Airbus' New BFF: Boeing

On the surface, the contest between Boeing (NYSE: BA  ) and Airbus appears to be an epic struggle. A clash between titans for control of the $4.7 trillion airliner market. But could Boeing actually be the best thing that ever happened to Airbus?

I know the idea's heresy. But a recent report out of Bloomberg suggests that Boeing's attempt to steal share from Airbus with its groundbreaking "composite-skinned" 787 Dreamliner may have hamstrung Boeing, even as it gave Airbus a weapon with which to grow sales.

Bloomberg describes how London-based Umeco gained experience working up carbon-fiber components for the 787 Dreamliner. The new technology has been bad news for Alcoa, whose share price has never quite recovered since Boeing's switch to from aluminum to composites was announced back in early 2003. But it's been worse news for Boeing, whose 787 project has been plagued by three years of production delays as the company tried to get a handle on integrating the new material into the 787.

But here's the real kicker: Boeing began its 787 project nearly two years before Airbus announced the development of its answer to the Dreamliner, the A350. On one hand, this gave Boeing a big head start that's enabled it to book record sales on its new plane. On the other hand, it gave Airbus time to learn from Boeing's mistakes and to profit from advancements in the technology while avoiding similar mistakes itself.

Today, says Umeco, it's figured out how to manufacture composites more cheaply and easily than it used to. Many analysts believe that Boeing's initial foray into composites has made it difficult for the company to turn a profit on planes using the new tech, such as the 747-8 and the Dreamliner. But Airbus also buys composites for its A350 from Umeco. Between lower costs on these components and the ability to learn from Boeing's mistakes, it's that possible Airbus' A350 will fare better.

If Airbus ends up enjoying lower development costs, the company will face less pressure to keep prices high to recoup its investment. That situation could help it to win more sales outright, instead of splitting them with Boeing, as happened at United Continental (NYSE: UAL  ) last year. (In fact, Airbus did just that with its recent 100-plane order from AIG (NYSE: AIG  ) .) Reduced pricing pressure could help it win further contracts in bidding on upcoming contracts from Delta (NYSE: DAL  ) and Ryanair (Nasdaq: RYAAY  ) .

Boeing may yet rue the day it came up with this particular bright idea.

Who has the best ideas on aerospace  stocks? Fool Rising Star Anand Chokkavelu, that's who. Read all about his latest picks.

Fool contributor Rich Smith has no position in any company named above. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 21, 2011, at 1:02 PM, InTheNo2 wrote:

    I'm a bit surprised that Rich Smith isn't aware that intellectual property extends to contractors which have been paid to develop a product.

    As a former Boeing employee, since around 2004 we were annually taught what intellectual property is, the legal ramifications of giving it away, and made to sign a pledge that we would not only safeguard The Boeing Company intellectual property, but would bring other company's intellectual property to the attention of the appropriate authorities. That's what honesty and integrity is all about.

    I suspect the Umeco Company has been made well aware of this nuance. Given the recent sting of events in the WTO findings, I'm willing to bet EADS has discovered it too.

  • Report this Comment On May 21, 2011, at 2:06 PM, busterbuddy wrote:

    Neither will out perform the other. They are the only really two aircraft producers in the world. Airbus has to start building and assembling planes in the US. Boeing knows this and that is why the Corporate push for Tanker.

    So Airbus will assembly planes in the US within the next 5 years.

    But what is really going on would be somewhat strange to the cartels of the middle ages. Boeing is giving away its capability to China thinking it will be a good deal.

    Thus China aerospace companies will be the top dogs in aircraft in 20 years.

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