By Richard Pettibone, Forecast International
The 2014 tallies are now in, and Boeing has held onto its lead in deliveries with 723 aircraft completed, compared to Airbus’ 629. However, for the third year in a row, Airbus sold more aircraft, garnering 1,456 net orders compared to 1,432 for Boeing. But if you are a Boeing fan, you can crow that the value of Boeing’s orders, estimated at $233 billion at list prices, is much higher than Airbus’ sales, which were valued at $175 billion.
For 2014, Boeing reported record sales of $90.8 billion, up 5 percent from sales of $86.6 billion in 2013. Net income for the year was $5.4 billion, up 19 percent from $4.6 billion in 2013.
The continued growth in commercial aviation remains fueled by cheap money. Many airlines are taking advantage of the low-cost financing still available around the world to replace older models with newer, more fuel-efficient aircraft. As a result, Boeing’s backlog continues to grow – rising to $487 billion in 2014 from $423 billion at the end of 2013. The key for the company now is to continue its studied increases in production rates to meet customer demand.
While commercial aviation continues its wild ride, defense is preparing for interesting times. Early in 2013, a bitterly divided Congress allowed sequestration to take effect, initiating some $500 billion in across-the-board budget cuts. With the mandated draconian cuts now eliminated in the near term, the company’s defense operations can breathe a bit easier, as the downturn will not be as drastic as once anticipated.
But that doesn’t make the cuts any easier.
Boeing’s defense business, which accounts for around 40 percent of its top line, has suffered of late due to the government’s defense budget cuts. In response, the company has begun consolidating its defense operations. In a major shift, Boeing has decided to move its defense services and support work out of the high-cost Seattle area to the lower cost regions of St. Louis and Oklahoma City. With many of Boeing’s defense programs such as the C-17, F-15 and F/A-18 winding down, the move was necessary.
Current defense programs will not be able to make up the lost revenue. The KC-46 tanker has razor-thin margins and is being impacted by cost overruns that Boeing must bear. Meanwhile, the P-8A maritime patrol aircraft has seen its fiscal 2015 procurement cut as the Navy delays the procurement of six aircraft.
Like many other defense contractors, Boeing is looking abroad for more sales. Roughly 30 percent of Boeing’s defense sales are international, up from 7 percent five years ago. But competition will be fierce as every other defense contractor around the world executes the same play.
Despite the difficulties, Boeing remains in a strong position thanks to a robust backlog and the fact that even with reduced spending, defense remains a solid – albeit shrinking – market.