Why Airbus And Boeing Dominate The Sky - YouTube

If you're one of the four billion people who flew last year

chances are you flew on either an Airbus or Boeing aircraft.

The Airbus-Boeing duopoly dominates the already under competitive

aircraft manufacturing industry by producing more than 99% of

its large airplane orders globally. It's become one of the most

efficient duopolies ever in the history of manufacturing

Are smaller competitors finally giving them a run for their

money? Or are they just getting scooped up? Will China step into

the market and make waves? What about the future of flying? Will

Supersonic planes challenge Airbus and Boeing's dominance?

Before we answer those questions let's start with how we got to

a place where just two companies own the air

Boeing has always been a big player in the aviation field for

over 100 years. The Boeing Company was created in 1916. William

Boeing founded the Aero Products Company and developed a single

engine seaplane and the business was renamed the Boeing Company

and sold its planes to the Navy during the First World War

Boeing continued to sell its aircraft during the 1920s and 1930s

to the U.S. military. During this time Boeing also expanded into

airmail services.

In 1919 Eddie Hubbard and I took a

flight up to Vancouver B.C. This was the first ever

international mail ever carried by planes into the United

States.

The Boeing Airplane and Transportation Corporation was formed and

it covered both the manufacturing and airline operations but the

Air Mail Act of 1934 split aircraft manufacturers from air

transport. So the conglomerate of the day was dissolved in the

company went back to being called "Boeing." With the development

of turbo jets, the Boeing 707 was introduced to the public in

1958 on Pan American's trans Atlantic route and the public loved

it With smoother rides and a shorter flight time Boeing paved

the way for the future of commercial flight. Boeing may

encapsulate Americana via the golden age of flying but the much

younger Airbus had a rough road to success. It started as a

group effort in Europe to take on American manufacturers.

In 1967 Germany, France, and Britain came to the agreement that a

cooperation of aviation field would promote technology and

economic growth in Europe. They drew up plans for a short haul

European Airbus that would accommodate the public's desire to

fly more for less. Plans were made to construct the A300. In

October of 1972 the A300 completed its first flight. But Airbus

leaders had an uphill battle ahead of them convincing the world

they created the most innovative aircraft. By 1984 Airbus

received 411 orders and had 282 aircraft in active service. The

persistence paid off the long run because in 2018 Airbus

delivered 800 planes. 11% growth from the year before. And

Boeing's business is thriving as well. In 2018 the company set

the record for the most airplane deliveries with 806 commercial

jets, 5.6% growth from 2017. And the stocks have reflected the

company's dominance. Both Airbus and Boeing stocks have

significantly outperformed the S&P 500 over the last 10 years.

How can you tell these planes apart? Boeing and Airbus have

subtle differences. For instance the cockpit of a Boeing 737 has

a yoke control whereas an Airbus A320 does not. That's just one

of the many ways these companies diverge in their manufacturing.

Most are only felt by the crew and travelers with a keen eye.

How do airlines decide which company to buy from? Think of it

like going to a car dealership and choosing between a Chevy and

a Ford. Both are supposed to get you to your destination but

which one has a better deal? And what does the existing fleet

look like? For example, Spirit and Frontier operate only

Airbus, while Southwest is an all Boeing fleet. It's hard for

low cost operations like these to switch. The legacy airlines

usually have a mix of both.

So what does it take for companies like Airbus and Boeing to

control the airline industry? Well, building these airplanes

isn't cheap. To be a real competitor aviation companies must

have the money to spend.

The barriers to entry in this business are huge in terms of

capital requirements, in terms of technology experience,

customer support, customer finance, all of these things.

A single plane can run up millions of dollars in construction

fees. Boeing is currently working on a new series of airplanes

called the 777X. A single 777-9 has a list price of

$388.7 million dollars. That's because there are hundreds of

thousands of components to an airplane. A Boeing 747 alone is

made up of six million parts. But materials aren't the only

thing that costs aviation companies big. Safety comes with a

hefty price tag.

It's definitely a well-regulated industry. I don't think there's

any question about that. I actually view much, not

all, but I view much of that

regulation has a historical partnership that has actually served

the industry quite well. If you consider that the airlines today

aviation globally carries three billion passengers a

year and most years kill fewer than 500 of them. Some years

none. That's a pretty extraordinary record. And reaching that

level of safety requires a great expense And these massive

companies have plenty of money

And at least for Boeing a lot of it comes from the government. It

was the second largest government contractor in 2017 behind only

Lockheed Martin bringing in more than 23 billion dollars. It

also spends big to keep its close relationship with Washington.

The company spent more on lobbying than any other company in the

United States other than General Electric from 1998 to 2018

according to Open Secrets 270 million dollars. The acting

Secretary of Defense at the beginning of 2019 is a former Boeing

executive that led the 787 Dreamliner program. And the acting

administrator of the Federal Aviation Administration or the FAA

used to work for an airline manufacturing industry group

Responding to a question about its lobbying power. Boeing told

CNBC this "as the nation's largest exporter and a leading

producer of both commercial and defense aerospace

products, there are a number of significant policy issues at the

federal state and local levels with the potential to impact our

business our diverse workforce and our supply chain. Our team is

focused on telling Boeing"s story and supporting policies that

advance the aviation industry and U.S. manufacturing in the

communities where we live and work." The company's entrenched

position has a real world impact. When Delta ordered planes from

the Canadian company Bombardier in 2016, the company fought hard

arguing the smaller competitor could only sell them at such a

low price to the Canadian subsidies. The Trump administration

originally sided with Boeing putting tariffs on the planes but

Boeing ended up losing the battle when the U.S. International

Trade Commission ruled in Bombardier's is favor at the beginning

of 2018. The battle showed how hard it has become for smaller

companies to break into the market. Which brings us exactly to

that where is the competition?

