Boeing, EADS And The Future Market

| About: The Boeing (BA)

In this article, I will look at each company segment of The Boeing Company (NYSE:BA) and see how it performs relative to EADS (OTCPK:EADSF). Besides that, I will have a closer look at the airplanes that both companies manufacture and see how each airplane fills a gap in the product line. Thirdly, I will look at the order books and see what the future market holds for both companies and look at how they are positioned relative to that market. I won't look at the military market in-depth as not much data can be gathered about it and military orders are a long political story (it can take a decade to decide to order a military plane).


First of all I will look at the company structure, see what segments it has and how revenues are divided among those segments and look at the quarter results. Please note that when I am comparing the companies, I am comparing aerospace companies rather than airplane manufacturers. Because a lot of historical events determined the heading of the companies (especially for Boeing), I will describe the companies' histories briefly.

The Boeing Company


The Boeing Company was founded during WWI. During wars the technological development is boosted to get an advantage over the enemy. For Boeing this meant they got big military orders. When war ended orders dropped to revive during WWII when the US entered the WWII. Military orders grew, as did the company. The victory on Germany, the leading country in the field of aerodynamics, was a victory for Boeing as well as scientific data from German wind tunnel tests could be studied. Using this data Boeing was able to build faster airplanes, using swept wings.

With the application of jet engines on airplanes a new era began for the aeronautical industry, flying became cheaper and faster than sea transport. WWII triggered the early development of missiles, giving Boeing a stronger position in the military segment. As the Soviet Union launched the Sputnik, the US had to come with an answer and it came in the form of the Apollo Project. Boeing took this project to set its name as a manufacturer for aerospace hardware.

To compete with McDonnell Douglas DC-9 Boeing came with the Boeing 737. The 737 had a slow start and the company had a difficult time when the Apollo Project ended. The Boeing 747 at that time wasn't an answer to Boeing's problems, leaving Boeing in a crisis. To battle decreasing orders and the recession, Boeing expanded into ground transportation and production of windmills.

When the economy recovered Boeing came with 2 new planes: the 757 and the 767. Both planes took their spot in the Range vs. Passenger diagram (Figure 4). In the 1990s the Boeing 777 was introduced, assuring a cashflow for the coming decades. A merger with competitor McDonnell Douglas strengthened Boeing's market position. The merger added successful fighter planes, rockets and the Apache to Boeing's product line.

In the 2000s and 2010s Boeing started to see competition from Airbus and lost the market leader position. Boeing responded with the 787 and 747-8I. A defeat that Boeing had to take was the JSF project being awarded to Lockheed Martin (NYSE:LMT), but at this moment one can question whether this really is a loss.

Boeing has faced several crises. How did it manage to survive every time?

The answer to this question can partly be found in politics, inventions and Boeing willing to take risks.

Political triggers:

  1. WWI
  2. WWII
  3. Space race with Soviet Union
  4. Military orders pouring in to keep the company busy

Invention triggers:

  1. Pressurized cabins
  2. Sweep angles
  3. Jet engines
  4. High bypass-ratio engines

Company triggers:

  1. Exploring new markets
  2. Switch focus between markets
  3. Innovating the current product line
  4. Using supply & demand as a fundament to manufacture
  5. Taking over companies, adding products to the product line and gaining in market position
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Today, almost 100 years later, the company consists of the following segments:

  1. Boeing Capital (Financial department)
  2. Boeing Commercial Airplanes (core business, commercial airplane)
  3. Boeing Defense, Space & Security (core business, space applications, military planes, satellites)
  4. Engineering, Operations & Technology (Engineering heart)
  5. Boeing Shared Services Group

Quarter results

Despite problems with the Boeing 787, Boeing showed strong Q1 2013 results. Revenues dropped by 3% compared to Q1 2012, earnings grew by 5%. EPS grew 24% to $1.73. Deliveries remained constant (137), it needs to be mentioned that Boeing started rolling out the Boeing 737 (38 per month) and the Boeing 777 (8.3 per month) in a higher pace and 787 production will be increased to 10 planes/month during the remainder of the year, meaning that revenues per quarter will increase.

Boeing Commercial Airplanes got 209 orders in Q1, filling the order book to 4400 orders worth $319 billion.

Table 1: Earnings per segment comparison Q1 2012 / Q1 2013

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Figure 1: Earnings per segment

Boeing Commercial Airplanes department is still the bigger department, looking at the earnings. Compared to Q1 2012 revenues grew, but each department contributed the same percentage to the earnings.

European Aeronautic Defense and Space Company (EADS)

EADS, a result of the merger of Aerospatiale-Matra and CASA, has a shorter history as it saw light in 2000.

