During the cold war, Boeing was the undisputed leader in the aerospace field and a leader of American innovation and technology. This change, however, and in recent years Boeing’s hold of the commercial flight market has taken a dive.
Ongoing issues with the 787 Dreamliner, lack of innovation and structural issues in the American economy has seen the all-important “moat” of Boeing shrinking – making it unlikely that Boeing can upheld their current valuation. When American Airlines ordered 460 new airplanes, it chose to split the order evenly between Airbus and Boeing. A ground-breaking deal for Airbus into American territory. Furthermore, the 200 Boeing planes AA ordered were an upgraded version of the classic 737, while Airbus will deliver 260 of their A320 flagship. In short, Old Boeing and New Airbus planes are entering the market, giving Airbus an competitive advantage in terms of product-flow. From FT:
“Analysts had warned that if Boeing had gone with an all-new aircraft, which would not have been ready until the end of the decade, the US aerospace group risked ceding the narrowbody market – the largest part of the commercial aircraft market – to Airbus and a number of new entrants led by Canada’s Bombardier and China’s Comac.”
The Defence, Space and Security side of Boeing now contributes with more than 50% of earnings, while the profit margin for the is shrinking, at 5.1% in Q1 with 138 new orders for 2011. The price/book ratio is ~19.
On the other side of the pond, Airbus has a profit margin of ~1% with 1,000 orders for 2011 and a backlog of 4,000. P/B ratio is ~2.2.
So over the next year I expect a short Boeing and long Airbus to pay off.
Disclaimer: Author has been long Airbus/short Boing since 29th June.
pairstrade 