Here’s how Airbus will beat Boeing
I don’t think i’m going to burst bubbles or spoil surprises by saying the pandemic was not a good time to be in aviation.
Airbus (OTC: EADSY) deliveries fell 35% between 2019 and 2020, just one year after the European aircraft manufacturer flew Boeingit is (NYSE:BA) crowned as the largest aircraft seller in the world. Boeing’s deliveries fell by more than half, hit by the twin disasters of the pandemic and Boeing’s 787 MAX fiasco.
Now, the good news is that in 2021, both companies’ delivery numbers have recovered somewhat (and Boeing has recovered more substantially than Airbus). Also, orders (not deliveries) for planes have more than tripled from their 2020 lows. But while Boeing and Airbus fly into 2022, these two plane-building giants are barely flying side-by-side.
Globally, according to Reuters estimates, Airbus now has a market share of around 78% in commercial aircraft deliveries so far in 2022. And as the graph below shows, the Airbus’ significantly growing lead in research and development (R&D) spending enables Airbus to continue outperforming its rival in the years to come.
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As you can see, in the three years before the pandemic, Airbus was increasing its R&D spending, while Boeing’s R&D spending was generally flat. Once the pandemic hit, both companies cut their R&D spending, but Airbus only cut spending by around 17% through 2021, while Boeing cut nearly double – 30%.
This is in line with historical trends for both companies. Although they generate roughly similar annual revenues – $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 this income in the improvement of their products differs significantly.
Simply put: with the single exception of 2016, Airbus has far outstripped Boeing in terms of R&D over the past decade.
You can also see the focus companies place on R&D, in how much they spend on R&D versus spending on “overhead” – selling, general, and administrative (SGA) expenses.
Here, 2019 was the outlier year for Airbus, in which R&D spending was cut short. But every two years for the past 10 years, Airbus has placed much more emphasis on R&D than Boeing. During the pandemic, the difference became particularly stark, with Airbus spending around $1.34 on R&D for every $1 spent on SGA – while Boeing was spending closer to $0.59 on R&D for every $1 of SGA!
Now, is it possible that Boeing is so good at science and engineering that it can grossly underspend Airbus in this crucial area of development, while still producing competitive products? I guess it’s possible, but I wouldn’t bet on it. On the contrary, the more I look at these figures, the more convinced I am that Airbus aircraft and Airbus stock will outperform Boeing for a long time to come.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.
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