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

Summary

  • Hairline cracks have been found in Boeing Dreamliner wings.
  • Boeing doesn't have room for delays, as Airbus is speeding up production.
  • Delays may cost Boeing the first price and have a major impact on future results.

Boeing 787 Dreamliner production is picking up pace after a long and costly development process and started to have a major positive impact on the revenue of Boeing (NYSE:BA). In February, hairline cracks were discovered in Dreamliner wings. Boeing cannot afford production delays if it wants to remain the world's largest airliner producer. Airbus is in hot pursuit and speeding up its production.

Hairline cracks

Hairline cracks have been discovered in the wings of 40 Boeing 787 Dreamliners on the production line. Boeing says none of the 122 Dreamliners already flying are affected. According to Boeing, it will take up to two weeks to inspect and fix the cracks on the affected airliners. Boeing still expects to deliver 110 787 Dreamliners this year.

Boeing's orders and deliveries status show only 8 Boeing 787 Dreamliners delivered this year, when 9 a month should have been. This is probably caused by the fixing of the hairline cracks, but there doesn't seem to be a lot of room for further delays to reach the target 110 deliveries in 2014.

(Source: Boeing)

Airliner deliveries

Airbus (OTCPK:EADSF) is Boeing's largest - and basically only - competitor. Airbus Group is described in more detail in "Europe's Growing Giant In The Aerospace Industry". This includes its present and future production facilities in Europe, the US and China.

"The Battle For Leadership In The Aerospace Industry" compares Boeing and Airbus as aerospace manufacturing companies. Airbus and Boeing have a lot in common and are of similar size.

Airliners can be divided into narrow-body (single aisle) and wide-body (double aisle) categories. According to Airbus and Boeing, the following airliners were delivered in the last 5 years.

(Source chart: Confero)

Airbus

2009

2010

2011

2012

2013

Narrow-body

402

401

421

455

493

Wide-body

96

109

87

103

133

Total

498

510

508

558

626

Airbus has passed Boeing in narrow-body airliners (A320 versus Boeing 737). Airbus is also speeding-up existing production, and this year, Airbus started recruiting staff for the new assembly line in Alabama.

Boeing

2009

2010

2011

2012

2013

Narrow-body

372

376

372

415

440

Wide-body

109

86

105

186

208

Total

481

462

477

601

648

Boeing still has a clear advantage in wide-body production, which can be attributed to the Dreamliner. Airbus is also accelerating production on its wide-body airliners in the order book, as start-up problems of the A380 have been resolved.

Boeing may encounter similar start-up issues with the Dreamliner, as the hairline cracks show. Manufacturing an airliner is a very complex activity, with a large number of parts and suppliers involved, as the Dreamliner Program Fact Sheet shows.

Relative Deliveries

Boeing

Airbus

2009

100.00%

100.00%

2010

96.05%

102.41%

2011

99.17%

102.01%

2012

124.95%

112.05%

2013

134.72%

125.70%

Over the last few years, Boeing has been able to increase production at an impressive 35%. Boeing must maintain this production rate, as Airbus is in hot pursuit. Dreamliner production is responsible for the growth in deliveries.

Impact of delivered aircraft on results

Does it really matter if Airbus passes Boeing in delivered aircraft?

Yes, it does. Delays in deliveries will impact revenue, and delays cost money.

There is also a psychological advantage for both companies if the first position isn't clear and both show similar revenue and deliveries. They will be forced to remain sharp and focused, which will ultimately benefit the investors.

There is a risk that Boeing will fall behind Airbus in the years to come. Airbus already passed Boeing in revenue in the commercial aircraft division, though not by much. Increasing Dreamliner deliveries could reverse this in 2014.

(Source chart: Confero)

Revenue Commercial Division1

Boeing

Airbus

2008

$28,263.00

$37,885.14

2009

$34,051.00

$36,390.60

2010

$31,834.00

$38,188.74

2011

$36,171.00

$42,999.42

2012

$49,127.00

$50,981.34

2013

$52,981.00

$55,046.82

More important is the backlog. Airbus' order book of firm orders is much bigger than Boeing's.

(Source chart: Confero)

Backlog1

Boeing

Airbus

2009

$250,476

$442,043

2010

$255,591

$522,892

2011

$293,303

$656,158

2012

$317,287

$694,441

2013

$373,000

$865,416

Both Boeing and Airbus have enough orders for years of production, but the number of aircraft delivered matter for future revenue and profit. Commercial airliners is the only aerospace segment with a lot of growth potential as government spending is cut worldwide.

The winner in deliveries will also win the prized title: largest airliner producer in the world.

Footnote

1. All financial data used is published by Airbus Group investor relations or Boeing investor relations. The exchange rate used for USD/EUR is $1.38.

Source: Will Dreamliner Hairline Cracks Cost Boeing First Place? Probably Not, But It Cannot Afford Delays