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Airbus Bursts Boeing's Bubble

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Today should have been a good day for Boeing (NYSE: BA  ) . In fact, it would have been a good day for one of the world's two biggest planemakers. The problem was that pesky other airplane company.

This morning, Boeing crowed over the success it's achieved in 2011: 118 planes delivered in the fiscal second quarter, or 14 more than itnchurned out in Q1. That would have been great news for the Seattle seahawk, but for the news that Airbus floated several hours earlier: It has delivered 258 planes in the first half of the year -- or 16% more birds than Boeing hatched.

And it gets worse. Unmentioned in Boeing's press release, but laid out in black and white on its website, is the tally of new orders Boeing's booked so far this year. Through June 30, Boeing has booked 230 orders for its fleet of 737s, 777s, and 787 Dreamliners -- but experienced nearly five dozen cancellations. Net-net, the company's booked 171 orders so far this year.

And Airbus? More, of course. We've been reading all year about the company's multiple contract wins from customers AIG (NYSE: GE  ) , General Electric (NYSE: GE  ) , Air Lease (NYSE: AL  ) , and JetBlue (Nasdaq: JBLU  ) . But only now does the scale of Airbus' victory become apparent. So far this year, the Euro-planemaker has secured a Boeing-mocking 777 orders for its planes. Minus 137 cancellations, its net sales figure YTD is 640 planes -- nearly three times as many as Boeing has secured.

Foolish takeaway
Clearly, this does not bode well for Boeing. Securing orders is how a planemaker builds up backlog, and backlog is in turn key to future revenue -- and profits. The farther behind Boeing falls in this race, the worse its prospects appear … and the lower its stock price will fall. That's one reason I called the top on Boeing's stock price last month, after previously praising the company last year. It's one of several reasons I'm sticking with that bearish call today.

Don't say you weren't warned.

Fool contributor Rich Smith holds no position in any company mentioned. Check out his holdings and a short bio. 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.

Read/Post Comments (11) | Recommend This Article (3)

Comments from our Foolish Readers

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 July 07, 2011, at 5:49 PM, jrusso9722 wrote:

    I appreciate being invited to post opinion. Thanks. I have a different slant on this. These A320Neos won't be delivered until 2015. A350 is going to be 2 years late, something not often mentioned. It's a big problem for airlines who ordered it. Boeing widebodies, 767, 777 787, 747-8 are in good shape. 737 is sold out, requiring a boost in monthy build from 31.5 to 42 per month by 2012. At $90M per plane, + -, that's another $900M per month in gross sales, before 320Neo is even on the design boards. So, I don't see Boeing being hurt at all.

  • Report this Comment On July 07, 2011, at 5:53 PM, jrusso9722 wrote:

    ...another thought. Since hundreds and hundreds of A320Neos were ordered at the Airshow, I'm suspicious of EADS pricing, it's a hunch. Since EADS was found guilty of launch aid, maybe they contracted for these A320's at a rediculously low price, to buy the market, and keep Airbus factories churning, and, labor quiet. Could be, maybe. I would not put it past them.

  • Report this Comment On July 07, 2011, at 6:11 PM, caldyno wrote:

    A majority of the orders that Airbus is touting are for the A320neo which will have a small profit margin at competitive prices. To have signed all of the orders with budget carriers that they have and in the quantities ordered would signal dramatic discounts. A significant portion of the Boeing orders are for wide body aircraft with much higher margins so quantity doesn't always mean quality profits.

  • Report this Comment On July 07, 2011, at 6:20 PM, praizinplace wrote:

    The sky is falling the sky is falling the sky is....So amazing the koolaid you dispense on Boeing! Do you honestly believe your own beefsteak? To say that a backlog of nearly 900 787s alone is a bad thing that is going to bring the stock price down is evidence enough that your European love affair is once again steering you the wrong way across the pond. Again, I wonder, you post stellar prophetic links showing your sage-like knowledge, but never once show your Fool-ish prognostications. I also wonder if anyone has made some real dumb investment mistakes based on your droolings...sleep well?

  • Report this Comment On July 07, 2011, at 6:28 PM, Glycomix wrote:

    Airbus is subsidized by the EU because they want to crack the market. Boeing is not.

