Boeing Loses Billions, and 2 Loyal Airlines, to Airbus


Boeing 737. Photo: Wikimedia Commons.

In October, two of Boeing's loyal airlines, Japan Airlines and Mexican airline VivaAerobus, placed orders with Boeing's chief rival, European Aeronautical Defense and Space's. In October, Airbus outsold Boeing. Is it time to worry?

Clash of the titans
The two titans of commercial airline sales have battled with each other for years, with Boeing more often than not coming out on top. However, October was not Boeing's month. First, VivaAerobus placed an order for 40 A320-family jets -- a deal worth an estimated $4 billion, and then Boeing lost the JAL contract to Airbus -- estimated to be worth $9.5 billion (although discounts are likely). This came with the added displeasure of jeopardizing Boeing's manufacturing arrangements with Japanese manufacturers Kawasaki, Mitsubishi, and Fuji.

Further, these losses were compounded by the fact that this year Airbus has outsold Boeing. As of October, Boeing had sold 1,102 jets. Airbus had sold 1,286.

Billions to the rescue
Airbus' victory over Boeing in commercial airline sales is clearly not great news for investors. However, it's also not time to panic. In its latest quarterly report, Boeing's commercial airline third-quarter revenue increased to $14.0 billion. Plus, operating margin improved to 11.6% on higher delivery volume and continued strong operating performance. Moreover, Boeing reported that it booked 200 net orders during the quarter for commercial airplanes, and backlog remained high, with 4,800 airplanes valued at a record $345 billion.

What to watch
It's worrisome that Airbus would take two of Boeing's airlines and beat it in orders, as it shows that Airbus is kicking the competition -- and doing a good job at that. However, Boeing is completely up to the challenge, and I imagine it'll come back fighting. Further, for its latest third-quarter results, Boeing had a total backlog of $415 billion, a revenue increase of 11% thanks to higher commercial deliveries, and an operating cash-flow increase of $4.3 billion. Consequently, Boeing has a significant safety net -- for now. If Boeing continues to lose key customers to Airbus, or any other airplane manufacturer, it might be time to re-evaluate your holdings. But for now, there isn't cause to panic.

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