Thursday, February 9, 2017

World's Largest Airplane Manufacturer Race Starts January 2017

The Airbus/Boeing horse race is on, “Whose Biggest Maker at  the end of 2017. There are obvious strengths and weaknesses coming from each in the running. Airbus has strength of Backlog. Boeing has strength of productivity. Airbus is far behind its customer’s planning cycle while Boeing cannot sustain its production surge for only a few more years as it has a lower backlog value than Airbus.

Fig.1 All financial calculation are based on "List" prices.

What this all means is the following:

·            Airbus has time for its productivity increasing upward from its enormous backlog.

·            Airbus needs to rapidly increase production drawing down its backlog

·            Boeing has little time for booking additional sales matching the Airbus backlog.

·            Boeing is running out of big ticket deliveries as the 747 retires and 777X is not ready for delivery.

·            Boeing having a 25 billion plus order year over Airbus will take it about six years for catching Airbus' lead

·            The backlog disparity can be advantageous for Boeing as they become more customer concentric for making deliveries.
  • Boeing can absorb more airshow orders than Airbus.
·        Airbus has a robust single aisle delivery potential greater than Boeing’s.      

Backlog build-up is the key for both manufacturers. The Boeing strength is managing its backlog with customer demand, where Airbus can’t out produce its own backlog with customer requirements for timely deliveries. In some cases customers may wait longer for a delivery out of its own financial sources available. 

Fig. 2  Boeing Single Aisle January 2017 YTD Match-up

Fig. 3  Airbus Single Aisle January 2017 Comparison YTD

Most corporate companies have five year plans where any manufacturer such as Airbus have an order backlog greater than five years of backlog coming from its single aisle production. The difficult task is optimal efficiency for production and a large enough just-in-time delivery schedule.

Having a right sized backlog assures lower prices from having large just-in-time parts ordering. A lumpy production cycle disrupts the ability of having lower parts pricing such as the 747 is currently experiencing. Optimal efficiency comes from a continuous production flow which takes advantage of all resources and gives customers the ability to plan its own future growth or replacements inventory.

Boeing is closer to this philosophy than Airbus, but Boeing is also closer to lowering its own production pace than Airbus which will contribute in time for whom becomes the world’s largest airplane manufacturer.

Even though Boeing deliveries where greater than its orders (748/668) during 2016, and all predictions lean towards a scant order year for both makers, it remains to be seen how this will impact both by years end 2017. However, two things are certain, 

Boeing will maintain productivity pace and Airbus will increase its productivity over its 2016 numbers.

Both mega builders have challenges which they must address. Boeing needs more orders and Airbus needs a level production flow for all its types ordered. 

Below are Winging It best information chart for the racing status with the number to look at units produced during 2017 and value of those units in total. 

The secondary analysis number is the backlog value and units to be built, as it will determine each corporate's stamina for the long run. Boeing leads on the backstretch but can it maintain its pace at an arbitrary finish line?

Fig. 4 Boeing 2017 YTD Orders Wide Body

Fig. 5 Airbus 2017 YTD Orders Wide Body

Fig. 6 Boeing January YTD Deliveries Wide Body

Fig. 7 Airbus 2017 YTD Deliveries Wide Body

The final period-one numbers demonstrates Boeing is out of the 2017 gate faster than Airbus in large number since the typical January "retooling" period is the slowest production time of the year. Even though Boeing reduced its backlog further than Airbus it is closer to its prime customer's wait time making room for future orders with delivery dates considering customer planning. Round 1 goes to Boeing by a long shot.