During 2017, Airbus (NASDAQOTH:EADSY) outpaced perennial rival Boeing (NYSE:BA) in the annual race to sell the most new aircraft. Airbus captured 1,109 net firm orders last year, compared to 912 for its American rival. However, Airbus was even more of a one-trick pony than usual, with its single-aisle A320 family accounting for more than 1,000 of its net orders. Meanwhile, its three widebody families together received just 55 net orders.
By contrast, Boeing had a more balanced order mix, with 745 net orders for the 737 family and 167 net orders spread across its four widebody aircraft families. While that wasn't enough to match Boeing's widebody production, it was a solid result, considering the recent downturn in demand for large long-range aircraft. This success in the widebody market has continued in the first few months of 2018.
The importance of widebody orders
Aircraft orders aren't all created equal. Narrowbody planes like the 737 and A320 families sell in high volume, but they have significantly lower selling prices than widebodies. Furthermore, aircraft manufacturers tend to have higher variable margins on widebodies.
Most importantly, Boeing and Airbus currently have massive backlogs for narrowbodies, equaling about seven years of output for Boeing and a whopping nine years of output for Airbus. In the narrowbody market, building aircraft fast enough to keep customers satisfied has been a bigger challenge than winning orders in the first place.
Backlogs are much shorter in the widebody market, representing four to five years of production in most cases. In fact, order shortfalls have forced Boeing to cut production of its 747 and 777 aircraft families, while Airbus has had to reduce output of its A330 and A380 jets in recent years.
Momentum from 2017 continues in early 2018
Boeing's order momentum in the widebody market has continued in the first quarter of 2018. As of the end of February, the aerospace giant had booked 21 firm orders for widebodies this year. United Parcel Service has ordered 14 747s and four 767s to expand its cargo operations. The other three aircraft are 777s ordered by an unidentified customer.
There are more orders in the pipeline. Last Monday, Turkish Airlines placed a firm order for 25 Boeing 787-9 Dreamliners, with an additional five options. This follows up on a commitment from last September, although at the time, Turkish Airlines had expressed interest in acquiring 40 Dreamliners.
Additionally, Hawaiian Holdings confirmed earlier this month that it will cancel its order for six Airbus A330-800neos. Instead, it expects to place a firm order for 10 787-9 Dreamliners during the second quarter.
After these two Dreamliner deals are added to Boeing's backlog, the company will have secured 56 firm orders for widebodies in 2018. An even bigger Dreamliner deal could be close behind, as top Middle Eastern airline Emirates announced a commitment for 40 787-10s last November.
Does Airbus have an answer?
Once again, Airbus is lagging Boeing in terms of widebody order activity in the early part of 2018. Airbus finalized an important firm order from Emirates for 20 A380s last month. However, due to the order cancellation by Hawaiian Airlines and Virgin Atlantic's decision to cancel an order for six A380s, Airbus has only eight net firm orders for widebodies year to date.
Airbus did recently announce a commitment from Turkish Airlines for 25 A350-900s with an additional five options. (This matches the carrier's Boeing 787 order.) That still leaves Boeing with a big lead, though.
The overall difference in widebody backlogs between Boeing and Airbus isn't that large right now: Boeing has a 1,190 to 1,117 lead. That said, Boeing is maintaining its order advantage despite delivering significantly more widebodies than Airbus in recent years. For example, in 2017, Airbus delivered 160 widebodies, compared to 234 for Boeing.
The longer Boeing sustains its order advantage, the longer it will be able to maintain a delivery advantage. That in turn will help Boeing reduce its production costs, potentially enabling it to offer bigger discounts -- and thereby win even more orders. Thus, it is critical for Airbus to regain some order momentum in the widebody market as soon as possible.