As the aviation industry continues its recovery from the depths of 2020, the order books of Airbus and Boeing are expanding again. Normalcy is some distance away, but a series of recent moves has this straight fight taking wing again
As a prominent exhibition for the aviation industry, last week’s Dubai Airshow was significant in another context. It was the first air show since the covid-19 pandemic made air travel anathema. It was business as usual, as the world’s top two aircraft manufacturers announced new customer orders. Airbus amassed orders for 408 aircraft, led by 255 from private equity firm Indigo Partners and 111 from leasing company Air Lease Corporation. Boeing secured orders for 98 aircraft, including 72 from India’s newest airline, Akasa Air. Both said business was picking up—after nearly two years.
Investors tend to agree. The share price of European company Airbus has bounced back and is only 19% away from its pre-pandemic high. Boeing is still 45% away from its pre-pandemic high, but the American manufacturer has had to deal with the fallout of two fatal accidents involving the 737 Max, the model that it sees as its current mainstay. That seems behind it now, and aircraft of that make are flying again.
‘Gross orders’ of both companies have comfortably crossed 2020 levels. Gross orders include both firm orders and future commitments. Further, as deliveries happen over several years, there can be cancellations and alterations. In fact, net orders—a more accurate capture of actual orders—declined from 80-90% of gross orders between 2010 and 2015 to 60-70% just before the pandemic. Net orders for 2021 are not available. Yet, gross orders have increased significantly, which should rekindle a rivalry that has swung both sides over the past decade.
Worldwide, the domestic segment is leading the aviation recovery. In September, international air passenger traffic, measured in passenger kilometers, was about 31% of September 2019 levels, while domestic was about 76%, according to the International Air Transport Association (IATA). Barring the odd market such as Russia, domestic air traffic has not matched pre-pandemic levels, but the signs are good.
In September, China and the US, which account for about one-third of all domestic air traffic, were about 74% and 87% of their corresponding September 2019 levels. India, by comparison, was 59%, according to IATA. Reflected in the US recovery is the new aircraft pipeline of United Airlines, one of the leaders in the US. In 2021, it has taken deliveries of 22 aircraft from Boeing, 19 of which are the 737 Max. This year, it has also ordered another 258 planes from Boeing, all of them the 737 Max.
In the Airbus-Boeing battle, much pivots around the 737 Max. Launched in May 2017, it was grounded worldwide in March 2019 after two accidents that killed 346 passengers. Following the payment of penalties and compensation, and rectification of issues, the US cleared the aircraft to fly in November 2020. Other countries have been following suit. SpiceJet, which has the maximum 737 Max among Indian airlines, last week did a test flight in a prelude to a re-introduction.
In India, Airbus has opened a big lead to Boeing, largely on the back of leader IndiGo. Airbus has a seat capacity of 68% and Boeing 26% of the 120,000 seats, according to data from the Indian aviation regulator. But Akasa has opted for Boeing. Further, the Tata Group recently acquired Air India, whose fleet is split equally. The Tatas also own AirAsia and Vistara, which are Airbus-dominated. If the 737 Max does well, it will up the Boeing-Airbus ante in a prominent market.
In May, Airbus said it expected the commercial aircraft market to recover to pre-covid levels between 2023 and 2025, led by the single-aisle segment. Thus, it increased the production rate of the A320—its single-aisle mainstay and the most popular aircraft in Indian skies—from 40 in the September quarter to 45 this quarter. It’s looking at a production rate of 64 by mid-2023, and has asked suppliers to prepare accordingly. Amid the pickup, one thing that’s missing is demand for larger aircraft like the A350 and A380, which ply longer, international routes.
The action is expected to largely be in the single-aisle segment—A320 for Airbus and 737 for Boeing. While Airbus is exuding quiet confidence, Boeing has its tail up. Over the last decade, Boeing has lost ground to Airbus. Its response, the 737 Max, faltered in its first flight. How it fares in its second will shape the battle in the commercial skies.