Airbus-Boeing Rivalry

O nstage, the Airbus-Boeing rivalry continues as an exercise in vanity, with executives of both companies assigning more importance to press releases than the contracts themselves. In the last few weeks, these corporate officials desperately tried to conclude and unveil 11th-hour orders to surpass the competitor. The media obviously like such a faint-hearted game. It generates dramatic headlines, produces amusing quotes and feeds readers’ appetites for fierce battles in the global market.

Boeing set an impressive sales record in 2005 with an unprecedented 1,002-aircraft net backlog gain, including contracts for 134 commercial transports signed between Dec. 20 and the New Year. (AW&ST Jan. 9, p. 22). Airbus immediately responded that it remained extremely close to its rival in firm sales. Complying with a sophisticated public relations strategy, the European manufacturer nevertheless kept the press corps in suspense for nearly three weeks before unveiling on Jan. 17 its final sales results for 2005: 1,111 aircraft, including 918 A320-series twinjets. Airbus and Boeing in the last 12 months announced orders valued at more than $200 billion.

Day after day, the escalation is such that popular media no longer hesitate to refer with great conscientiousness to weekly market dominance or to discuss very seriously the winner of the month, ignoring that aircraft manufacturing is a long-term industry and frequently inks orders as many as five years before deliveries begin.

Are Airbus and Boeing buying market share? Certainly not—simply because they can’t afford to put pressure on sales teams to get more orders for the sake of beating the competitor. Operating as a duopoly, Airbus and Boeing share the need to restore superior profitability in order to create value and respond to shareholder expectations. In the same vein, they both need robust earnings to fund demanding research and technology programs, a prerequisite to product-range continuity.

What happened in recent weeks is astonishing. No other industry is flourishing in a comparable context. Just think: In the next 20 years, the world’s airlines are expected to secure orders for commercial transports with 100+ seats valued at an estimated $2 trillion. This is a fortune Airbus and Boeing will share, more or less equally, just the two of them.

According to economists at the International Civil Aviation Organization, air transport will grow 6.5% this year and 6.2% in 2007. U.S. airlines will restore profitability in mature domestic markets while in regions such as the Pacific Rim, demand will continue to soar. Similarly, low-fare carriers will further expand the market, complementing legacy airlines and sustaining market segments long underestimated by fore casters.

In the so-called foreseeable future, Russian or Chinese new entrants will, perhaps, challenge Bombardier’s and Embraer’s expectations to maintain a similar duopoly in the regional aircraft market, but they can hardly be expected to attack the big players. Dozens of billions of dollars would be required to mount viable compet -ition, and airlines would have to adopt a rather risky procurement policy and trust newcomers.

A reality check is needed. It can be easily traced in market forecasts from Toulouse and Seattle that are, not surprisingly, similar. Looking beyond upturns and down-turns, they show that annual deliveries of aircraft with 100+seats will average 850- 900 per year. Airbus Chief Executive Gustav Humbert and Alan Mulally, his Boeing counterpart, believe in such realistic numbers. So do their top sales executives. Actually, the marketplace tells Airbus that it needs the emulation of a strong Boeing, while Seattle needs a healthy opponent to maintain superior creativity.

Of course, the rivalry is for real. Each player seeks to dominate the other by a significant margin. But, behind the scenes, observing the media hoopla, Humbert and Mulally most probably can’t help smiling.



January 30, 2006. (Pg. 47)

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