Seeking Alpha
Conglomerates, long-term horizon, aerospace, oil & gas
Profile| Send Message| ()  

Boeing (BA) and Airbus Group (OTCPK:EADSF) - previously known as EADS - have a lot in common and are in permanent competition to get the biggest part of the aerospace cake.

A comparison of these giants in aerospace is a good way to start a series on the global aerospace industry. Boeing and Airbus Group are by far the largest aerospace manufacturers in the world.

Boeing is the largest US aerospace company with a history of almost 100 years and especially known for its commercial aircraft.

The Airbus Group (previously named European Aeronautic Defence and Space Company) was created in 2000 by the merger of several French, German and Spanish aerospace companies (which already had a lot of experience working together in joint ventures).

OVERVIEW

Boeing20132012201120102009
Revenue $81,698$68,735$64,306$68,281
EBIT $5,447$4,895$3,991$1,731
EBIT % 6.67%7.12%6.21%2.54%
Net Income $3,900$4,018$3,307$1,312
Dividend/share$2.92$1.76$1.70$1.68$1.68
EPS $5.11$5.33$4.46$1.87
ROE 66.47%114.31%119.56%61.65%
ROA 4.39%5.02%4.82%2.11%
ROCE 12.40%12.64%12.03%5.93%

(x 1m with the exception of Dividend and EPS)

Airbus20132012201120102009
Revenue $77,942$67,797$63,138$59,094
EBIT $2,941$2,226$1,638-$524
EBIT % 3.77%3.28%2.59%-0.89%
Net Income $1,695$1,426$763-$476
Dividend/share $0.83$0.62$0.30$0.00
EPS$3.45$2.07$1.75$0.94-$1.30
ROE 17.40%1.91%-18.72%-3.24%
ROA 1.97%0.19%-2.01%-0.43%
ROCE 4.90%3.94%3.01%-1.00%

(x 1m with the exception of Dividend and EPS)

(click to enlarge)

PRODUCT LINES

Boeing and Airbus have the following product lines which provide the majority of revenues:

  • Commercial aviation [A]
  • Military aviation [B]
  • Space [C]

Boeing is divided in division Commercial Airplanes [A] and division Defense, Space & Security. The last division contains Military Aircraft [B] and Network and Space Systems [C].

Activities in the used divisions may overlap; for example the KC-46 tanker aircraft for the USAF are in the Commercial Airplanes division.

Since January 2014 the Airbus Group has divisions Airbus [A], Airbus Defense and Space [B/C] and Airbus Helicopters [partially B].

Before the reorganization Airbus (EADS) was divided in divisions Airbus [A/B), Eurocopter [partially B], Astrium [C] and Cassidian [B].

Restructuring the financial reports results in the following breakdown.

(click to enlarge)

Financial Data Sources

All financial data used is from financial reports published by Boeing and Airbus.

Other activities are excluded from the comparison in order to create comparable business activities.

In many cases the financial data used is (re)composed from divisional reporting. The following remarks are relevant:

50% of the financial results of Airbus Helicopters (previously Eurocopter) is added to the Airbus Military component to reflect military helicopters sold and maintained.

When detailed information was not available (e.g. R&D cost for Boeing Defense, Space & Security) it was allocated pro rata.

Financial data from the Airbus is reported in euro and recalculated to dollars with an exchange rate of 1.38

Commercial Aviation

As the revenue by product chart shows, commercial aircraft are the bread and butter for Boeing and Airbus. Boeing and Airbus both offer a range of airliners and are the only manufacturers in the world that can build large (passenger) aircraft.

Boeing20132012201120102009
Revenue $49,127$36,171$31,834$34,051
EBIT $2,662$780$31-$583
EBIT % 5.42%2.16%0.10%-1.71%
Order book$344,300$317,287$293,303$255,591$250,476

(x 1m, cumulative order book information taken from 2013 Q3)

Production and delivery of the Boeing's showcase 787 Dreamliner has started after long delays and are becoming visible in the revenues. Boeing chose the point-to-point strategy and designed the Dreamliner for this.

Airbus20132012201120102009
Revenue $50,981$42,999$38,189$36,391
EBIT $1,125$749$402$533
EBIT %5.50%2.21%1.74%1.05%1.46%
Order book$804,114$694,441$656,158$522,892$442,043

(x 1m, cumulative order book information taken from 2013 Q3)

The showcase aircraft type for Airbus is the A380, which is designed for the hub-and-spoke strategy.

Boeing is more profitable as the EBIT percentage shows, but Airbus is gaining on them. The cumulative order book for Airbus however, is much larger than Boeing's.