Airbus and Boeing may command domestic and international airspace

but for regional flights the Canadian company Bombardier and the

Brazilian company Embraer control the market or at least they

used to. The overhead for the aviation manufacturing business

can be crushing and regional aircraft manufacturers like

Bombardier a couldn't shoulder the costs. Bombardier of

Canada had the

The best hope of getting in they simply ran out of cash. And this

year their jetliner was basically absorbed by Airbus.

Now the Airbus A220 rather than the Bombardier C-Series. In 2017

Airbus announced it would acquire a majority stake in

Bombardier's C-Series. Airbus rebranded the series as a new a

220 and sold 120 former C-Series jets to U.S. airline companies

in 2018. Airbus will begin building the aircraft later this

month. And let's not forget about Brazilian aircraft company

Embraer the other regional jet manufacturer. Boeing just bought

80% of Embraer commercial aviation business for a whopping $4.2

billion dollars. The Brazilian government approved the deal in

January and both companies announced that they expect to get all

the remaining approvals before 2020. The reality was that these

smaller companies weren't really competing anyway.

In 2016 regional aircraft deliveries were less than 7% of the

airplane market by value. Other countries like Russia and China

have also been trying to become prominent players in the

aircraft manufacturing industry. But so far both countries have

been unable to make a dent in the private sector.

They could flip a switch and they'd be great at it. The

frustrating thing about China is that the only possible thing

they could do wrong is exactly what they're doing. They've got

the biggest market in the world. They've got limited talent on

limited resources. They should be great in this. But the

strategy they're pursuing is basically digging a giant hole.

They're running it as a government operation and very simply

government owned industries to not do a good job beating

commercial market needs. Next thing they're doing is rather than

saying to their engineers, "hey you can go shopping for the best

components and technology around the globe..." They're saying

you have to buy stuff made in China and that means only stuff

that involves Western companies coming to China and surrendering

their intellectual property.

Boeing and Airbus aren't shying away from potential competition.

Boeing highlighted its partnership with COMAC on a completion of

a facility in Zhoushan. The company also told us, "China's

commercial aviation sector represents a major customer an

important partner in a potent competitor. China is on track to

become the largest commercial airplane market in the world over

the next few years. Getting the right balance between

collaborating and competing requires work in constant

evaluation." When we asked Airbus about Chinese competition

they told CNBC this "the Boeing Airbus to Oxley isn't likely to

last forever. In general we see China as the next major

competitor though in some 10 to 20 years from now. The Chinese

market is large enough for more than two competitors in every

market we welcome competition. Airbus was born competition,

thrives in it, and believes it is good for the development of

our industry.

So what's next for the aviation industry? Will it be the return

of supersonic travel? The aptly named Colorado-based company

Boom Supersonic announced it has received millions in funding

from investors. Boom is looking to make supersonic travel

mainstream. Marketing their aircraft is being able to get

passengers to and from their destinations two times faster than

business class flights today. Commercial supersonic travel isn't

new. In 1976 the first Concorde flights took off from London and

just outside Paris. But the Concorde days were short lived.

Noise pollution, mounting expenses, combined with a fatal air

crash caused the Concorde to be retired in 2003. But there are

many barriers sitting in the way of creating supersonic

commercial travel. The first being

it's illegal. They would have to demonstrate that these are

usable over land. At present it's not legal to operate

supersonically over landmasses at least in the U.S. NASA been

testing so called "quiet boom" aircraft

in fact they're testing them right now in the Gulf of

Mexico, the people of Galveston Texas are the dummies I guess to

see whether they notice the booms. It remains to be seen whether

those theoretical designs can be put into practice.

But the big question is can supersonic travel be economically

feasible?

Will they be willing to pay five times as much for the aircraft

and their operating costs in order to go twice as fast because

the fuel bill basically piles up. We're now flying slower than

we did in 1970s and 80s

but on the other hand there's this economic reason for that.

It's not just civilian companies developing supersonic travel.

Lockheed Martin announced plans to build supersonic aircraft

that could change commercial travel. Lockheed Martin is

partnering with NASA to develop the X59 QueSST. This aircraft is

designed to have a cruising altitude of 55,000 feet and a

terminal speed of 940 miles per hour. And forget that super

alarming sonic boom. According to the Lockheed Martin Skunkworks

team the plane would create a sound no louder than the slamming

of a car door. But the development is still in its beta stages.

As for Boeing and Airbus both companies told us supersonic and

hypersonic travel is on their radars and that they are committed

to pursuing multiple innovative technologies moving forward.

The future of the aviation manufacturing business remains

unclear.

But one thing is clear the multi-billion dollar industry will

continue to grow as millions of more people around the world

enter the middle class. The International Air Transport

Association expects the number of air travelers to double to 8.2

billion by 2037 and Airbus and Boeing are poised to take a

vantage of those soaring trends.