Boeing 787 vs. Airbus A380 - The Latest Chapter 13 comments
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In the battle for supremacy in the aircraft business, there are only two real players - Boeing Company (NYSE:BA) and Airbus [EPA:EAD]. These two companies compete for market share in commercial and military planes, with demand far exceeding each company’s manufacturing ability, and both have a long order backlog. Some of Boeing’s customers, for example, will wait as long as five years before the planes they ordered are delivered. And while they fill these orders, both companies must keep innovating.
As oil prices continue to soar, and airline companies like Delta and American Airlines struggle with tight margins, planes that fly faster, fit more passengers, and consume less fuel are at a premium.
And so each company has designed its own new super-plane - for Airbus, the A380, and for Boeing the 787 Dreamliner. The Airbus plane has already debuted (its first flight was in October 2007), while Boeing continues to get hit by production delays, and the Dreamliner is optimistically scheduled for release in third quarter 2009.
Boeing 787 Dreamliner vs. Airbus A380
The two airlines have taken completely different approaches to solving the problems of fuel efficiency and passenger capacity that have plagued airline companies in recent years. For Airbus, the answer is “bigger and better” - the A380 is a massive plane designed for long trips, conserving fuel by consolidating passengers onto one flight where two were needed before.
Boeing has a different approach - flexibility. Its three versions of the 787 are adapted for different purposes. The 787-3 has a large passenger capacity over short distances, while the 787-8 and 787-9 are built for longer trips, but carry fewer passengers to maintain fuel efficiency.
It seems that airline companies dig both planes - as of August 2008, Boeing has an order backlog of nearly 1,000 planes and $350 billion, while Airbus has a backlog of 200 planes for the already-released A380. Despite its apparent advantage in releasing its plane first, Airbus has not had a smooth ride with the A380. Originally planned as a collaborative project with Boeing, the company has had numerous launch delays and spent billions in penalties and inflated production costs related to its A380 learning curve. As a result, orders have stagnated, boosting Boeing’s hopes that the 787 will be the industry’s next big thing.
But Boeing has its own problems. The Dreamliner debut is now 18 months late, as the company’s plan to farm out large parts of production to outside suppliers has largely been a failure. And as the company re-hires its machinists to bring the work back in-house, it is running into trouble with the machinists’ union, which is unhappy with the company’s pension and health insurance plans and is seizing the opportunity to play hardball. Boeing cannot afford to give too much to its workers - inflated labor costs are the driving force behind the decline of the U.S. auto industry, and Boeing’s management has studied this story carefully - but it can ill-afford more production delays on its 787 line, a certainty in the event of a worker’s strike.
Ultimately both of these companies are in better positions than the airline carriers that are waiting on their backlogged orders - demand for new planes is still high as existing fleets age and fuel-efficiency and passenger capacity needs change. That means carriers will continue to look to Boeing and Airbus to make new planes. But secure demand doesn’t guarantee profits - production delays carry heavy costs, and neither Boeing nor Airbus has shown an ability to navigate new releases without being dragged down by the obstacles to production.
Investors can blaim these inefficiencies at least as much as the ongoing struggles in the airline industry for the 40% drop in Boeing’s stock price since October 2007.
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This article has 13 comments:
Bob
Ask the Gov't - they make it & kill it.
Now they have a big problem - Boeing is saying screw you - get Europe to build your military aircraft.
Oh - Oh.
Johnny J
It took 30% direct government subsides for Airbu8s to launch the A380 Whale.
Both companies get indirect subsides (call it state aid, tax structure etc), but only Airbus gets both types of aid.
The A350 is the most direct competitor to the 787, but its shaded more to the top of the slot (300 seat) as opposed to the 787 at 250 seats. The A350 is really a 777 competitor, and Airbus has abandoned the slot the 787 occupies (previously A330 which will go on for a time as it will take 10 years for Boeing to fill the orders it has or will get for the 787, which has sold 1,000 before its flown).
The A380 takes the existing structures and materials to as advanced stage as you can, Boeing with the 787 is a complete technological leap in both in materials (composites) and the move to almost all electrical instead of using bleed air off the engines to power equipment.
As Airbus neglected both materials and electrical technology, the A350 is a compromise aircraft. While its mostly composite (the nose is conventional as they could not figure out how to do that in composites) they use a conventional frame made out of composites and large skin sections bolted to that. Boeing uses a spun barrel that is skin and structure all in one. The A350 is conventional bleed air so its old stuff as well.
The 747 actual is smaller than the A380 and will only exist in passenger version if there is enough demand in that slot for it. It will live on another 20 years as a freighter, as the A380 freighter is kaput.
The A380 freighter only fit package freight carriers, (FedEx and UPS) and no one else wanted it (the new 747-8F freighter on the other hand has sold very well). UPS and FedEX have gone different ways to satisfy their freight needs (UPS bought the last production 747 freighters and will convert some late model 747s to freighters and FedEx went with the new 777 freighter).
This is very complicates story, not the simplistic title line presented
IMHO
Bob