Boeing Leads In The Race With Airbus For New Orders In 2012

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Boeing ( BA ) has announced that it has received an order from Xiamen Airlines, a subsidiary of China Southern Airlines for 40 Boeing Next-Generation 737-800s; and an order commitment from SilkAir, the regional wing of Singapore Airlines for 31 737-MAXs and 23 Next-Generation 737-800s. The orders awaiting final confirmation will further Boeing's lead on Airbus in the race for new orders in 2012. Boeing has so far received new orders, net of cancellations for 700 airplanes in 2012, compared to 270 orders received by Airbus during the same period. If the current trend continues then Boeing will end 2012 with a large lead on Airbus. This is in stark contrast to the previous decade which was dominated by Airbus in terms of net new orders.

At the moment, Boeing and Airbus are locked in a tough competition for market share in the global market for large commercial jets in order to gain benefits that come from higher volumes. This has lead to aggressive pricing on both sides, with steep discounts offered on list prices of airplanes. Apart from aggressive pricing, Boeing's current lead in 2012 can also be attributed to the launch of the single-aisle B-737MAX in response to the A-320neo, which garnered a historic 1348 orders in 2011 to drive Airbus' order book for that year.

On the whole, the fight for market share has resulted in list price discounting, and Boeing at its end shall need to avoid delivery delays as in the case of B-787 Dreamliner to keep the pressure up on Airbus.

We currently have a stock price estimate of $91 for Boeing , approximately 20% above its current market price.

See our complete analysis for Boeing here

New orders from Xiamen and SilkAir

Xiamen Airlines has placed an order for 40 Boeing Next-Generation 737-800s, valued at $3.5 billion at list prices. The order is currently awaiting mandatory approval from the Chinese government. And SilkAir has placed an order commitment for 54 B-737s, valued at $4.9 billion at list prices. Even though, this order too is pending final confirmation, it has sparked accusations from Airbus of aggressive price discounting by Boeing. As SilkAir was a client of Airbus and currently operates an all Airbus fleet. "We have no comment to make on the purchase decision by Silkair. However, Boeing has clearly made an extremely aggressive offer to win this deal in an attempt to catch up with the huge success worldwide of the A320 family," said Airbus spokesman Stefan Schaffrath.

Boeing spokesman Marc Birtel said, "Our customers recognize the difference between products and make decisions that suit their needs. Price alone is not always the discriminator for the services and packages that appeal to our customers. While we will be competitive in negotiations and want to win, there are limits to how deeply we'll discount an order."

Boeing Vs. Airbus: Race for higher number of new orders

Boeing currently leads in the race for new orders in 2012 with 700 net new orders by July 31. In comparison, Airbus has managed 270 net new orders during the same period. This is in stark contrast to the previous decade, which saw Airbus ending in lead at the end of each year except for 2005 and 2006, in between. In 2011, Airbus had bagged 1419 orders, compared to 805 by Boeing.

Boeing and Airbus are locked in a duopoly in the global market for large commercial jets. From 2002-11, Airbus received 7,181 orders while delivering 4,218 airplanes, and Boeing received 6,360 orders while delivering 3,871 airplanes. A large portion of these orders comes from single-aisle aircraft, which constitute the largest portion of fleet of low-cost carriers. Boeing has its B-737 series and Airbus its A-320 series in the single-aisle aircraft category. Of the 700 net new orders for Boeing in 2012, 666 are for 737s, and of the 270 net new orders for Airbus in 2012, 244 are for the A-320 family. Single-aisle aircraft primarily operate on domestic routes and feed traffic to hubs for international carriers.

Aggressive pricing and launch of the single-aisle 737MAX

Boeing's lead in 2012, can be attributed in part to the launch of the single-aisle 737MAX that offers fuel saving of 15% compared to its previous version, B-737. B-737MAX was in response to Airbus' A-320neo, which offered similar levels of fuel savings on A-320. A320neo received tremendous response globally as airlines sought to reduce their largest expense item, jet fuel. Also, up gradation demand from U.S. and fresh demand from Asia-Pacific and South-Asia weighed heavily in favor of single-aisle aircraft. Boeing took advantage of this demand by launching 737MAX, and coupled with aggressive pricing took the lead in new orders in 2012.

Going forward we anticipate the tough competition between Airbus and Boeing to continue. However, Boeing will have to keep delivery schedules avoiding delays to keep pressure on Airbus.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: BA , EAD , GE , LMT , UTX

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