Recently, the competition between Boeing (NYSE: BA ) and Airbus -- the two largest commercial aircraft makers in the world by far -- has become increasingly cutthroat. Airlines are looking to buy large numbers of airplanes in the coming years. Rising demand for air travel globally is encouraging a steady expansion of airline fleets, while high fuel prices have pushed many airlines to replace older aircraft with more fuel-efficient models.
Furthermore, airlines are increasingly looking to standardize fleet types, which means that each customer win can be more valuable. With such high stakes, it's not surprising that Airbus and Boeing are both seeking any advantage possible. As a result, the two companies are really taking the gloves off on the marketing front in the hope of gaining the upper hand.
A global competition
The war between the two planemakers spans multiple aircraft categories. In the past few years, Airbus and Boeing have begun selling updated versions of their narrowbodies -- the A320 and 737, respectively -- which feature more fuel-efficient engines. In the jumbo-jet market, Boeing began producing a new version of its classic 747 in 2011, to better compete with Airbus' A380 "super-jumbo."
Perhaps most importantly, Airbus is rushing to catch up to Boeing in terms of composite technology. Boeing seemed poised to dominate this decade with its revolutionary 787 Dreamliner.
However, production delays pushed back the first Dreamliner delivery from 2008 to 2011, and a recent spate of quality control incidents have opened up an opportunity for Airbus. The A350 composite widebody is still on track for a first delivery late next year.
While jumbo jets are the smallest addressable market for Boeing and Airbus, this segment has been the subject of a particularly nasty marketing war recently. Boeing ignited this spat with a trade publication advertisement last year stating that the 747-8 has a 26% lower trip cost -- and 8% better fuel consumption per seat -- than the competing Airbus A380.
Sales for the 747-8 have been disappointing thus far, so Boeing is trying hard to gain market share in the jumbo-jet segment. However, Airbus wasn't pleased with this ad. In response, it filed a complaint with the U.K. Advertising Standards Authority. More outlandishly, Airbus published a competing ad depicting the Boeing 747 with a "Pinocchio" nose and publicly accused Boeing of stretching the truth. (The Advertising Standards Authority eventually sided with Boeing.)
The A380-747 spat came on the heels of an even more significant battle: one pitting Boeing's 737 against Airbus' A320. Boeing and Airbus have both marketed their current- and next-generation narrowbodies as more fuel-efficient than the competition.
The fight extends beyond that, though: Each manufacturer also claims that its design entails lower lifetime maintenance costs. Both companies claim a longer range as well. Moreover, Boeing has argued that the 737 is significantly more reliable than the A320 -- a claim that Airbus disputes.
Based on customer orders so far, Airbus seems to be winning this battle. However, Airbus has reportedly been offering big discounts to airlines and lessors committing to the A320. Thus, it's possible that Airbus' market share lead is being offset by lower margins.
A sore spot
Of course, no discussion of the competition between Boeing and Airbus would be complete without a mention of the new composite widebodies that both companies are marketing heavily. Airbus has been eager to capitalize on Boeing's Dreamliner woes to promote its upcoming A350.
For the most part, Boeing and Airbus have avoided criticizing each other's aircraft based on safety issues so as to avoid a "mutual assured destruction" scenario. However, Airbus pushed the boundaries last month when sales chief John Leahy criticized the Dreamliner as "not reliable."
So far, Boeing claims that the Dreamliner's teething problems have not affected demand, as most customers expect Boeing to resolve the reliability issues relatively soon. However, you can expect Airbus to continue working on airline executives' fears in an attempt to catch up to Boeing in the widebody market.
So what's the big takeaway from this war of words? There are two big points that investors should keep in mind. First, the race between Boeing and Airbus is pretty close. Planes from both manufacturers have their own advantages. As a result, neither company is dominating the other, and I don't expect the scale to tip heavily in either one's favor in the foreseeable future.
Second, the large commercial aircraft market is a duopoly, which is a great situation for both companies! Would-be competitors like Comac -- a Chinese state-owned airplane start-up -- and Bombardier have had trouble meeting development, production, and sales goals. As long as Airbus and Boeing maintain their duopoly, both will thrive. Strong worldwide demand for commercial aircraft will keep production lines busy and profit growing at both competitors.
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