Is Boeing Only Half as Good as Airbus?

In October, Boeing suffered a crushing defeat in its eternal battle with EADS' Airbus. In back-to-back skirmishes, the Seattle giant lost two bidding wars to its rival.

Photo courtesy of Airbus

First, formerly loyal customer VivaAerobus in Mexico gave $4 billion worth of plane orders to Airbus rather than to Boeing. Then, in an even bigger bruise to Boeing's ego (and its bank account), Japan Airlines gave Airbus a contract for $9.5 billion worth of planes. Add it up, and that's $13.5 billion worth of revenue (at list prices, which are usually heavily discounted) that should have been Boeing's for the taking -- but that got taken by Airbus instead.


Ouch!
Ouch is right. Now, Boeing isn't taking this lying down. Turnabout is fair play in the airplane wars, and Boeing's fighting back. Last night, we learned that Boeing has swiped one of Airbus' traditional customers. Boeing won a firm order from Air Canada -- a traditional bastion of Airbus-buying -- for a total of 61 737 MAX planes, worth $6.5 billion at list prices.


But that's still just half of the sales Boeing lost in the VivaAerobus and JAL deals. So yes -- lately, Boeing has been doing only about half as well as its rival.

Granted, Boeing still has a chance to close the gap. In addition to ordering 61 planes "firm", Air Canada also took out "options" and "rights" to buy 48 more Boeings at a later date. These follow-on orders could potentially add as much as 80% to the size of the Air Canada deal.

737, looming large in Airbus's rearview mirror. Source: Boeing.

What's more worrisome than the sales numbers, though, is what all this infighting and customer-swiping might mean to the bottom lines at both Boeing and Airbus. After all, when an airline invests billions of dollars in buying one airplane maker's planes for its fleet, it makes a big commitment -- in configuring facilities to service one type of plane, in training its mechanics to work on these planes, and training its pilots to fly them. Switching horses midstream is not a decision an airline makes lightly. It needs a big incentive -- a big financial incentive -- to push it to make the switch.

How big?
It stands to reason that every time Airbus steals a customer from Boeing, it does so at a cost -- a cost measured in discounts to list price and weakened profit margins. Similarly, in stealing Air Canada away from Airbus, Boeing may have been forced to make significant concessions.

Air Canada CEO Calin Rovinescu. Why is this man smiling so widely? Source: Air Canada.

How big might those concessions have been? Historically, airlines making large unit purchases of aircraft have negotiated substantial discounts as a matter of course. When Ryanair made a similar-sized purchase of 70 Boeing 737s back in 2005, for example, it reportedly got the planes' list prices cut in half -- and that was with Boeing selling planes to an existing customer. (According to The New York Times, Ryanair scored another 50% off sale in its larger, 175-plane purchase earlier this year). You've got to figure that, before switching allegiances from Airbus, Air Canada bargained at least as hard with Boeing.

As it turns out, we know for a fact that Air Canada drove a hard bargain with Boeing. In order to win the Air Canada order, Boeing had to make the unusual promise to buy 20 of Air Canada's 45 Embraer 190 jets off of the airline. As for the dollars-and-cents concessions Boeing was forced to make, the proof will be in the profit margins.

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The article Is Boeing Only Half as Good as Airbus? originally appeared on Fool.com.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Embraer-Empresa Brasileira. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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thac396174

Many airlines are not replacing there exist Boeing aircraft, since Boeing CEO James McNerney, and GE CEO Jeff" Immelt are member of the board on the Import-Export Bank that made better loan to foreign airlines at a lower interest bank

Delta, and other Airline Group have file law suits against The U.S. Export-Import Bank over Air India Loan Guarantees
http://www.bloomberg.com/news/2011-11-16/airline-group-sues-

This may be the reason that airlines are ordering from Airbus
Delta has already has orders with Boeing for 18 787s and Delta confirms plan to buy 100 Boeing 737s
Delta Air Lines said that it will buy 40 more Airbus planes

http://finance.yahoo.com/news/delta-announces-order-40-airbu

British Airways Poised to Dump Boeing

British Airways Poised to Dump Boeing - 24/7 Wall St. http://247wallst.com/aerospace-defense/2013/04/08/british-ai