(click to enlarge)

Military Aviation

Boeing20132012201120102009
Revenue $16,384$14,947$14,238$14,304
EBIT $796$775$500$946
EBIT % 4.86%5.18%3.51%6.61%
Order book$26,400$29,674$24,085$25,094$26,354

(x 1m, cumulative order book information taken from 2013 Q3)

Boeing's military revenues seem to be shifting from production to maintenance. This is mainly caused by budget cuts of the US Government, which is Boeing's largest customer.

Airbus20132012201120102009
Revenue $15,184$15,200$15,224$13,639
EBIT $529$676$773-$1,933
EBIT %4.00%3.49%4.44%5.08%-14.18%
Order book$48,351$50,715$50,762$54,816$54,485

(x 1m, cumulative order book information taken from 2013 Q3)

The main difference in order book volume for Airbus are orders for the A400 tactical transport aircraft, which is being produced in 2013 after long delays in development. Over the next years the A400 will increase revenue, but in the past contributed to the losses.

(click to enlarge)

Space

Boeing20132012201120102009
Revenue $8,639$8,375$8,256$10,877
EBIT $617$577$545$442
EBIT % 7.14%6.90%6.60%4.06%
Order book$ 9,900$ 9,692$ 9,024$ 9,567$ 7,731

(x 1m, cumulative order book information taken from 2013 Q3)

Airbus20132012201120102009
Revenue $8,027$6,850$6,904$6,623
EBIT $431$825$391$355
EBIT %5.10%5.36%12.05%5.66%5.36%
Order book$17,795$17,573$20,239$21,749$20,221

(x 1m, cumulative order book information taken from 2013 Q3)

(click to enlarge)

Space shows a similar pattern. Revenues for Boeing and Airbus are comparable, but the order book for Airbus has more volume.

COMPARISON

It is remarkable how Boeing and Airbus mirror each other in many aspects such as revenue, product lines and revenue by product line. The same applies to the stock price in the last 10 years.

(click to enlarge)

The detailed look into the product lines indicate :

  • Boeing is more profitable (for now);
  • Airbus is getting more profitable;
  • Airbus has significantly more orders than Boeing. This is especially visible in commercial aircraft, which is the most important revenue generator for both.

(click to enlarge)

When trying to explain this contradictory information (much larger order book versus profitability) the high ROCE (Return On Capital Employed) of Boeing popped up.

Boeing's ROCE (12%) is more than 2 times as high as Airbus's ROCE (5%), as shown in the overview at the top. This might indicate that not enough is invested in Research & Development and depreciated assets are still being used.

This doesn't have to be bad, but a new aircraft type might take up to 20 years between initial design and first delivery. Not investing in Research and Development will cause problems many years later.

The dividend increase of Boeing might be premature and could have been better invested in future products.

Another indicator indicating a difference between Boeing and Airbus is the revenue per employee. Revenue generated per Boeing employee is lower than Airbus. This shows that Boeing is doing more lower-value-adding activities such as maintenance or non-core activities.

(click to enlarge)

FUTURE

If Airbus is able to continue improving its profitability the fundamentals show that Airbus will become the winner the next decade. Beyond that period anything is possible and a new player (from China?) might appear.

But fundamentals aren't the most important factor for Boeing and Airbus. The aerospace industry is a strategic industry with only a few companies in it.

Boeing and Airbus are the only companies that can produce large commercial aircraft in the world and the disappearance / bankruptcy or merger of one of them will create a monopoly. This will not happen because of the following:

  • The order books are filled with years of production;
  • Airlines will continue to strategically rotate orders between Boeing and Airbus;
  • Governments will step in when Boeing or Airbus become vulnerable. Aerospace is a strategic industry that is essential for both the US and Europe. They also employ a lot of highly skilled workers, so there will be political support for a bailout;
  • Governments will favor Boeing or Airbus for military orders. The US Military buys predominantly US and the majority of the order book for Airbus is composed of European orders.

This is a too-important-to-fail guarantee given by clients and governments.

ADVICE

Boeing gives a higher dividend, but is likely to perform worse than Airbus over the next years:

  • Defense cuts in the US;
  • Closing of existing production lines (such as the C-17 in 2015);
  • Lack of (development) of new products.

Airbus is better balanced and has more growth potential:

  • In the product line with more helicopters;
  • More newer aircraft types such as the A400 or the A350XWB (which competes with the Dreamliner);
  • Production and assembly divided over Europe, China and the US (which leverages political and economic support) with a huge order book.

However, given the too-important-to-fail factor and the importance of commercial aviation, investing in both Boeing (40%) and Airbus (60%) is a good strategy.

Source: Boeing And Airbus: The Battle For Leadership In The Aerospace Industry