In merely 50 years EADS's biggest segment, Airbus, worked its way up to compete directly with Boeing regarding commercial and military airplanes. Secondly, the biggest helicopter manufacturer, Eurocopter, is an EADS daughter company. Cassidian, which has a strategic interest in the Eurofighter Typhoon, is the Defense department of EADS, whereas Astrium is the Space department. Additionally, EADS has a 50% strategic interest in ATR, a manufacturer of turboprop planes.

Table 2: Segment comparison EADS and Boeing

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Quarter results

From EADS Q1 results the conclusion follows that the company did very well, doubling its earnings for commercial aircraft. The space and military segment also performed well. The numbers I present might be off a bit due to the 50:50 split of the Eurocopter earnings. Eurocopter saw a huge decline in earnings (69%) due to the Super Puma being grounded.

Table 3: Earnings per segment comparison Q1 2012 / Q1 2013

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*As no exact specification could be found about the earnings division for Eurocopter between commercial and military, both have been weighted equally in my table.

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Figure 2: Earnings per segment

EADS's earnings division looks different than Boeing's. Not only do commercial activities have a more dominant share, but it also grew from 73.2% to 86%, whereas Boeing's relative earnings per segment were unchanged.

Both companies had a strong quarter, looking at the relative numbers EADS performed better.

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Figure 3: Absolute earnings per company per segment

Now looking at the absolute numbers it can be seen clearly that Boeing is twice as big when it comes to earnings.

Table 4: Earnings-ratio (Boeing earnings / EADS earnings) per segment Q1 2012 / Q1 2013

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Taking Q1 2012 results of both companies into context it can be seen (using the Boeing/EADS-ratio) that EADS came closer to Boeing when it comes to earnings on the Commercial segments, on the Space, Defense and Military segments Boeing's performance was better. Looking at the core segments of both companies the earnings ratio was 3.3 and became 2.2.

Based on the figures and tables above, I think it is safe to say that EADS is closing in on Boeing, with Boeing having the advantage of a better performing space, defense, military segment. Boeing will mostly see its space orders come from NASA, whereas EADS will see orders come from ESA. It has to be noted though that EADS closing in on Boeing is mainly because of the Airbus Division performance.

Order books

Table 5: Order book for Boeing and EADS

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It can be seen that EADS has a better filled order book for the coming years, which confirms that EADS is moving towards Boeing.

Summarizing, Boeing still performs very well (growth in all segments). Despite problems with the Boeing 787 and lower revenues, earnings were increased. Orders for the 777(F), 787 and 737 MAX are still coming in, leaving Boeing with a firm order backlog. Boeing might additionally see a boost in orders for the 777X and the 787-10X.

Airbus on the other hand does a good job as well (maybe even better), revenues and earnings grew, while the order book got filled (doubling Boeing's order book, difference in numbers is only a 500-airplane advantage for Airbus). Incoming orders might be for the Airbus A350XWB, Airbus A320neo (which has a 1 year advantage over Boeing's 737 MAX) and the Airbus A33F.


Looking into the future it is important to see what products both companies have in their product line and what products are coming up. With the Boeing 787, Boeing made a first step in the Yellow Stone project to come up with a new generation of airplanes.

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Figure 4: Range vs. Passenger diagram for various Boeing and Airbus aircraft

The diagram shows that mostly Boeing aircraft span the cone shaped envelope, which is getting filled by both Airbus and Boeing aircraft. On the short/medium range Airbus sees heavy competition from the 737NG family, the 757 and the 767.

Looking at the long range planes, there seems to be more scatter with Airbus filling up the gaps and competing with the older Boeing planes.

Boeing vs. Airbus:

Boeing 737

The Boeing 737 is probably the most successful airplane ever built.

Due to its success Airbus launched the Airbus A319/A320/A321 and Boeing responded with a new generation of the Boeing 737.

Table 6: Orders and deliveries for the Boeing 737

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Table 7: Orders and deliveries for the Airbus A320 Family

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The Airbus A318/A319/A320/A321 (also a competitor of the Boeing 757) came in as the main competitors for the Boeing 737 CS and did well, being able to compete with the Boeing 737 NG as well. The 737 NG was an answer to the first A320 family and already had quite advanced applications (like the fuel saving winglets). This forced Airbus to come up with the A320neo, which has a new engine option and uses winglets (Airbus calls them sharklets).

Boeing's answer came via the 737MAX as they had to make a step (or two) not to lose the battle. The 737MAX will feature an entire new wingtip design, a decrease in fuel consumption of 1.5% is expected, and bigger engines, pushing SFC (specific fuel consumption) down by 10-12%.