Singapore Airlines likely to convert orders to A350-900 & -1000
http://atwonline.com/airframes/singapore-airlines-orders-30-

Lion Air orders 234 A320 Family aircraft
www.airbus.com › Press centre › Press releases

American Airlines takes first of its 260 Airbus airplanes on order
rhttp://aviationblog.dallasnews.com/2013/07/american-airlines-takes-first-of-its-260-airbus-airplanes-on-order.html/
http://www.youtube.com/watch?v=EodkQhGa0P8

JAL Orders $9.5 Billion Worth of Airbus Jets
www.nytimes.com/2013/10/08/business/international/jal-orders-9-5...

ANA in Discussions for A350 Orders

www.airliners.net/aviation-forums/general_aviation/read.main/57
Airbus Said to Near $5 Billion Jet Order From VivaAerobus ...
www.bloomberg.com/news/2013-10-16/mexico...5-billion-airbus-order.html

Air China Places Order for 100 Airbus SAS Aircraft
www.airport-int.com/news/air-china-places-order-for-100-airbus-sas...
Vietnam's VietJet agrees bumper $9 billion Airbus order | …
www.reuters.com/.../09/25/us-airbus-vietjet-deal-idUSBRE98O11D20130925

Airbus wins $7 billion Philippine Air order
http://www.reuters.com/article/2012/08/28/us-philippines-air
Airbus raises 2013 order target to over 1,000 jets
http://ca.finance.yahoo.com/news/exclusive-airbus-raises-2013-order-target-over-1-111958009.html

Mexico budget airline orders 52 Airbus A320s worth $5.1 ...

finance.yahoo.com/news/mexico-budget-airline-orders-52-192345075.html

Vietnam, China airlines in $15.45bn Airbus orders

www.gulf-times.com/business/191/...airlines-in-%241545bn-airbus-orders

Vietnam Airlines plans to buy Airbus A380

news.com.vn/.../30473-vietnam-airlines-plans-to-buy-airbus-a380-.html

its is time to give Boeing CEO his golden parachute retirement and the stock holder should loan the CEO a C-17 over one of the World's Active Volcanoes

December 12 2013 at 8:53 PM Report abuse rate up rate down Reply
surfundeep

It must be a Boeing...or I"m not going !

December 12 2013 at 2:41 PM Report abuse rate up rate down Reply
1 reply to surfundeep's comment
thac396174

It must be a Boeing...or I"m not going really !

the 787 was start on 3-28-2003 and only 103 aircraft has been delivery
the aircraft has had one workmanship problems after another, missing O-ring from the fuel lines and loc wire, miss wire power panels, and APU batteries in a box without cooling, the grounding of the aircraft all the emergency landings

Boeing 787 Dreamliner: timeline

news.uk.msn.com/world/boeing-787-dreamliner-timeline-of-problems...

the 747-8 has delivery 57 aircraft in the last two year that are 2.04 billions over budget and do not meet perform spec

Think-Dash: Boeing and GE working triplicate 747-8 and 787 PIPs

www.think-dash.com/2011/02/boeing-and-ge-working-triplicate-747-8.html

Business | Findings of FAA's special audit of Boeing factories ...

community.seattletimes.nwsource.com/archive/?date=20001031...

In October 2010, the FAA issued a Safety Alert for Operators highlighting the fact that the cargo on board Flight 6 contained a large quantity of lithium-ion batteries and that Halon 1301 was inefficient in fighting fires involving them.[8] The FAA issued a restriction on the carrying of lithium batteries in bulk on passenger flights.[28]

http://en.wikipedia.org/wiki/UPS_Airlines_Flight_6

there no fire extinguisher that can put out lithium-ion batteries fire

Now if it Boeing no one is going !

December 12 2013 at 9:52 PM Report abuse rate up rate down Reply