I don't think I'll be bursting any bubbles or spoiling any surprises when I say the pandemic was not a good time to be in the airplane business.
Airbus (EADSY 1.32%) deliveries plunged 35% between 2019 and 2020, just one year after the European plane maker had stolen Boeing's (BA -0.76%) crown as the world's biggest seller of airplanes. Boeing's deliveries fell by more than half, hurt by the twin disasters of both the pandemic and Boeing's 787 MAX fiasco.
Now the good news is that, in 2021, both companies' delivery numbers recovered somewhat (and Boeing recovered more substantially than Airbus). Also, orders (not deliveries) for airplanes more than tripled off their 2020 lows. But as Boeing and Airbus fly into 2022, these two airplane-building giants are hardly flying side by side.
Image source: Getty Images.
Globally, according to Reuters estimates, Airbus now holds about a 78% market share in commercial airplane deliveries so far in 2022. And as the chart below shows, Airbus' dramatically expanding lead in research and development (R&D) spending sets up Airbus to continue outperforming its rival in the years to come.
Data source: S&P Global Market Intelligence. Chart by author.
Sacrificing dollars tomorrow to save pennies today
As you can see, in the three years prior to the pandemic, Airbus was growing its R&D spending, while Boeing's R&D spending was generally holding steady. Once the pandemic hit, both companies cut spending on R&D, but Airbus cut its spending by only about 17% through 2021, while Boeing cut nearly twice as much -- 30%.
That matches historical patterns for the two companies. Although they bring in roughly similar levels of annual revenue -- $76.5 billion for Boeing and $79 billion for Airbus in 2019; $62.3 billion for Boeing and $59.3 billion for Airbus in 2021 -- how the companies invest those revenues in improving their products differs markedly.
Simply put: With the sole exception of in 2016, Airbus has heavily outspent Boeing in terms of R&D over the past decade.
Data source: S&P Global Market Intelligence. Chart by author.
You can see the companies' respective emphases on R&D, too, in how much they spend on R&D relative to spending on "overhead" -- selling, general, and administrative expenses (SGA).
Here, 2019 was the outlier year for Airbus, in which R&D spending was abbreviated. But every other year for the past 10 years, Airbus emphasized R&D far more than Boeing did. During the pandemic, the difference became especially stark, with Airbus spending roughly $1.34 on R&D for every $1 spent on SGA -- while Boeing spent closer to $0.59 on R&D for every $1 of SGA!
Now, is it possible that Boeing is just so good at science and engineering that it can vastly underspend Airbus in this crucial area of development, yet still churn out competitive products? I suppose that's possible, but I wouldn't bet on it. To the contrary, the more I look at these numbers, the more I'm convinced that Airbus airplanes and Airbus stock are going to outperform Boeing for a long time to come.
