In this clip from Industry Focus: Industrials, Sean O'Reilly and contributor Adam Levine-Weinberg examine two of the biggest aircraft manufacturers to see which one is better positioned to dominate the market in the next five years.
Listen in to find out what future orders numbers look like for both companies, how both companies have performed in the last five years, how Boeing (NYSE: BA) has unlocked an entirely new market that Airbus can't tap into, and more.
Continue Reading Below
A full transcript follows the video.
10 stocks we like better than Boeing When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Boeing wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of January 4, 2017
This podcast was recorded on Jan. 26, 2017.
Sean O'Reilly: What's the marketplace look like right now? What's Boeing's backlog? It's some enormous number, in the hundreds of billions or trillions or something.
Adam Levine-Weinberg: Yeah, it's been hovering for the last few years in the $450 [billion] to $500 billion range.
O'Reilly: Of all the future orders, they may or may not happen, but bottom line, they have this backlog of future orders. You hear, like, Qatar bought like $50 billion worth of planes from Airbus. So what does it look like today with the market in terms of market share and all that stuff?
Levine-Weinberg: In terms of overall market share, Airbus is a little bit higher in terms of the orders for the future. But in terms of annual sales -- that's what's being delivered in each year right now -- Boeing still has a little bit of an advantage. That will probably, at least, it might flip at some point. Obviously, if Airbus continues to have more orders than Boeing, then eventually it will be building more planes than Boeing.
O'Reilly: So future orders are higher for Airbus.
O'Reilly: Was there ever a time where Airbus was way in the lead, or has Boeing been it for ...
Levine-Weinberg: This being over the past five years, particularly since the A320neo went on sale, that's really where Airbus has built up this advantage. For a long time, the A320s and 737s were splitting that single-aisle market pretty evenly, but Airbus was at a big disadvantage on the wide bodies. Now, they're even split or thereabouts on the widebodies, and the single-aisle planes Airbus is starting to gain an advantage. So, basically, when we look at the market, Boeing has really done some pretty innovative things in the way that the Dreamliner -- this is the 787 -- has opened up a lot of new markets for airlines. They basically created a plane that is small on the widebody scale; it can seat, typically, 200 to 250 people in a three-class layout where you have lie flat, first class, and that kind of stuff. And it can still fly 8,000 miles around the world, whereas usually only the biggest jets in the past were able to do that.
O'Reilly: And those are hard to fill up. That's the trick, right?
Levine-Weinberg: Right. What happened was, either you had to put all your flights through one or two very big hubs to generate the traffic, or you had to sell a lot of fares at really low prices that weren't profitable. Great for travelers; not great for the airlines, typically. So basically, Boeing has created this plane that has opened up new markets -- 6,000- to 7,000-mile flights where it was never possible before to profitably fly that on a nonstop basis.
O'Reilly: So that was a bit of a brilliant move on their part.
Levine-Weinberg: It really was. Boeing and Airbus had different philosophies. Airbus developed the A380, which is this enormous plane, two decks along the entire length of it, can seat 500-600 people. Their idea was, air traffic keeps growing at a really quick rate, it's doubling every 15-20 years, so we just need bigger planes. And that's true, except that Boeing said, "Wait, rather than having everybody continue to go through these hubs and just make them bigger and bigger, why don't we let people go nonstop on routes where you couldn't go nonstop until there was enough of a critical mass of traffic?" And so they had different philosophies.
The result is that, right now, Boeing has better coverage of the full market. They have their narrowbodies, which are the shorter-haul flights, usually less than 3,000 miles, and between 120 to 200 seats at the most at the high end of the range. Then they have the small widebody with the 787, and they also have the 777, which is a somewhat larger widebody, which is more in the 250- to 350-seat range. That actually has a new version coming out that's going to make it even bigger and stretch that range up to as many as 400 seats. Airbus, by contrast, they also are very strong, even stronger, in fact, on the narrowbody side, where they have, especially, the largest variant of the A320, which is called the A321, which has really taken off, seen a lot of interest from airlines, because it reduces the cost per seat the more seats you can put on the same version of a plane. The A321 is just better suited to that market than Boeing's largest narrowbody is right now. So Boeing kind of needs to respond to that, and they're very close, potentially, to announcing an even larger version of the 737 that would get it closer in size to the A321. But, after the A321, there's a big gap in Airbus' lineup, where they don't have a lot in the 200- to 250-seat range like Boeing does.
O'Reilly: Yeah. It's probably 20/20 in hindsight, but that seems like they dropped the ball there.
Levine-Weinberg: Yeah. They've talked about how they've come up with new cabin configurations for the A321, where you can cram more seats on it, but then that starts to give up their advantage in terms of comfort, because some of that comes from actually coming up with a better way of organizing the plane. But for the most part, it's shrinking seats, it's shrinking in the bathroom, it's doing all kinds of stuff, shrinking the galleys, so that they can't serve food out of them anymore. It's really not as easy as Airbus' management has made it seem. So as a practical matter, most airlines aren't going to take them up on the possibility of putting 220 seats onto an A321. It's only going to be the ultra-budget airlines that are going to do that.
Adam Levine-Weinberg owns shares of Boeing. Sean O'Reilly has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.