Market commentary by eToro analyst for Romania, Bogdan Maioreanu: Boeing loses ground to Airbus as air travel recovers
After the pandemic, travelers have returned to flying, with the air travel sector making a strong comeback. The Airports Council International (ACI) World has predicted global passenger traffic to reach 9.7 billion by the end of the year, exceeding the pre-pandemic 2019 record for the first time. The increase in travelers translates into new orders for airplane manufacturers. But the recent Boeing quality control problems evidenced by a series of incidents are raising concerns for investors and airlines alike.
In 2023, the two largest aircraft manufacturers, Europe’s Airbus and the US’s Boeing, received orders for 3775 aircraft. 61% of these (2319) went to Airbus and 39% (1456) to Boeing. Last year, the two companies delivered 1,263 aircraft, of which 58% (735) were delivered by Airbus and 42% (528) left Boeing’s factories.
Lately, Boeing has been under the microscope because of a series of accidents and malfunctions of their airplanes. The year started with a two-months old Boeing 737 Max operated by Alaska Air flight losing an emergency door 6 minutes into the flight, which led to decompression. Airlines using the model had to temporarily stop flying the aircraft to perform special checks ordered by the FAA, which led to schedule disruptions. The malaise continued with some other incidents like flames coming out of the engine of a Boeing 737-900, and then dozens of injuries were reported aboard a Boeing 787 Dreamliner that experienced a sudden drop in altitude, while in another incident a tire fell off a Boeing 777. According to the visual capitalist site, in the past 10 years there were many more incidents involving Boeing than Airbus in the US and international waters. These culminated in 2023 when we had 137 incidents involving Boeing civil aircraft and only 40 with Airbus. In 2024, by the end of February there were 20 Boeing and only 4 Airbus aircraft incidents.
This situation, combined with widespread quality lapses, has intensified concerns about Boeing’s manufacturing standards. This led to Boeing’s CEO David Calhoun announcing his decision to step down by the end of 2024, highlighting the need for transformative leadership to address these challenges.
For the final year 2023 Boeing civil aviation division had revenues of almost $34 billion, being the largest segment in the almost $78 billion Boeing business. But there are a lot of hurdles ahead for the company. A new management will have to fix production issues and restore the confidence of passengers, airlines and investors in the company. Since the beginning of the year Boeing’s stock has lost almost 35% of its value.
Meanwhile, shares in one of the major Boeing planes operator, Alaska Air Group, gained over 16% from the beginning of the year. The company reported Q1 2024 results that were better than Wall Street’s expectations. The airline received $162M as an initial cash compensation from Boeing (BA) to address the financial damages incurred in Q1 due to the incident on Flight 1282 in January as well as the grounding of Boeing 737-9 MAX aircraft.
On Wednesday, Boeing reported a $355 million loss as revenue fell 8% from a year ago in quarterly results that were slightly better than expected. The jet maker, which burned through $3.9 billion in cash during the quarter, said the results reflect the fact that it has slowed its factories to fix quality issues, reducing commercial deliveries.
Boeing’s future, at least in the civil aviation sector, does not look particularly bright at the moment. Boeing’s recovery will have to address quality control problems, production delays and most likely will burn a lot of cash in the process. But the company is too big to fail. And while Airbus is now a favorite of investors, a strong competition from an improved Boeing is a healthy choice for global aviation.
Bogdan Maioreanu, eToro analyst and markets commentator, has over 20 years of experience in financial services and investments and a strong background in journalism. He held different Corporate Banking management positions in both Raiffeisen Bank and OTP Bank, before moving to business consultancy roles working for IBM Romania among others. Bogdan is an Executive MBA from Asebuss and Washington University.
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