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Airbus vs Boeing: what you need to know about the stocks
Airbus and Boeing have long fought for supremacy of the skies. We explain what you need to know about the rivalry and explore whether they can continue their ascent.
Airbus vs Boeing: a brief history
Boeing was established in 1916 and its first planes, the Model C’s, were immediately put to action when the US entered World War One. But Boeing was also a pioneer in non-military aircraft, creating the first purpose-built commercial planes designed to ship mail from coast-to-coast and from the US to Canada. The unit that managed its postal business went on to merge with several other companies in the early 1930s to form United Airlines, which was forcefully separated from the rest of the business by the US government.
Boeing created the first ever plane to make a profit purely from carrying passengers in 1936 and its planes were responsible for carrying 90% of traffic by 1939. But, as World War Two erupted, Boeing was once again drawn into the conflict. Its commercial planes were stripped of their plush interiors and used to shift cargo to war-torn areas of Europe and it didn’t take long for military demand to take precedence over the needs of commercial clients. The first US fighters were soon battling the Germans (who had managed to capture up to 50 Boeing aircraft that had been kept in France).
While Boeing’s foundations lie in supplying military aircraft, the company quickly learnt the importance of commercial models able to carry cargo and cater to the growing number of people flying to their destination. For example, the US Navy halved its orders for patrol seaplanes once World War One ended, prompting its move into mail by designing the first plane able to carry a load heavier than itself in 1921. The cycle of World War Two was even more severe. Although US aircraft had proven integral for the US and its European allies, over 70,000 direct Boeing employees lost their jobs after the end of the war with another 150,000 becoming unemployed across the wider supply chain.
Although US foreign policy ensured Boeing’s military division had plenty of work, the company significantly expanded its commercial arm and expanded into other lucrative areas over the subsequent decades. Boeing helped launch the first-ever weather satellite into space and has contributed vital work to the likes of the International Space Station and the Hubble Telescope.
By the 1960s, Boeing was at the forefront of global aviation and the US representative on the world stage. Europe and other US allies were still reliant on Boeing’s military aircraft and there was no formidable competition to rival the US giant on the commercial front, with Boeing holding over 80% of the global market. The European powerhouses of France, Germany and Britain were committing to further cohesion, but their respective aviation industries remained fragmented and ultimately unable to compete with Boeing, which was already on the verge of introducing the 747 – the ‘jumbo’ jet that was twice the size of its predecessor.
Europe creates Airbus to take on US rival Boeing
The three European countries, during a meeting at the Paris Air Show of 1967, pledged to the 'joint development of airbus' that could rival both the dominance of Boeing and the US. It was a rocky start to the project: Britain’s support quickly waned after it was decided Rolls-Royce engines wouldn’t be used, leaving Airbus’s first model, the A300, with no engine. By the time the corporate structure of Airbus was established in 1970, ownership was divided 50-50 between four French firms and five German ones. Meanwhile, Boeing revealed 50,000 employees had managed to develop the world’s largest-ever passenger aircraft in just 16 months to add another record to its packed trophy cabinet.
Because Boeing was unrivalled, the emergence of Airbus meant it had competition that inspired aviation improvement. The European firm understandably aimed to improve upon Boeing’s commercial aircraft and the main selling point of its first aircraft was a 20% reduction in operating costs, largely down to better fuel efficiency – which became an even more important feature as oil crises rocked global markets throughout the 1970s.
Airbus made its first flight in 1974, as Air France flew an A300 from Paris to London. But, despite striking deals with European airlines and ones further afield in the likes of India and South Africa, Airbus struggled to secure orders in its initial years and production fell to as low as one plane every two months in 1975. Orders picked up again by 1977, largely thanks to its bet on Asia but also because Britain formally rejoined as a partner of the project, leading to the first order for Airbus aircraft from a British customer.
Although Airbus was gaining traction it still had a long way to go before it could prove itself a viable alternative to its US counterpart. The firm knew it had to break into Boeing’s domestic market the same way the US rival was operating in Europe. Airbus achieved this in 1978, after convincing Eastern Airlines (one of the ‘Big Four’ US airlines at the time) to break ranks and purchase a swathe of aircraft after leasing a fleet to the airline under no obligation. By 1980 – a decade after being founded – Airbus had managed to capture over a quarter of the market and shown itself to be a serious threat to Boeing. Its viability was cemented further by the end of 1990, when Airbus delivered its debut operating profit after selling over 650 aircraft over 20 years. It was undeniable that Airbus was the upcoming rival but it was still dwarfed by Boeing, which declared its 737 commercial jetliner the most successful in history after selling over 1,800 units – taking total commercial aircraft sales to over 6,000. Still, Airbus pushed ahead and started to take a swipe at Boeing’s other businesses by selling its first freight cargo plane to Federal Express in 1994, and designing its first military aircraft specifically for European governments in 1999.
