Boeing’s Profits Falling Faster Than Its Planes: Why Airbus Is Flying Higher as a Business

Boeing manages to make headlines with a frequency that many companies would welcome or even envy. Unfortunately, most of the news surrounding the iconic airline manufacturer leans closer to infamy than a gratuity from the press. You’ve probably heard about doors flying off of its jets mid-flight, emergency landings for mechanical problems, and planes dropping 6,000 feet in three minutes. But today’s breaking stories are about Boeing’s tremendous financial losses and lack of profitability for the duration of 2024. Part of me thinks “well, go figure.” Another part of me says “this is why I only book flights that use Airbus planes.” So what’s up? Comparing the two companies, you actually get a very solid snapshot of the difference between smart business decisions and cutting corners to appease shareholders – the latter of which usually ends up being more expensive in the long run.

Boeing’s Crashing Reputation

January, as the Associated Press reported at the time, “Alaska Airlines grounded all of its Boeing 737-9 aircraft late Friday, hours after a window and piece of fuselage on one such plane blew out in midair and forced an emergency landing in Portland, Oregon. No one was seriously hurt.” No one except Boeing. 

On May 21, Boeing 777-300ER heading from London to Singapore with 229 souls aboard encountered severe turbulence at 37,000 feet, causing the plane to plummet 6,000 feet. Thirty passengers were injured during the sudden descent. One passenger died. 

Just one day after that, Jeremy Fox of the Boston Globe covered yet another technical issue with Boeing planes: “A United Airlines flight from Boston to San Francisco was forced to make an emergency landing in Denver on Tuesday morning ‘to address a potential mechanical issue,’ officials said, renewing concerns about safety on Boeing planes.” Whoops. 

But we’re not done yet. Most recently, Boeing and the Federal Aviation Administration (FAA) have become embroiled in a battle over the FAA’s findings that an electrical flaw near the fuel tanks of Boeing’s jets could spark a fire or even an outright explosions: “The accumulation of electrostatic charge in the cover plate assembly and the float valve assembly, which is attached to the cover plate assembly, could lead to electrostatic discharge to the surrounding structure,” according to an Airworthiness Directives rule posted by the Federal Aviation Administration.”

Clearly, corners have been cut. And given today’s news about Boeing’s financial outlook, which is nosediving faster than one of its aircraft, the company will either cut more corners or shape up. 

Boeing’s Financial Mayday

“Boeing will burn through cash this year and deliveries of new planes won’t improve in the second quarter from the first, as the manufacturer deals with a host of production challenges tied to its bestselling planes, the company’s CFO, Brian West, said Thursday,” wrote CNBC’s Leslie Josephs.

She added that the manufacturer “burned through nearly $4 billion in cash in the first quarter and West said that figure could be similar or ‘possibly a little worse’ in the second quarter, but that the company would likely return to generating cash in the second half of 2024.”

The mess that keeps pooling around the ankles of Boeing’s leadership (though, it’s probably creeping up to their knees by this point) begs the question: why isn’t Airbus, Boeing’s largest competitor, having the same setbacks?

A Tale of Two Aircraft

Where Is Boeing Spending Its Money?

Boeing’s cash spending in recent times has been focused on several key areas that paint the picture of a former industry juggernaut that’s now struggling through not-so-great business decisions. You can discover more about the company’s position through Boeing Investors, from where this information was aggregated.

• Debt Reduction: Boeing has been actively reducing its debt. As of the first quarter of 2024, Boeing reduced its debt to $47.9 billion, down from previous levels, as part of its efforts to strengthen its financial position.
• Production and Quality Improvements: The company has been investing significantly in its commercial airplane production system, with a particular focus on quality and safety improvements. This includes expenditures to address production issues with the 737 and 787 aircraft models and to ramp up production rates to meet demand.
• Operational Investments: Boeing is also spending on capital expenditures to support ongoing business operations. This includes investments in property, plant, and equipment to sustain and expand its production capabilities.
• Global Services Expansion: Another area of spending is the expansion of its Global Services division. This includes opening new parts distribution centers, such as the one recently established in India, and securing contracts to provide maintenance and support services for military and commercial aircraft.
• Technological and Infrastructure Upgrades: Boeing is allocating funds towards technological advancements and infrastructure upgrades to enhance its operational efficiency and product offerings. This includes investments in digital transformation and new manufacturing technologies.

These expenditures are part of Boeing’s broader strategy to recover from past challenges, improve operational efficiency, and position itself for future growth.