    Unlike the US, the EU also don't tax exports. Why doesn't the US support its exporters as the EU and Japan does?

    Does congress care that we're importing 500 Billion more than we export?

    That China is refusing to give US products equal access to its markets? In the past 10 years, the China-US export/import balance has grown from $83B to $273B

  • Report this Comment On July 08, 2011, at 7:05 AM, praizinplace wrote:

    I also notice that in your "related ticker" box you have every company listed in your article and what they are currently trading at...except for EADS...amazing. For those who care, EADS is at a whopping 33.80 to close yesterday, yet they rule the world and have been crowned Fool Master of the Universe. Bravo Richie Rich, bravo.

  • Report this Comment On July 08, 2011, at 7:55 AM, praizinplace wrote:

    And Bloomberg reported that your EADS gods just lost nearly 4 dozen orders from Gulf Lessor...but they're still rulers of the world, don't worry.

  • Report this Comment On July 09, 2011, at 5:27 PM, BFil wrote:

    The competition is much more even than you state.

    Boeing, if it has now solved the horrible snafus that delayed the 787, (and I believe it has) is in a terrific position to make a lot of deliveries and help it get the price to where it makes profits before the A350 arrives (probably after further delays).

    The 737 is doing very well providing profits, but there is no doubt that the A320Neo has really got the wind behind it and Boeing, looking wistfully at not disturbing its 737 profit machine, may be waiting too long to respond.

    The A380 is only ticking along and a smooth 747-8 intro could yet put a large dent in Airbus hopes for eventually getting this into regular profit.

    Neither side is in charge of this market and both are painfully aware that COMAC and Bombardier (maybe even Sukhoi) want a slice of the single aisle market - and may get it.

  • Report this Comment On July 10, 2011, at 1:26 AM, TMFDitty wrote:

    COMAC and Bombardier and Sukhoi (UAC) ... and Embraer ... and AVIC ... and Mitsubishi Heavy.

  • Report this Comment On July 11, 2011, at 12:31 AM, GarryGR wrote:

    Rich Smith (TMF Ditty), you really need much more context than the order numbers you quote to come to any conclusion as to Boeing’s stock valuation. I've been very annoyed at the attention given to the yearly order totals and the tremendous success Airbus has had, in the press, playing with those numbers, seemly, year after year, without any in depth analysis of their significance. For Pete's sake, why do you market gurus ignore the normal measurements of a company’s success when it comes to Airbus and Boeing?! Airbus plays you like puppets on a string. Airbus/EU, having lost the WTO case with an $18B judgment outstanding, might just be demonstrating that they’re going to completely ignore the WTO and sell planes so cheaply that Boeing will wish they never brought the case to court!?

    Well, I’ll just re-post my previous comment about this order number mania:

    There is a lot of hoopla over the order totals, but nothing to gauge the significance of those numbers. For some meaningful context, how about a table with the order totals that were reported for the past years and the total revenue & profit & deliveries for each of those years. Oh, and how many of the orders are for delivery for each future year. Then we'd have some context for those much ballyhooed yearly numbers.

    The Airbus order numbers do not appear to be impressing the market. Although Boeing and EADS are roughly the same size (revenue), Boeing’s market capitalization is twice that of EADS’s (55B vs. 27B) and that's with a PE of 42.8 for EADS and 16.6x for Boeing (although, EADS is not on the NYSE and there appear to be different numbers here and there?)! You'd think, from the tone of these articles, that everybody would be buying EADS and selling Boeing. But that’s not the case; care to explain why people with money in the game apparently don't see it your way?

  • Report this Comment On July 12, 2011, at 11:11 AM, TMFDitty wrote:


    >>care to explain why people with money in the game apparently don't see it your way?<<

    Happy to. "People with money" are misreading the companies.

    Ordinarily, when two companies are priced with P/S ratios as widely disparate as the ones you note, this would argue in favor of buying the cheaper company, and selling the more expensive.

    I suspect investors are focusing too much on GAAP "earnings," and not enough on free cash flow. Boeing's FCF lags reported income by a sizeable margin. EADS generates more than 9x as much cash as shows up on its income statement -- $5.8B over the past 12 months. At a $27B market cap, that gives the stock a very low P/FCF ratio, and arguably makes it a better value.


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