Airbus had a landmark year in 1997, when it secured 50% of global orders for new aircraft to place it level with Boeing, and first overtook Boeing in terms of the amount of new orders secured in 2003, sparking the long-fought battle for the skies that still rumbles on today.
Airbus vs Boeing: how do they make money?
Both Airbus and Boeing make the majority of their revenue and earnings by selling commercial aircraft to airlines around the world, but the pair also have sizeable defence divisions serving the military. Boeing’s earnings are more diverse than Airbus as it derives more income from its larger defence department and its global services division than its European counterpart, which generates over 80% of its earnings from commercial aircraft:
|Commercial Airplanes||60.2%||Commercial Aircraft||73.8%|
|Defence, Space & Security||23.0%||Helicopters||9.1%|
|Global Services||16.9%||Defence & Space||17.0%|
|Commercial Airplanes||65.7%||Commercial Aircraft||80.5%|
|Defence, Space & Security||13.3%||Helicopters||6.9%|
|Global Services||21.0%||Defence & Space||12.7%|
Airbus vs Boeing: political pawns
Both the US and Europe use Boeing and Airbus as critical representatives on the world stage and although their vital roles mean they secure floods of work and subsidies, it also makes them vulnerable to being used as political pawns. For example, Germany is currently under pressure to replace its ageing Tornado fleet with Eurofighters from Airbus rather than F-18s made by Boeing to reinforce the purpose of Airbus: a European firm for European countries. Airbus even issued a statement that said it was hopeful Germany would send 'a signal in favour of a sovereign Europe'. But the decision is not as simple as it seems, partly because Germany needs planes that are certified to carry US nuclear warheads based in Europe under NATO’s nuclear-sharing agreement, something Eurofighters unsurprisingly lack. This is happening while US President Donald Trump is calling on its allies to increase their spending on defence while at the same time lobbying for US-built jets and other equipment from Boeing and other US firms like Lockheed Martin.
Almost every government contract sees some form of political wrangling going on in the background. Some of these have been openly fought by cases with the World Trade Organisation (WTO). When the WTO supported the US view that Airbus was receiving unfair subsidies in 2010, Boeing said it was 'good news for aerospace workers across America who for decades have had to compete against a heavily-subsidised Airbus'. Two years later it said Airbus and European leaders had 'thumbed their noses at the WTO, providing Airbus with billions of taxpayers euros and pounds' to develop new models. This argument continues today.
In addition, Airbus is also hoping to capitalise on the trade war between the US and China, which could give it an advantage in one of the world’s fastest growing markets if Boeing is shut out. The International Air Transport Association forecasts China will surpass the US as the world’s largest market in the mid-2020s, so the market is vital for the future that stretches beyond the pair’s multi-year order books. That could also prove true in other countries butting heads with Trump, such as Iran and Saudi Arabia.
Airbus is also potentially heavily exposed to Brexit. The firm employs 15,000 people across 25 sites in the UK and was bidding for the next stage of a Europe-wide programme through its sites in Portsmouth and Stevenage but, because of uncertainties over foreign nationals working on the project post-Brexit, it is unsure about the viability of its UK operations. It has previously warned it could lose up to €1 billion a week in sales under a no-deal scenario and has already spent over €15 million on preparations, which it warns would 'probably be only a small fraction of what an unprepared, disorderly Brexit could cost us'.
Airbus vs Boeing: orders and deliveries
The competition between the two has been as intense as ever over recent years. Airbus was securing more commercial orders over Boeing year after year up until 2018, when Boeing reclaimed the top spot. At the same time, however, Airbus has managed to catch up in terms of the amount of actual deliveries being made each year, almost closing the gap entirely:
This has left Airbus with a larger order backlog than its rival, which some use as a measurement of production (is it keeping up with demand?) or as future income (orders that will generate revenue in the future):
Airbus vs Boeing: where do they make money?
Airbus and Boeing both get favourable treatment from their domestic markets, where they each hold a significantly larger portion of the market than the other. Still, Airbus generates less than a third of its revenue from Europe while Boeing generates close to half of its income from the US, with 31% of its revenue coming directly from the US government.
Asia-Pacific is an important region for both companies, particularly for Airbus which generates over one third of its revenue from the region. It accounts for over a quarter of Boeing’s income, primarily from China.
Notably, Airbus intends to open a second assembly line at its existing US facility in Alabama this year to help boost its competitiveness in the US. Outgoing Airbus chief executive Tom Enders said: 'In an age of protectionism and nationalism, it’s good to be local' – a sentiment shared in numerous industries. In addition, Airbus is hoping to expand existing contracts with the US military – Boeing’s backyard – beyond existing deals supplying helicopters to the US Coast Guard with one of its flagship helicopters it hopes will be used to train naval pilots.
Airbus vs Boeing: financial comparison
Boeing has outperformed Airbus in most areas in recent years. Boeing’s revenue, pre-tax profit and earnings per share (EPS) has grown 11%, 63% and 142%, respectively, over the last five years, compared to just 5%, 34% and 32% at Airbus.
