For decades, Boeing (NYSE:BA) and Airbus (NASDAQOTH:EADSY) have dominated the business of building commercial airliners to help globetrotters trot the globe -- but times, they are a-changing. Boeing has new competition these days, and you won't believe where it's coming from.
From Russia, with regional jets
Earlier this week, Russia's United Aircraft Corporation (UAC) officially unveiled its new MC-21-300 regional airliner. The largest of three planned MC-21 variants, the -300 series aircraft is a twin-engine regional jet capable of carrying as many as 211 passengers on trips as far as 3,700 miles. Described by RT.com as "a direct rival of the Boeing-737 and Airbus 320," the MC-21 even uses foreign parts in its construction -- as much as 40% non-Russian content, including an engine option from United Technologies (NYSE:UTX), the Pratt & Whitney PurePower PW1400G.
The MC-21 follows the introduction of Russia's smaller regional jet, the Superjet, built by a separate UAC subsidiary. But whereas the Superjet was designed as a competitor to smaller jet builders such as Brazil's Embraer and Canada's Bombardier -- both of which also use the same United Technologies engine -- the MC-21 is taking aim squarely at industry giants Boeing and Airbus.
What comes next
UAC reportedly invested $3.5 billion in the MC-21's development, and it will want to start making back that investment as quickly as possible. Flight tests are slated to begin later this year, and full certification of the plane in Russia is targeted for 2017 -- at which point UAC will immediately begin serial production. UAC already has firm orders in hand for 175 jets, and it hopes to deliver the first plane in 2018, be building 20 planes per year by 2020, and ramp quickly to 70 per year by 2023.
Granted, that's not a patch on the production rate at Boeing, which aims to have 57 single-aisle 737 regional jets rolling off the production lines monthly by 2019. But even so, every little bit of competition in this market hurts. And Russia isn't the only new rival Boeing faces.
Over in China, Comac (Commercial Aircraft Corp. of China) delivered its first new "Advanced Regional Jet for the 21st Century," or ARJ21, regional jet last year. Next-door in Japan, Mitsubishi Heavy just rolled out its own regional jetliner -- the Mitsubishi Regional Jet -- and Utah's SkyWest (NASDAQ:SKYW) has already signed on to become one of its first buyers. Shift your view east to Atlanta, and Delta Air Lines (NYSE:DAL) just placed an order for 75 C-Series jets from Bombardier.
The upshot for Boeing investors
It seems you can't swing a dead cat these days without hitting a rival trying to horn in on Boeing's business. In a capital-intensive industry like airplanes, where scale of production is the name of the game, probably not all these rivals will survive. But even so, the price competition among so many new competitors, each trying to underprice all of the others in a drive to gain scale, seems almost certain to undermine pricing discipline and drive prices into the ground.
In this brave new world for planemaking, Boeing's profit margins are no longer a sure thing.
Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 309 out of more than 75,000 rated members.
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