How Airbus Spends Its Money

Airbus has a total shareholder equity of €18.5B and total debt of €12.0B, which brings its debt-to-equity ratio to 65%. Its total assets and total liabilities are €122.8B and €104.3B respectively. Airbus’ EBIT is €4.4B making its interest coverage ratio -97.8. It has cash and short-term investments of €16.3B.

While production issues have continued to plague Boeing over the past couple of years, particularly across the Boeing 737 MAX and Boeing 787 programs, Airbus has managed to navigate production challenges more effectively, maintaining a steadier pace of deliveries. In the end, Airbus secured its position as the leading commercial aircraft manufacturer in 2023.

So where is Airbus allocating its cash?

• Dividend Payments: Airbus announced a special dividend due to its strong financial performance in 2023, driven by a surge in orders. This reflects their healthier cash position compared to Boeing.
• Capital Investments: Airbus is investing in ramping up production, particularly for the A220 and A320 family, aiming for increased production rates in the coming years. They are also expanding their production facilities in China and the US (Airbus) (Airbus).
• R&D Spending: Airbus continues to invest heavily in R&D, with expenses totaling €3.26 billion in 2023. They are focusing on future technologies, including the development of the A321XLR and the increase in A350 production rates (Airbus).
• Cash Reserves: Airbus maintains a strong cash reserve, enabling it to distribute dividends and potentially engage in share buybacks, contrasting with Boeing’s debt repayment focus.

Where Boeing is channeling most of its cash toward debt reduction and stabilizing its production capabilities, Airbus enjoys a more stable financial position that allows it to invest in production increases, pay dividends, and maintain a robust R&D program, the latter being essential to passenger safety and in preventing planes from crashing, plunging earthward, exploding, and ripping apart. 

Why Airbus Is Beating Boeing

Airbus’ success over Boeing can be attributed to several strategic and operational factors, not the least of which is that its planes aren’t falling to the ground with such alarming regularity. FAA data reveal that in the United States, there have been 198 incidents involving Boeing aircraft over the past 10 years compared with 99 for Airbus.

• Product Development and Innovation: Airbus has been proactive in developing fuel-efficient aircraft that meet market demand. The A320neo family, introduced with new engine options, has become highly popular due to its operational cost savings and efficiency. This gave Airbus a significant edge in the single-aisle market. Airbus also launched the A321neo, catering to the demand for larger single-aisle jets, which has outperformed Boeing's 737 MAX series in orders and deliveries.
• Geographic Diversification: Airbus has a more diversified revenue base, with significant contributions from high-growth regions such as the Asia-Pacific. This contrasts with Boeing’s heavier reliance on the U.S. market. Airbus’s strategic investments and partnerships in Asia, such as setting up production facilities in China, have strengthened its presence and market share in these regions.
• Manufacturing and Supply Chain Management: Airbus has maintained better production stability and quality control compared to Boeing. While Boeing has faced significant disruptions due to safety and production issues, particularly with the 737 MAX and the 787 Dreamliner, Airbus has managed to avoid major grounding issues and has maintained a steady production rate. The European manufacturer’s ability to manage its supply chain effectively, despite global challenges, has allowed it to meet demand more reliably.
• Financial Management and State Support: Airbus benefits from substantial state support from European governments, which has provided it with a stable financial foundation. This support has been crucial in weathering market downturns and investing in new technologies. In contrast, Boeing's financial health has been strained by high debt levels and the need to manage extensive compensation and production fixes following the 737 MAX groundings.
• Customer Relationships and Market Perception: Airbus has built a strong reputation for reliability and customer service, which has been bolstered by Boeing’s struggles with safety issues. This has translated into stronger order books and customer loyalty for Airbus. The symbolic wins, such as securing orders from major airlines like United Airlines due to Boeing’s delays, highlight Airbus’ competitive advantage in the current market landscape.

Overall, Airbus’ strategic investments in innovation, its effective supply chain management, broader market reach, and strong financial backing have enabled it to outperform Boeing, particularly during periods when Boeing has faced significant operational and reputational challenges.

The Airbus Secret: Investing in Success

When it comes down to brass tacks, the leadership teams at Airbus are following the best practices of any business: they are concentrating on continuous improvement, quality, and the reinvestment of profits into the company’s products – not the pockets of executives and shareholders. Airbus operates a relatively lower business scale than Boeing, yet it has matched its research and development expenditures to those of its larger competitor. During four of the last five years, Airbus has spent more dollars on research and development than Boeing. And look where both aircraft manufacturers are today. One is flying high, the other appears to have been grounded.