By Callum Keown
Boeing's pain is European rival Airbus' gain -- but that advantage may not last long unless the aircraft maker can ramp up production.
Airbus CEO Guillaume Faury said at a conference in early March that Boeing's well-documented regulatory, production, and safety problems were bad for the industry as a whole. There's probably some truth to that. But in reality, the two have been locked in an intense battle for decades, and the U.S. plane maker's troubles benefit Airbus considerably.
Toulouse, France--based Airbus has secured more orders than Boeing in 2024 and delivered more planes (79 to Boeing's 54), gaining market share in the narrow-body, or single-aisle, aircraft market -- which is essentially a straight shootout between Boeing's 737 MAX and the European-made A320 family. Airbus holds 61% of the narrow-body market, according to RBC Capital Markets analyst Ken Herbert, though Boeing holds a commanding lead in the wide-body market.
The widening gap is perhaps most starkly illustrated by the two companies' stock performances. Airbus has climbed 22% to EUR170.28 euros ($184.33) this year, hitting new highs in the process. Boeing's stock is down 27%.
The momentum is very much with Airbus, which is favored by more airlines. United Airlines Holdings has been vocal in its desire to get more A321 jets . Japan Airlines ordered A321neo jets for the first time -- it was previously an exclusive single-aisle customer for Boeing. That's a significant win for Airbus, and suggests that efforts by airlines to diversify their manufacturers could help the company grab more market share.
But it isn't as simple as that. Airbus' unfilled-order backlog reached 8,599 aircraft at the end of January, an industry record. In other words, at current production rates, there's more than a decadelong wait for a plane.
"Airbus is winning as much as it can," Stifel Nicolaus analyst Bert Subin tells Barron's. "The main problem with Airbus becoming overly dominant is that you just can't get an aircraft until later into the 2030s, and that's a problem for airlines that want to grow." He has a Buy rating on Boeing and a price target implying 42% upside to Tuesday's price, while his colleague Marc Zeck has a Buy rating on Airbus but his price target suggests a 3% drop.
The downside to this year's Airbus rally is that shares are now a bit more expensive than their five-year average, trading at 24.2 times future earnings compared with the 21.8 average. That's still cheaper than Boeing, which trades at 65.7 times projected earnings over the next 12 months.
Airbus, meanwhile, has maintenance difficulties of its own. Hundreds of A320 aircraft are set to be grounded this year due to problems affecting Pratt & Whitney engines. RBC's Herbert says those issues will have less of an impact than first feared, citing Airbus' guidance for 800 aircraft deliveries in 2024, which indicates demand remains strong despite the setback.
Airbus wants to reach a monthly production rate of 75 for the A320 family by 2026, up from an average of 48 last year. In contrast, the Federal Aviation Administration has temporarily limited Boeing's 737 production rate at 38 a month.
Deutsche Bank analyst Christophe Menard has a Buy rating on Airbus stock and sees it reaching EUR186. However, he wrote in a note that his price target "assumes a flawless production ramp-up," noting a constrained supply chain as a potential risk. Delivery delays and parts shortages have hit the industry in recent years, particularly since the pandemic.
Boeing has handed Airbus the edge for now, and how far it can extend its supremacy will depend on it getting its own house in order.
Write to Callum Keown at callum.keown@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 27, 2024 02:52 ET (06:52 GMT)
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