Boeing Co. or Airbus Group SE ADR?
Boeing Co (NYSE:BA) has been rising quietly beyond analysts’ expectations over the past few weeks. Boeing stock hit a one-year low on February 11, landing lower than $110.00 for the first time since 2013. Now, Boeing stock is comfortably cruising at around $16.00 and hit a top altitude year-to-date of $135.00 on March 21, gaining some five percent and leaving the turbulence apparently behind. Its main rival, Airbus Group SE ADR (OTC:EADSY) has been trading along a similar pattern. It too reached a year-to-date high recently, hitting $17.20 on March 30.
Whether Boeing stock will return to the 2015 and all-time high of $158.00 this year is another question. Yet, the overall scenario for the company is bullish. Boeing continues to win contracts, the latest being from United for 25 units of the “737” airliner at a value of some $2.0 billion. This is merely a drop in the bucket compared to the Boeing backlog.
But Boeing announced plans to cut about 4,500 jobs over the next few months to cut costs and confront rival Airbus. Boeing stock has declined about 12% over the past year. By comparison, Airbus stock has only dropped 0.24% year-to-date and gained some 12% for the year. BA stock has fallen slightly on the layoff news but not enough to reverse the company’s bullish course.
Airbus has benefited considerably from a multibillion-dollar order from Iran for 120 airliners. Boeing had little chance in competing in that tender because of U.S. sanctions on Iran. While U.S.-Iran relations have eased, there are still some fundamental obstacles to bilateral trade, let alone selling strategic assets like airplanes.
Recently, a few analysts had downgraded Boeing (BA) to a “Hold” and cut its price target on “additional backlog risk due to increased airline investment in old aircraft, as oil prices have remained depressed.” (Source: “Lower Oil Prices Aren’t Deterring Qatar Airways Orders,” Investor’s Business Daily, March 9, 2016.)
Yet, Boeing’s backlog is well over 5,700 aircraft and since the start of 2016, Boeing has received 49 net orders (new firm orders less cancellations) against 11 for Airbus. February is, however, leaner for Boeing than its European competitor.
Meanwhile, while Boeing has improved its delivery times as the “787” production continues to ramp up, the company has also made an important market strategy decision. In recent years, Airbus has created a new market niche, the new midsize aircraft (NMA) with the “A320 Neo” family. It fills the gap between wide-body and short haul airliner that was once addressed by the Airbus “300” and low/mid-range versions of the Boeing “767.” The A320 Neo is in its final stages of development and Boeing, has so far offered only rumors of a competitor. (Source: “Boeing plans new aircraft go-ahead decision by end-year,” Flightglobal, February 11, 2016.)
Meanwhile, Airbus and Boeing have both delivered planes so far this year. Airbus delivered its latest to Turkish Airlines this week, but Boeing has a slight advantage in 2016. Therefore, the match between the American Boeing and the European Airbus rages on and there are no clear winners. The competition between them, however, is pushing technology forward, with benefits in efficiency and passenger comfort.
Boeing still holds the record for producing the most popular plane in the world, the 737. The plane continues to gain customers after almost 40 years. In February, Boeing delivered nine new “737-800s” to Ryanair. The plane has seen continuous developments and changes, and customers are so loyal that no Boeing executive is ready to fly it into retirement.
Analysts set a price target of $148.00, and it is looking rather credible now. At the current price, Boeing starts to look like a bargain. Boeing has an order book large enough to keep it busy with eight to nine years of activity.
The company has two major challenges: ensuring it develops the industrial capacity to fulfill existing demand and developing new products to address new sources of market demand.
Then again, Airbus’ potential is just as bullish. In fact, both companies benefit in equal manner. As it happens the market for airliners remains bullish, given the demand in emerging markets, and both Boeing stock and Airbus have much to gain in 2016.