Similarly, while Airbus grew revenue at a slightly faster rate of 7.9% in 2018 compared to Boeing’s 7.5% increase, the US firm proved more profitable with a 15% rise in annual profit compared to the 12% lift reported by its European rival. Boeing has also been considerably more generous to its shareholders when it comes to the dividend, having more than doubled its payout over the last five years in addition to large buybacks – it recently replaced its $18 billion share buyback programme launched last year with a fresh $20 billion programme earlier this year.
|Boeing ($, billions)||2014||2015||2016||2017||2018|
|Dividend ($ per share)||3.1||3.82||4.69||5.97||7.19|
|EPS ($ per share)||7.47||7.52||7.92||14.03||18.05|
|Airbus (EUR, billions)||2014||2015||2016||2017||2018|
|Dividend ($ per share)||1.2||1.3||1.35||1.5||1.65|
|EPS ($ per share)||2.99||3.43||1.29||3.05||3.94|
Airbus vs Boeing: outlook
Boeing has said it will increase production this year to 895-905 aircraft and expects revenue to rise to $109.5 billion-$111.5 billion in 2019, with operating cashflow of $17 billion-$17.5 billion. Airbus also plans to raise output in 2019 by 80-90 planes and expects profit growth to be driven by its A350 model, which broke even in 2018.
Airbus and Boeing cement their leadership in the skies
Both Airbus and Boeing have recently bought up smaller rivals to step up competition against one another and further cement the position of the duopoly. Under a deal struck in 2017, Airbus secured a majority stake in Canadian company Bombardier’s A220 regional jet programme. That deal, twinned with the expansion of its US plant, will allow Airbus to expand its growing foothold in the single-aisle, or narrow-body market over Boeing. Boeing complained at the time that the European-Canada tie-up involved illegal subsidies for Airbus.
Boeing has since responded with a deal late last year with Brazilian firm Embraer. The US firm is paying $4.2 billion for 80% of Embraer’s commercial aircraft operation. The deal is not only a direct response to Airbus from Boeing, but by Embraer to Bombardier, which both compete in the regional jet market in the Americas. Analysts have said the deals will create two ventures with similar revenues and a similar share of the regional jet market of about 40% each.
Airbus ends A380 production while Boeing mulls new model
Airbus recently announced it would end production of the A380 ‘double-decker’ model plane after just 12 years. Airbus made the decision – described as 'painful' by Enders – after the largest customer of the jet, Emirates, slashed its order. Production will cease in 2021 after the last 17 are made. The grounding of the programme means Airbus is thought to have recovered only a fraction of the €18 billion estimated to have been ploughed into development.
The jet was produced in response to Boeing’s existing jumbo jets, but markets have shifted significantly over the years. The industry favoured large jets to shift passengers from one big regional hub to another but, as the rise of low-cost airlines and more point-to-point routes opened up, appetite has shifted to smaller, lighter and more fuel-efficient aircraft that can cater to an industry battling with wafer-thin margins. This is why Airbus is making a push in smaller aircraft able to carry 100-150 passengers, demonstrated by the Bombardier deal.
Meanwhile, Boeing is considering launching a new ‘middle of the market’ model that would sit between its larger 787 Dreamliner and its narrow-body passenger jet. It intends to make a final decision in 2020, although some believe it could be brought forward depending on the taste of the market. But, as always, Airbus will respond whenever Boeing pulls the trigger.
Deze informatie is opgesteld door IG Europe GmbH en IG Markets Ltd (beide IG). Evenals de disclaimer hieronder bevat de tekst op deze pagina geen vermelding van onze prijzen, een aanbieding of een verzoek om een transactie in welk financieel instrument dan ook. IG aanvaardt geen verantwoordelijkheid voor het gebruik dat van deze opmerkingen kan worden gemaakt en voor de daaruit voortvloeiende gevolgen. IG geeft geen verklaring of garantie over de nauwkeurigheid of volledigheid van deze informatie. Iedere handeling van een persoon naar aanleiding hiervan is dan ook geheel op eigen risico. Een door IG gepubliceerd onderzoek houdt geen rekening met de specifieke beleggingsdoelstellingen, de financiële situatie en behoeften van een specifiek persoon die deze informatie onder ogen kan krijgen. Het is niet uitgevoerd conform juridische eisen die zodanig zijn opgesteld dat de onafhankelijkheid van onderzoek op het gebied van investeringen wordt bevorderd, en dient daarom als marketingcommunicatie te worden beschouwd. Hoewel wij er niet uitdrukkelijk van weerhouden worden om te handelen op basis van onze aanbevelingen en hiervan te profiteren alvorens ze met onze cliënten te delen, zijn wij hier niet op uit. Bekijk de volledige disclaimer inzake niet-onafhankelijk onderzoek en de driemaandelijkse samenvatting.
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