Airbus has a backlog of some 6000 orders despite being able to produce 700 jets annually. The fact that the backlog of orders runs into around 2029 means they remain unattractive to airlines that may need to switch from Boeing
BY DAVID ONJILI
For the first time since 1997, Boeing Company announced losses in her 2019 financial reports amounting to some $636m. Not surprising at all, especially, on the back of the current storm at the airplane manufacturer.
As at end of 2019, Airbus Aviation was able to deliver 863 airplanes compared to 345 by Boeing as collated by Forbes.
Boeing and Airbus enjoy the duopoly in aviation. The market share has always been in favor of Boeing, which was established in 1916. Embraer Company and Bombardier’s A220, which were other competitors in the airplane manufacturing markets, were bought out by Boeing and Airbus respectively. China’s entry with the Comac jets is seen by aviation experts as no threat to this duopoly currently, which has a combined 96% market share dominance.
Despite many ignorantly attributing this to the 737 Max jet grounding, aviation records show that Airbus, established in 1970 has in the last five years been stamping its mark. This success by Airbus cannot be stated without special mention to their A320 family of jetliners. An industry favorite that has been offering competition to the popular 737 Max jets. Capturing the mid-range plane market segment with this fuel efficient and quite affordable plane that offers point-to-point flights. So what does the future portend for both Boeing and Airbus?
Is the plane order boom over?
Data gathered by Cirium, a data and analytics company, and tabulated by CNBC notes that the last decade (2010-2020) was a major boom for plane manufacturers. Following the financial crisis of 2008, world Central Banks lowered their interest rates. This fueled purchasing power for airlines as orders for both Boeing and Airbus grew astronomically as the graph below illustrates.
The above was also enhanced with growing air travel demand that saw the airlines seek bigger planes to accommodate this. The Airbus A380 launch was seen as a solution although the stopping of its production proved otherwise. The 787 Dreamliner too is not left behind, as Boeing has reduced their production from 14 planes to 12 each month due to market demand needs. The forecast on bigger planes by the airplane manufacturers was wrong based on the two aircraft models. Mid-range planes are the way.
In that decade, Airbus and Boeing raked in close to 20,000 plane orders. What this means is that both manufacturers have a backlog of orders awaiting deliveries. Leslie Josephs, an airline reporter for various leading publications like The Wall Street Journal and The Associate Press notes that this backlog of orders runs into the mid 2025.
You would expect Airbus plane sales to skyrocket in the midst of the grounding of the 737 Max jets. Not so fast, Airbus was under investigations for allegations of corruption and bribery. The company agreed to settle the allegations that it paid bribes to land deals in China, Malaysia and Taiwan. Quartz observed that out of the 406 plane orders Airbus secured between 2005 and 2014 with AirAsia and AirAsia X, 180 of them were secured “by way of improper payments, and the offer of a further improper payment.” Airbus was fined $4b, which it paid to both European and US regulators.
Airbus also cannot keep its delivery promise of the highly demanded A320 neo jets. The company has a backlog of some 6000 orders despite being able to produce some 700 jets annually. This delay and the fact that the backlog of orders mean that Airbus has to deliver on it and this runs into around 2029 means they remain unattractive to airlines that may need to switch from Boeing to Airbus. As switching means that you will go back in the queue and wait some nine years for you to get delivery of planes acquired today.
Pilot type rating
Most airlines operate planes from a single manufacturer. For example, Kenya Airways operates Boeing fleet and the Embraer Jets for short-haul flights. The benefit of operating planes from a single manufacturer is it helps in costs like pilot and engineer training. A pilot flying one variant of an Airbus can easily be upgraded to another variant without needing a lot of training as opposed to moving the same pilot to a Boeing plane.
“A type rating is defined as a regulating agency’s certification of an airplane pilot to fly a certain aircraft type that requires additional training beyond the scope of initial license and aircraft class training.”
Training of pilots and engineers is a very expensive venture. It may result in flight cancellations or overworking existing pilots during the training period. This will have a financial cost on the airline when planes are not in the skies and in good time. That is why it is not easy for an airline that operates for example Boeing planes to simply switch to Airbus planes. This breeds loyalty to either of the two manufacturers although with the grounding of the 737 Max Jets, Airbus has been able to see a number of airlines look their way. For example, Ethiopian Airlines CEO Mr Gebremariam Tewolde spoke last year of their intention to purchase some Airbus planes.
Though the 737 Max Jets may have been grounded, do not expect affected airlines to immediately cancel their relationship with Boeing and switch to Airbus. As earlier stated, backlog in orders will mean they go behind the queue and wait for new Airbus orders and they will have to incur extra costs of training both pilots and engineers on the new plane models they may never have been operating.
While the troubles at Boeing have seen its market share dominance checked by its rival, Airbus, the future is not so bleak as aforementioned. It won’t be easy sailing, and many aviation observers are keen to see how they navigate past the 737 Max Jets issue. Airbus has their own problems, especially on tariffs and the bribery claims to tie down offers.
All the above point to how the aviation industry is a balanced rivalry of almost 50/50 dominance by this duopoly. The recent successful test flight of the Boeing 777x is a welcome relief to the manufacturer. Looking at the orders it has tied down from close to eight airlines having placed orders in the hundreds for the new variant. This illustrates how the aviation industry is more about loyalty to manufacturers.
The big question is whether Boeing will ultimately design a new mid-range plane to replace the 737 Max. If they do, we all know that such a process takes even a decade to see the first test flight. The success of Airbus’A320 Neo is a great headache for Boeing to respond to and aviation enthusiasts will observe happenings with keen interest.