In the duopoly, the U.S. aircraft manufacturer Boeing (BA, Financial) and the European aviation giant Airbus (EADSY, Financial) are always engaged in a dogfight for grabbing global market share. Both the honchos have devised solid strategies to keep their order books swelling and also have a track record on their deliveries. Both have also burnt their fingers at least once in their lifetimes but have learnt lessons from the same as well. Today, while Boeing and Airbus are speaking lots on re-engineered aircraft let’s take a dive and find out why they finally arrived at this cost-effective concept which works well for the airplane companies. Here’s why.
Developing the Dreamliner 787
Creation of the Dreamliner was a bold step taken by Boeing in its venture to develop an aircraft from scratch. Boeing was interested to discover a fuel efficient machine with enhanced travel experience. It was made to replace the languishing 767.
Boeing selected two engine types to power the 787 – the GenX of General Electric (GE, Financial) and Trent 1000 of Rolls-Royce (RR, Financial). The company expected the engine of 787 to be at least 20% more fuel efficient than the 767. In April 2004, All Nippon Airways became the launch customer for the Dreamliner, announcing a firm order of 50 such aircraft with deliveries to begin in late 2008. But due to continued production glitches, the deliveries were pushed back and forth several times and finally the 787 made its maiden appearance at the Farnborough International Airshow in July 2010.
The Dreamliner then entered service almost three years ahead of schedule in 2011, but even after its first delivery it faced technical snags including engine failure, battery problems and hairline cockpit cracks. Nevertheless, the entire project cost was a whopping $32 billion, compared to the initial estimate of $6 billion. And unfortunately even to date, the Dreamliners have not contributed much to the profits of the aviation stalwart. As the company provides steep discounts to lure customers, its woes with the Dreamliner seem to be turning to a perennial exercise.
The Airbus A350 program
Being inspired by the market leader, Boeing, and with the aim to compete with the former, Airbus went ahead with the making of the A350 from September 2004. The estimated cost of development was pegged at $3.5 billion for the A350 program by the Airbus management.
As the Dreamliner was expected to compete with A330, the A350 design was derived from that of the existing A330. Under the plan, the A350 would have modified wings and new engines while sharing the same fuselage cross-section as its predecessor. Also it was slated to provide 25% extra fuel efficiency compared to the A330’s long-range competitor.
But soon after the program was launched, it faced criticism by the heads of two of its largest customers – ILFC and GECAS. They strongly criticized this program as a “Band-aid reaction to the 787.” As a result of such criticism, the program underwent some further modifications and Airbus claimed that the A350 would not be a direct competitor to Boeing 787 but to Boeing 777.
The modifications increased the developmental costs for Airbus to approximately $10 billion. The three variants of the A350 program were all launched in 2006 but had different dates aligned to them for the first deliveries. The A350-900, A350-800 and A350-1000 were scheduled to enter service in 2013, 2014 and 2015 respectively.
The A350’s flight testing began in June 2013. In the words of an analyst at Agency Partners – “Flight testing seems to have gone well. The A350 is largely past its development-and-testing phase and most of that risk can be retired."
Though management remains optimistic on making profits soon after the deliveries start, there is lot to be seen and addressed as the company needs to improve the production rate of the A350. It is expected to have a production rate of 10 per month in 2018.
Final word
After pouring billions into development from scratch, Boeing and Airbus have realized that it was not the correct approach at an age when airlines demand steep discounts while buying fuel efficient aircrafts. These programs have had a drastic impact on their margins as well, which have shrunk beyond the management’s normal thoughts. Recently, Airbus has launched the A330 neo program and Boeing has taken up the Boeing 737 Max program which are based on redesigning existing aircrafts cost-effectively. Let’s hope that the two aircraft giants see much better days in the forthcoming quarters as they have adopted the evolutionary approach instead of relying on “moonshots.”
