boeing to my portfolio (because in this market, I might not want to guess the “winner”).

I haven’t even started my analysis yet, so thanks for the posts already here. I’ve been thinking about the big picture: almost all civilian aviation customers are taking a big hit right now, bankruptcies are coming, used planes are returning to the market, customer liquidity is questionable, will new airlines emerge to create new demand, etc. Is there any viable competitor in the civilian sector (that wouldn’t be in almost as much trouble)? What do you think about these?

I don’t believe either will go under, and planes will be needed in the future (until Star Trek’s transporter is developed). However, “normalization” might take several years.

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Yeah, Airbus’s biggest risks are production problems and weak profitability compared to Boeing. Time will tell if the bribery case will affect new orders. Sales prices are of course secret, but analysts estimate that planes have been sold cheaply to increase market share, as companies often fly planes from the same manufacturer. This may also be partly influenced by the fact that wide-body aircraft have better margins, while narrow-body models are more of a bulk commodity. Personally, I believe Airbus will do very well in the future because it has good products and a strong market share in growth markets.

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One thing that hinders my analysis, at least, is that financing the acquisition of passenger aircraft “on a whim” is some kind of voodoo magic, where planes are first bought, then sold to a leasing company and leased back for use, and I, at least, don’t understand who bears the risk and whose balance sheet the fleet is on, and so on. (Although I don’t know how significant this is in the overall picture. I think it is, but if anyone has other views, please share them.)

EDIT: Sorry for the continuous spamming, but being excited about the topic, I started researching Finnair’s 2019 financial statements. https://investors.finnair.com/~/media/Files/F/Finnair-IR/documents/fi/reports-and-presentation/2020/vuosikertomus-2019.pdf Pages 65-69 discuss the aircraft fleet, and as far as I can see, they have both bought and leased planes. Also interesting was the information that Finnair has, among other things, half a billion euros worth of purchase commitments for Airbus A350 aircraft for the years 2020-2022. This is probably familiar territory for Finnair investors, but new to me (I have never seriously even considered investing in Finnair). Probably other airlines have similar arrangements?

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Interesting. This sends a good signal to manufacturers in the sense that many of the largest airlines are on a relatively stable footing / have states backing them, etc., so there’s probably not much risk of bankruptcy. In a bankruptcy situation, such commitments would practically be meaningless.

Half a billion euros in purchase commitments isn’t very many in terms of number of planes, it probably corresponds to about 1.5 A350 aircraft :smiley: I’ll have to look into what those mean more closely - whether it’s a portion paid for 10 different orders, or an agreement to buy at least that much, etc. Thanks for the tip!

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Due to bankruptcies and fleet reductions, fairly new aircraft will likely come onto the market for sale. Aircraft order cancellations are also expected. Norwegian is unlikely to take delivery of aircraft it has already ordered. Lufthansa has announced it will downsize its fleet. Airbus, by the way, will stop manufacturing the A380 once it has completed the already ordered ones; sales were poor.

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Yep, and this is certainly one of the concerns that, if realized, will postpone new aircraft acquisitions for years - at least for those who would acquire used aircraft.

In addition to buying and leasing, Finnair has also leased some aircraft to other airlines. It’s quite a bit of juggling with the fleet, though :slight_smile: I might actually like a job like that.

Airbus, in my opinion, explains its order book and deliveries quite well on its investor pages.

EDIT: THE FOLLOWING ARE APPARENTLY THE FEBRUARY 2020 ORDER INTAKE, NOT THE ENTIRE ORDER BOOK.

The current order book is like this:
Smaller aircraft models (A220-A321) have 265 in the order book and 20 cancellations (I don’t know over what period). The largest customers are Air Lease Corporation (102 units) https://airleasecorp.com/investors and Spirit Airlines http://ir.spirit.com/ (100 units). There is some risk concentration there. Spirit is supposed to get 15 aircraft in 2020 and 26 in 2021.

The larger A350 model had 11 in the order book, but 7 were canceled. Since Air France had ordered 10, most of the canceled ones were going there.

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In my opinion, Finnair has not leased its aircraft to other companies. Finnair has rather had a shortage of equipment. Finnair had leased equipment with drivers from some Eastern Bloc company, as I understand it, a few planes to smooth out demand peaks.

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Here are the order quantities by customer, if you want to consider the strength of the existing order book:
Air Senegal: 8
Air France: 10 (of which some had been canceled)
BOC Aviation: 20
CEBU Pacific: 15
Air Lease Corporation: 102 (I miscounted above earlier)
Spirit Airlines: 100
CALC (China Aircraft Leasing Group): 40

EDIT: 27 of these were canceled, of which 7 A-350 from Air France and/or Airlease Corp. Of the remaining 20 cancellations, 15 were from the BAC, CEBU, Spirit sector, and 5 from CEBU, Air Lease, Spirit, CALC. These cancellations are not specified for certain customers in this file.

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Finnair’s financial statement 2019 page 69:

Finance lease receivables, group as lessor
For aircraft, 47 MEUR
Sublease agreements include sublease agreements for 9 aircraft, as well as sublease agreements for ground equipment, which were reclassified as finance lease agreements upon the adoption of IFRS 16.

I can’t copy/paste that as a table, so there’s the essential part. This doesn’t address what kind of planes those are. It could be that they don’t meet demand or something.

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Interesting. What kind of planes does Norra fly? Could the planes be leased from Finnair, they probably don’t own their own planes? Norra is a subsidiary of Finnair.

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Excellent point, Sir! From Finnair’s investor pages:

Regional flying – Nordic Regional Airlines (Norra)

Nordic Regional Airlines AB is an airline specializing in regional flying. Its Finnish subsidiary, Nordic Regional Airlines Oy (Norra), operates ATR turboprop aircraft and Embraer 190 aircraft as purchased traffic for Finnair. The Danish airline Danish Air Transport (DAT) owns the majority, 60%, of Nordic Regional Airlines AB’s shares, and Finnair owns the remaining 40%.

Norra operates a fleet of 24 aircraft. All aircraft are leased from Finnair Aircraft Finance Oy. Norra’s route network is coordinated with Finnair’s European and long-haul flights. Finnair’s influence in the company is based on share ownership and contractual arrangements.

I don’t know if these are exactly those aircraft and how they are handled in accounting. However, the number does not match the financial statement. Although the text above is not something that would be “sworn to be true with a hand on the Bible.”

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Quite complex arrangements. Finnair has leased out nine planes, and Norra has leased 24 planes from Finskin.