The past five years have painted a stark contrast between the world’s two largest aircraft manufacturers: Airbus, soaring with profits, and Boeing, grappling with near-constant losses.
On August 8, Boeing appointed Kelly Ortberg as its new CEO. Formerly the CEO of Rockwell Collins, a prominent aviation technology company, Ortberg is renowned for his leadership skills and his success in merging Rockwell Collins with United Technologies.
This leadership change comes as Boeing faces significant challenges related to safety and product quality, issues that have led to financial losses under former CEO Dave Calhoun. Over the past five years, these challenges have steadily eroded Boeing’s standing in the industry, allowing Airbus to pull ahead.
In the global commercial aircraft manufacturing arena, Boeing and Airbus are fierce rivals. Although there are other manufacturers in the market, their production volumes pale in comparison to these two giants.
According to CNN, one key reason for the dominance of Boeing and Airbus is the extensive pilot training on their specific operating systems, making it difficult for airlines to switch to aircraft from other suppliers. Additionally, both companies have a significant edge due to their massive production capacities. As of the end of 2023, Airbus had a backlog of 8,598 aircraft orders, while Boeing had 5,591 orders as of the end of March.
However, the business trajectories of these two giants have diverged sharply in recent years. Boeing has been plagued by a series of mishaps leading to consistent losses, while Airbus has enjoyed stable profitability.
The troubles for Boeing began with two tragic crashes of the Boeing 737 Max in late 2018 and early 2019 in Ethiopia and Indonesia. These incidents dealt a severe blow to the American aircraft manufacturer, leading to a global grounding of the 737 Max fleet for over 18 months.
Boeing faced billions of dollars in fines, along with even greater losses from canceled orders, ultimately reporting a staggering $3 billion loss in Q2 2019. The 737 Max was eventually cleared to return to the skies at the end of 2020, following critical changes to the flight control system and updated training protocols.
However, these issues, compounded by the challenges of the COVID-19 pandemic, continued to plague Boeing, resulting in a near $12 billion loss in 2020, with a record $8 billion loss in Q4 alone.
Two years after the 737 Max debacle, Boeing faced yet another hurdle, this time involving the 787 Dreamliner. Manufacturing issues forced the company to delay deliveries and rework certain components, leading to a sharp decline in profits in Q4 2021, amounting to over $4 billion.
As 2022 unfolded, various challenges in both the commercial aircraft sector and defense business led to another significant loss in Q3, totaling $3.3 billion. Yet, Boeing’s streak of misfortunes didn’t end there.
On January 5, 2024, a 737 Max experienced a door malfunction mid-flight, prompting the Federal Aviation Administration (FAA) to immediately ground 171 of the 737-9 Max jets and order Boeing to halt the expansion of its production line.
The FAA also conducted a comprehensive inspection of Boeing’s production facilities, uncovering numerous issues related to quality control and manufacturing processes. This latest setback resulted in an additional $1.4 billion loss for Boeing in Q2 of this year.
While Boeing has faced turbulence, Airbus has navigated a relatively smoother business trajectory. The company’s most significant loss in the past 5.5 years occurred in Q4 2019, primarily due to a hefty fine related to a corruption case and increased costs tied to the A400M military aircraft program.
Since 2021, Airbus has consistently reported profitable quarters, with the highest being a remarkable $2.24 billion in Q2 2021. This year marked Airbus’s strong recovery from the COVID-19 crisis, with sales and aircraft deliveries rebounding, particularly for the A320neo series, as the global aviation industry began to regain momentum.
In the same year, Airbus launched the A321XLR, a new addition to the mid-range segment. This aircraft promised an extended range of up to 8,700 km, catering to the demand for fuel-efficient planes capable of longer flights.
In 2022, Airbus delivered 661 aircraft compared to Boeing’s 480, cementing its position as the world’s largest aircraft manufacturer. However, alongside these successes, Airbus also faced industry-wide challenges related to supply chain disruptions, including material and component shortages, which slowed down production and delivery timelines.
In the first half of 2024, Airbus ramped up its commercial aircraft deliveries to 323 units, a slight increase from 316 in the same period last year. In contrast, Boeing’s deliveries slowed significantly, dropping to 175 aircraft compared to 266 in the first six months of 2023.
When comparing the business results for the first half of this year, Airbus reported revenues of €28.8 billion, a 4% increase year-over-year, while Boeing’s revenues fell by 11% to $33.6 billion. However, the stark difference lies in profitability: Airbus achieved a net profit of $890 million, whereas Boeing posted a net loss of $1.79 billion during the same period.
In a bid to strengthen its production capabilities, Boeing announced in June that it had reached an agreement to acquire fuselage manufacturer Spirit AeroSystems. The completion date for this acquisition has not yet been disclosed.
Boeing is currently pinning its hopes on new CEO Kelly Ortberg to steer the company back on track. After rolling out 25 units of the 737 Max in July, Boeing aims to ramp up production to 38 units per month by the end of 2024.
However, experts from credit rating agencies Moody’s and S&P predict that this target might be difficult to achieve, citing potential risks such as labor disruptions at Boeing’s Seattle facilities in September if contract renegotiations with 30,000 factory workers do not go smoothly.
Jonathan Root, an analyst at Moody’s, anticipates that Boeing will end 2024 with a monthly production rate of 32 Max units and reach the 38-unit target in the second half of 2025. Max production levels are closely monitored by analysts and investors alike.
Boeing has scaled back production to enhance quality control, but this move has strained the company’s cash flow. The company burned through approximately $8.3 billion in cash in the first half of 2024, and it is expected that free cash flow (FCF) will remain negative for the year, further burdening Boeing’s financial position.
“We see increasing and stabilizing Max production as crucial to generating free cash flow, which is ultimately what we care about to maintain Boeing’s credit rating,” said Ben Tsocanos, Aerospace Director at S&P Global Ratings.
Investors are urging Boeing to boost production to slow down the cash burn, which is likely to continue at least through Q3. “There is a lot of operational leverage in this industry, and with production running below optimal capacity, it will only continue to burn cash,” noted Tony Bancroft, Portfolio Manager at Gabelli Funds, a Boeing shareholder.
In a statement made on August 15, United Airlines CEO Scott Kirby expressed optimism, predicting that Boeing will “recover faster than most people expect” after meeting with Boeing’s CEO, Kelly Ortberg. “I’m not only encouraged by what I heard, but I also have more confidence that Boeing is on the right path,” Kirby remarked.
United Airlines, a major Boeing customer, was reportedly furious with the aircraft manufacturer after the FAA suspended over 170 Boeing 737 Max 9 planes following a door malfunction in January, which cost the airline $200 million in Q1 losses.
However, Scott Kirby now appears more optimistic, praising Kelly Ortberg’s technical expertise, honed during his tenure at Rockwell Collins, as a potential game-changer. At Rockwell Collins, Ortberg oversaw the development of critical programs for the Airbus A350 XWB, Boeing 787, and Bombardier CSeries.
Once Boeing finds a solid footing, the leadership team will need to focus on launching a new commercial jet to refresh its aging product lineup, according to analysts.
The Max is the latest version of the 737, which first entered service in 1968. “Given Ortberg’s age (64), his priorities might include stabilizing Boeing’s operations and finances, as well as repairing the company’s culture,” said Robert Spingarn, an analyst at Melius Research.
In a recent message to employees, CEO Ortberg reminded the workforce that “people’s lives depend on what we do every day.” He emphasized, “Restoring trust begins with delivering on our commitments—whether it’s producing high-quality, safe commercial aircraft, or providing defense and space products that help our customers accomplish their missions.