It is hard to compare both airplanes by fuel efficiency as both Airbus and Boeing release figures that are in their advantage. To my feeling Boeing is 1 step ahead with their MAX design as they implemented new features, whereas the A320neo is getting features that the 737 NG also had. The 1 thing both airplanes will share is the lower SFC.

Boeing 747

The Boeing 747 ruled the skies for decades, it can be seen on the chart as well. Before Airbus came with the A380 it was the 747 that marked the boundaries of the passenger vs. range diagram.

Having its first commercial flight in the 1970s this engineering masterpiece kept its dominant spot for 30-40 years. With 1469 deliveries and 59 orders the 747 was a big success. Orders are low at the moment, due to competition from Boeing's very own 777. With the Boeing 747-400F and the Boeing 747-8F Boeing maintains a firm position in the cargo transportation market.

The 4 engine-powered plane found its competition (or at least that was the plan) in the Airbus A340 (was intended as a competitor for the 777) and the Airbus A380.

In my opinion the Boeing 747 never got a direct competitor as the Airbus A380 pushed the passenger vs. range diagram to a new level and the Airbus A340 operated in a lower area of the diagram.

The Airbus A340, with only 377 deliveries, can be accounted as a less successful Airbus.

The A380 is Airbus's pride, pushing the passenger vs. range envelope, but one can question its success. At the moment Airbus is having costs (420 A380s have to be built to break-even) to produce the A380, having 101 deliveries and 151 orders. Another question that can be asked is the financial success for airlines. Airbus claims that the fuel costs per seat are much lower (fully loaded), but for a lot of companies it is already hard to fill a 747 or a 777. So getting a full (80%-100%) A380 is only possible on highly successful routes. This rules the Airbus A380 out for a lot of airlines.

On the market for cargo airplanes the Airbus A380 lost the battle. Only 10 orders came in for the A380F, which were eventually canceled in favor of 15 777Fs.

The Boeing 787 is getting a lot of exposure at the moment, due to battery problems and the huge delays. It might be worth noting that the Airbus A380 also has seen problems before and after commercial flight. Before commercial flight Airbus had to solve problems with the cabling and software issues. After entering service Airbus faced serious issues with explosions in the engines, blowing off parts of the nacelle and later on cracks near the wingroot.

Boeing 757

The Boeing 757, a mid size narrow-body airplane, was 1 of the 2 surprises Boeing had after the hard economic times. The 757 was a popular airplane among American operators, as up to that point there was not a mid size airplane for the 'shorter' flights. In the 2000s (already in the late 1990s) orders for the 757 started declining, when production stopped in 2004, 1050 had been rolled out of the factory. The Airbus A321 was seen as a competitor for the Boeing 757, in my opinion the 757 operated in an entire different range and passenger area, making it hard to call the 2 competitors.

Boeing 767

The second surprise Boeing had was the Boeing 767, a mid size wide-body airplane. With the -200 and -300 the 767 was the main competitor for the Airbus A300-600 of which 561 were sold. With the 200ER and 300ER (ER standing for Extended Range) Boeing filled in a new spot in the Passenger vs. Range diagram, forcing Airbus to come up with the Airbus A330.

The Boeing 767 has been ordered 1046 times, unfilled orders are about 60 (of which 50 for the 767-3F). The Boeing 767 was actually a very strong plane, given the fact that it did operate in 2 spots in the Passenger vs. Range diagram.

The Airbus A330 is one of the most advanced mid-range aircraft available, its order and delivery numbers also reflect this: 977 deliveries (of which 47 freighters) and a strong backlog of 269 orders. The Airbus A330-200 sits in a rather empty spot on the diagram, showing that it does not have direct competition, it is also the start of a series of Airbus airplanes (A340/A350) that has an almost linear increase in passengers vs. range on the diagram.

Boeing 777

Once the production of 777's competitor, the Airbus A340, was discontinued Airbus was left with a gap in their product line, while Boeing came up with the Boeing 787. As an answer Airbus was forced to come up with the Airbus A350.

As can be seen the Boeing 777 is a rather scattered series on the passenger vs. range diagram, trying to fulfill the range vs. passenger wishes for a lot of airlines. The Boeing 777 is a 90s airplane, but still counts as one of the most advanced airplanes flying around. With total deliveries of 1096 and 347 orders, the Boeing 777 is one of the best selling aircraft. With the Boeing 777F Boeing tries to expand its strong position in the market for cargo airplanes.

To prevent a defeat in the long range sector Airbus came up with the Airbus A350. Airbus gained 616 orders for the A350, which is expected to enter service in 2014.

