In the battle for supremacy in the aircraft business, there are only two real players - Boeing Company (NYSE:BA) and Airbus
(EPA:EAD). These two companies compete for market share in commercial
and military planes, with demand far exceeding each company's
manufacturing ability, and both have a long order backlog. Some of
Boeing's customers, for example, will wait as long as five years before
the planes they ordered are delivered. And while they fill these
orders, both companies must keep innovating. As oil prices continue to
soar, and airline companies like Delta and American Airlines struggle with tight margins, planes that fly faster, fit more passengers, and consume less fuel are at a premium.
And so each company has designed its own new super-plane - for
Airbus, the A380, and for Boeing the 787 Dreamliner. The Airbus plane
has already debuted (its first flight was in October 2007), while
Boeing continues to get hit by production delays, and the Dreamliner is
optimistically scheduled for release in third quarter 2009.
The two airlines have taken completely different approaches
to solving the problems of fuel efficiency and passenger capacity that
have plagued airline companies in recent years. For Airbus, the answer
is "bigger and better" - the A380 is a massive plane designed for long
trips, conserving fuel by consolidating passengers onto one flight
where two were needed before. Boeing has a different approach -
flexibility. Its three versions of the 787 are adapted for different
purposes. The 787-3 has a large passenger capacity over short
distances, while the 787-8 and 787-9 are built for longer trips, but
carry fewer passengers to maintain fuel efficiency.
It seems that airline companies dig both planes
- as of August 2008, Boeing has an order backlog of nearly 1,000 planes
and $350 billion, while Airbus has a backlog of 200 planes for the
already-released A380. Despite its apparent advantage in releasing its
plane first, Airbus has not had a smooth ride with the A380.
Originally planned as a collaborative project with Boeing,
the company has had numerous launch delays and spent billions in
penalties and inflated production costs related to its A380 learning
curve. As a result, orders have stagnated, boosting Boeing's hopes
that the 787 will be the industry's next big thing.
But Boeing has its own problems. The Dreamliner debut is now 18
months late, as the company's plan to farm out large parts of
production to outside suppliers has largely been a failure. And as the
company re-hires its machinists to bring the work back in-house, it is running into trouble with the machinists' union,
which is unhappy with the company's pension and health insurance plans
and is seizing the opportunity to play hardball. Boeing cannot afford
to give too much to its workers - inflated labor costs are the driving
force behind the decline of the U.S. auto industry, and Boeing's
management has studied this story carefully - but it can ill-afford
more production delays on its 787 line, a certainty in the event of a
worker's strike.
by Adam Farren
www.wikinvest.com
www.thesimplifiedinvestor.com