Boeing expects pricing pressure from Airbus, customers

LYNNWOOD — Who makes the best airplanes?

Boeing executives say their company’s jetliner catalog is poised to dominate the market into the 2020s. Execs from Airbus, which has pulled in more new orders in recent years, say their lineup has the competitive edge.

Both companies are overly optimistic about how many airplanes they expect to sell in coming years, industry analysts told the crowd at the Pacific Northwest Aerospace Alliance’s annual conference. The gathering in Lynnwood ran Tuesday through Thursday.

Even if demand means new orders stay flat in coming years, both Boeing and Airbus have huge order backlogs. That means soft landings for the aerospace giants during an order slowdown. Fewer orders also means less cash coming in from customers’ down payments.

However, both airplane makers plan to increase output of commercial jets in the next few years. Delivery is when customers make the biggest payments. So, higher numbers of deliveries will more than offset the drop in cash from orders.

Boeing is drastically decreasing production for the 777, its most profitable airplane. However, it plans to crank 737 output from 42 airplanes a month now to 57 a month by 2019. That is expected to make up for the drop in cash coming in for 777 deliveries.

“We have to focus on cost and efficiency as we move forward,” Randy Tinseth, Boeing Commercial Airplanes vice president of marketing, told the crowd.

The company faces stiff pricing pressure from rival Airbus and customers, he said. “Every (sales) campaign is a dogfight.”

Cutting costs is critical for Boeing if the company is going to hit the ambitious profit goals that Boeing CEO and Chairman Dennis Muilenburg has promised shareholders. He said the company will increase its profit margin to mid-teen percentages of revenue in the next few years, while increasing the value sent to investors through dividend payments and stock buybacks.

Several market and industry analysts say they are skeptical the company can hit those marks. Even coming close would mean a financial windfall for investors.

Muilenburg’s vision does not leave room for increasing how much the company is spending on research and development. The company has between $2 billion and $3 billion of R&D spending tied up through 2021 on existing programs, including the 777X, the 737 MAX and 787-10, according to the Teal Group, a consulting firm based outside Washington, D.C.

Across the Atlantic Ocean, rival Airbus’ R&D budget is largely free after this year. It will have billions of euros to spend on developing a new airplane or overhauling an existing program.

Like Boeing, Airbus plans to turn out single-aisle jets at a frenetic pace, as many as 60 a month from its four A320 plants around the world.

Analysts speaking at the conference in Lynnwood said they are not sure the high rates can be kept up for more than a few years — if at all.

Airbus’ upgraded A320 family has a strong lead over Boeing in the hard-fought single-aisle market, which makes up the vast majority of orders and about half the value of large commercial airplane sales.

Boeing’s lineup of airplanes is competitive, but unlikely to take back market share from Airbus, analyst Scott Hamilton told the crowd Thursday. Hamilton owns Leeham &Co., an aerospace consulting firm based on Bainbridge Island.

The company is going to be profitable, but will have to be content with second place in the market for now, he said.

For suppliers seeking business at the conference, exactly where the market lands is less important, so long as it’s not plummeting. Whether Boeing delivers 900 or 800 airplanes a year in two years, both are historically high numbers, noted Paul Ghotra, owner of Cimtech Manufacturing Inc. outside Surrey, B.C.

His company has about 20 employees and makes prototype parts and production tooling for aerospace companies, which make up about one-third of his business.

“For a small company like us, I think the aerospace sector is going to be super busy for the next 10 years,” he said.

Dan Catchpole: 425-339-3454; Twitter: @dcatchpole.

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