These are not the best of times for aircraft manufacturer, Boeing, as the ill-fated Ethiopian Airlines flight 302 that crashed on Sunday morning may have brought great harm to the fortunes of the company. However, Boeing’s rival Airbus seems to be riding on the catastrophe to stardom among global planemakers.
Airbus stock rallied to its record highs of €114.58, Tuesday, at the Paris bourse after a widespread grounding of Boeing 737 MAX planes over safety concerns after a second fatal crash in less than five months which killed 157 people on board. This is despite assurance by the United States Federal Aviation Administration that the aircraft is safe and reliable to fly.
Consequently, Boeing recorded its biggest two-day decline in almost a decade after shedding 6.15 percent to $375.41, Tuesday, extending its Monday losses and causing the stock to close at 11.15 percent lower at the New York Stock Exchange (NYSE) with over $26.62 billion wiped out of the company’s market value since the disaster occurred.
“When the demand appetite of an essential product dwindles – as a result of whatever variable – there is an envisaged demand shift to a closely linked substitute of similar quality,” said Uchenna Minnis, chief market analyst at Eagle Global Markets. “Investors reacting to this fundamental downturn are diverting investments to the next available quality aircraft producer – Airbus.”
In an emailed response to BusinessDay, Andrew Nevin, chief economist at PwC Nigeria said it is difficult to know the long-term consequences for Boeing. Although an investigation into the cause is yet to be finalised, concerns are being raised over the use of a new flight control system by the U.S-based plane manufacturer.
“Markets have to react quickly, as often reacting to rumours as facts,” Nevin said. “In this case, there is speculation that Boeing cut corners with simulator training with 737 Max, and that this may be a contributing factor to the two tragedies.”
Boeing and Airbus owned by European Aeronautic Defence and Space Company (EADS) are the two global market leaders in aircraft manufacturing with both having over 95 percent of the entire market share.
Interestingly, most airline companies choose only one manufacturer in their fleet. This is because they want to be cost and operationally efficient and effective. Choosing one manufacturer also affords them the privileged of one training program for its pilots and technical staffs, the same set of spare parts and maintenance checks on aircraft.
There are also reports that Indonesian’s Lion Air is already looking at scrapping the Boeing deal after one of its own Max planes crashed on Oct. 29, killing 189 people on board. According to the reports, Indonesia’s Lion Air is making plans to drop a $22 billion order for Boeing Max 737 jetliners and switch to rival aircraft from Airbus SE as a rift between the companies widens following this week’s crash in Ethiopia.
Also, Kenya Airways is also re-evaluating proposals to buy the latest version of the single-aisle workhorse and could switch to Airbus SE rival A320 or upgrade to Boeing’s larger 787 Dreamliner.
The 737 model was launched into service in the late 1960s. It is the aviation industry’s best-selling model and Boeing’s top earner, while the re-engined Max version has made more than 5,000 orders worth in excess of $600 billion.
Last Sunday’s crash has plunged Boeing into huge crisis as aviation authorities around the world ground the plane. Nigeria’s minister of state for Aviation, Hadi Sirika, has issued a statement banning the 737 Max 8 in nation’s airspace.
Also regulators from Australia, Mexico have denied it access to their airspace. However, in a dramatic turn of events, the European Aviation Safety Agency has split with the Federal Aviation Administration in banning the Max, leaving the U.S. regulator isolated in insisting that it’s still safe to fly.
Over the past 20 years, the commercial aviation industry has come to be dominated by these two heavyweights. Airbus is relatively new when compared to Boeing, which has been around since 1916.
According to reports by Financial Times, Boeing beat Airbus in the 2018 commercial aircraft delivery race and the U.S. planemaker appeared on track to triumph over its European rival in the competition for orders as well.
The Chicago-based group has consistently won the deliveries race, while Airbus has been ahead on orders since 2013. Boeing delivered 806 aircraft last year, below its 2018 target of 810 to 815 but above 2017’s 763 and higher than Airbus, which said it delivered 800 planes, meeting its target of “around 800” subject to final auditing.
OLUFIKAYO OWOEYE & OLUWASEGUN OLAKOYENIKAN