Boeing already seems to have the competitor for the Airbus A350: The Boeing 777X. Design progress on this latest 777 variant has been set on a slower pace to prevent interference with the highly successful Boeing 777-300(ER).

Boeing 787

The Boeing 787, might be considered the first airplane out of the Yellowstone series. It should replace the 757 and the 767 in the near future and battle with the Airbus A330 and A350. From a financial point of view the 787 is a success, having 920 orders and 50 deliveries. Additional orders might pour in when operators start phasing out their 767s (The 787 is 20% more fuel efficient) and 757s.

During production deliveries got delayed due to fasteners being applied incorrectly, strikes, weight issues (the aircraft was too heavy). As soon as the 787 entered service, problems occurred with the batteries. These batteries were a replacement for the heavy hydraulic system. When the problems occurred Airbus decided to refrain from adding batteries to the A350. The cause of the battery problems was never found, but a solution was found though. On the 29th of May, Singapore Airlines announced an order for the 787-10X (30 pieces). In the coming quarters I expect the number of orders for the 10X to grow steadily.

Comparing the commercial aircraft product lines of Boeing and Airbus it is safe to say that both companies have a highly competitive product line. But in my opinion Boeing came up with their designs, when there was a demand for that, forcing Airbus to follow. Airbus, using new technologies, has been trying to compete with Boeing airplanes that were already a few decades old. Given Boeing's upcoming aircraft like the 737MAX, the 777X, the highly successful 777 and the upcoming Boeing Y-series, I think Boeing will force Airbus once again to come up with competitors.

Spoke-hub or point-to-point?

One of the things that drive the demand for certain aircraft is the used routing network (spoke-hub or point-to-point). At the moment I think a lot of low budget airlines will step up offering a point-to-point network. Ryanair is a good example of a point-to-point operator, having a Boeing-only fleet. The point-to-point network mostly connects equally spaced destinations, meaning that the same aircraft type can be used for the entire route network, which cuts in costs for maintenance and staff.

Buy or lease?

One of the important decisions to make for airlines is to buy or lease an aircraft. With the current capital market, leasing seems to be a better option. Buying directly from the manufacturer takes longer. Therefore it might be beneficial to lease from lease companies as those companies are able to place bigger orders at a time (thereby getting bigger discounts). The biggest advantage for airlines is that leasing is much more dynamic. If an airline buys an airplane it has to operate the plane for 2-3 decades, whereas if the airline leases it can decide to lease the plane only for 1 decade, thereby enabling itself to switch to newer and better planes in a decade.

Looking at the future market

Boeing and Airbus expect the number of planes to double by 2031. Boeing expects highest demand in Europe, North America and Asia. Airbus expects higher demand for air transport in Asia (China and India), Latin America and Africa. I think that we might see an increased demand from Brazil, Africa, India and China. The companies both expect demand for single-aisle aircraft to be the biggest. Given this expectation I think the Airbus A320neo, the Boeing 737MAX and Boeing 787 will decide which manufacturer will lead by 2031. At the moment I think Boeing has the advantage with the Boeing 787.


Considering all what I have written above, I think that Boeing will keep growing as the demand for commercial flight and space flight will grow in the coming years. I expect that demand for airplanes will grow rapidly in Africa and South America, opening an opportunity for both Airbus and Boeing.

Furthermore I expect that EADS will take a bigger share in the commercial airplane market, coming closer to Boeing (80%-90%), but still be the smaller one. In the near future Airbus might get orders from airlines that up to that point were loyal to Boeing, to keep pressure on Boeing to come up with good offers.

Global economic factors will also drive the battle between EADS and Boeing. Not only does the world economy make the demand for aerospace products rise or fall, it can also move world economic centers to countries like Brazil, Turkey and in particular Africa (upcoming economies). It is up to Boeing and Airbus to come up with a suitable airplane to fly from one economic center to the other.

Another driver in the Airbus vs. Boeing battle is the environment, the company that will reduce stress on the environment (and fuel costs for airlines) will probably become market leader. A battle, which already has started with the Boeing 787 and the Airbus A350.

On the space segments I expect that competition will grow rapidly as soon as commercial space travel takes a leap. At the moment insurance companies are already willing to insure spacecrafts, meaning that they believe there is a future for commercial space travel.

I also expect that more and more satellites will be launched for exploration, but also for communications.

It is hard to say whether Boeing will lose its market position. The market for commercial airliners was shaped by Boeing and now Airbus is stepping in to compete. With 100 years of experience I am sure that Boeing will investigate new concepts and markets and keep competing with fast growers like EADS.

Disclosure: I am long BA. 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.