Boeing vs Airbus – savings time


The civil aviation sector is still on its record-breaking sales path. After the Dubai Air Show both Boeing and Airbus have registered impressive amount of orders.

Airbus, with 1450 orders to date, even hopes to beat its record of 2011 of 1608 orders. For its part Boeing bagged 250 orders worth $100bn for its brand new 777X. However an interesting strategic shift is taking place within both market leaders ‘organization of Research & Development.

In a release this week, Boeing has declared that it will establish new technology research centers in five US states (Alabama, California, Missouri, South Carolina and Washington). For example, the units in Missouri will hire 300 to 400 people by 2015 to focus on Systems Technology, Digital Aviation Metallics and Fabrication. At play are technology issues of strategic importance to Boeing over the long-term, up to 30 years into the future, the company says. This reshuffling aims to boost research output by allowing R&D centers to operate independently, while enhancing partnership with other Boeing technology centers around the world such as in Australia, Brazil, China, India, Spain or Russia, in aviation safety, air traffic management, the environment and other areas, the company said.

Boeing also intends to enhance collaborations with university, industry and government research centers worldwide. Boeing forecast that after the centers are correctly set up, the BR&T unit workforce could grow between 300-1200 jobs. “With these changes, we are enhancing our ability to provide effective, efficient and innovative technology solutions” Boeing said. This new approach brings some changes in the group which was known for starving R&D for new air aircraft and over-relying on derivatives.

Meanwhile, Airbus is following a very different path. After billions of dollars sunk into the launch of the A380 and A350, the aircraft manufacturer makes no secret of its intention to take a break in major new programs by the next decade. The group which was recognized for its investment in new aircraft program has made also a shift in its R&D organization. Airbus has decided to cut R&D budget and to focus on derivatives. “Why should we spend large amounts of money when we can make significant incremental improvements?” declared Airbus CEO, Tom Enders. Airbus will cut its R&D budget, currently reaching €3bn per year on equity, in order to achieve a 10% margin in 2015, Tom Enders underlined. This can be explained by the fact that by 2015 the development of the A350 family will have theoretically been completed, as well as that of the A320 NEO. The problems of the A380 and the A400M will also hopefully be far behind.

Without any major new platform in the pipeline, Airbus will need fewer engineers. According to French daily Les Echos this should lead to a reduction of approximately 2000 full-time positions, not only at the OEM but also within its sub-contractors, who represent today about half of the staff assigned to research centers.

The group strategic management is clearly at a turning point. According to Teal Group VP Analyst Richard Aboulafia, “Enders’ comments reflect the changing nature of Airbus’s shareholder relations more than anything else. They’ll need to focus more on profitability rather than new product development over the next ten years; they may wind up looking more like Boeing”.

Still, according to Richard Aboulafia, “Airbus is at a twin aisle product line disadvantage relative to Boeing, so this isn’t the time for them to rest on their laurels”. The analyst’s opinion is that some kind of response to the 777-9X is essential, even if it arrives a few years after the Boeing jet. Whether it’s an A350-1100 or a clean sheet, it will require a significant investment right after A350XWB-800/900/1000 spending winds down. Thus, in absolute numbers, the company would be well advised to keep spending high for the next ten years…

Innovation and implementation of new technologies are one of the main competitive advantages compared to emerging players. This is even more crucial in a context of active offset “strategies”. This virtual stagnation of innovation in the aviation sector could be detrimental for industrial but also their subcontractors even if it may reflect the market demand. Some parallels with other segments could be interesting to make. Earlier this month in a Senator Defense bill, Sikorsky and 4 other helicopter manufacturers openly worried about the Pentagon being shortsighted by not funding next generation of helicopter designs and instead financing upgrades or derivatives of existing platforms. “Helicopter program unpredictability and reduced defense procurement have a negative impact on the ability to recruit and retain a qualified and capable aerospace workforce thereby increasing risk for the helicopter industrial base’s ability to design, build, and support the next generation of manned and unmanned military helicopters” tells the bill. Something to think about…