The recent issues faced by Boeing with the 737 MAX have sparked a discussion within the industry about the ideal leadership for a global commercial aerospace company. Analysts and investors are divided between placing emphasis on an ace engineer or a professional manager to steer the ship.
The Role of Management in Boeing's Challenges
Rob Stallard, an analyst at Vertical Research Partners, believes that the root of Boeing's problems lies in its management rather than its engineers. Stallard points out that while engineering expertise is undoubtedly important, strong management is critical for success in the aerospace business. Boeing refrained from commenting on this matter, and Airbus did not respond to a request for comment.
Strategic Decision-Making is Key
The nature of the aerospace industry poses unique challenges, such as substantial investments, extensive regulations, and product lifecycles measured in decades. This makes strategic choices just as vital as engineering decisions. General Electric CEO Larry Culp, speaking about his company's leadership in jet engines, explains that long-term success in this industry requires consistent investment over time.
Though Culp was not referring specifically to Boeing, his statement alludes to how Boeing now finds itself in the midst of the MAX crisis. Over the years, Boeing has allocated less budget to research and development, as well as new facilities and equipment, compared to its main competitor.
Spending Disparities: Boeing vs. Airbus
From 2010 to 2023, Boeing invested approximately $70 billion, equivalent to 6.2% of its total sales during that period, in research and development, new plants, and equipment. In contrast, Airbus allocated around $93 billion, representing 9.5% of its sales during the same timeframe.
It's important to note that these figures provide a general overview and do not account for spending across all business segments, including commercial aerospace and defense.
In conclusion, the debate over leadership at Boeing continues to linger. Both engineering expertise and effective management are crucial for a global commercial aerospace company like Boeing. However, the disparity in spending between Boeing and Airbus in critical areas raises concerns and sheds light on the importance of strategic decision-making and long-term investments in maintaining industry leadership.
Boeing vs Airbus: A Tale of Shareholder Spending
Boeing, a prominent leader in the aviation industry, has consistently outperformed Airbus when it comes to spending on shareholders. In the last decade alone, Boeing allocated an impressive $59 billion towards returning cash to its shareholders. This significant sum includes a staggering $20 billion in dividends and an additional $39 billion on share repurchase.
Between 2014 and 2018, Boeing actively bought back its own stock, resulting in a considerable reduction in shares outstanding. The number decreased from approximately 751 million at the beginning of 2014 to 568 million by the end of 2018. Presently, Boeing boasts approximately 610 million outstanding shares.
On the contrary, Airbus has not focused extensively on share repurchases, only spending a modest amount of $10 billion on dividends during the same time frame.
These decisions concerning capital returns and investment expenditure are crucial management choices that ultimately shape the company's financial landscape. Airbus currently holds around 62% of the total backlog for 737-size jets and has successfully delivered approximately 57% of those planes over the past 15 years. This indicates a gradual improvement in Airbus' standing within the industry.
However, it is worth noting that shareholders also bear some responsibility for management decisions. Boeing, due to its efficient capital-return policies, experienced significant gains in its stock value. Bloomberg reports that from the end of 2013 to the end of 2018, Boeing's stock yielded an average annual return of about 20%, whereas Airbus only achieved an average return of around 10%.
Nevertheless, since the end of 2018, Boeing's stock has faced a decline with an average annual loss of approximately 7%. Conversely, Airbus shares have returned an average of 13% during the same period. Consequently, it becomes evident that decisions made by management in previous years significantly impact current stock prices.
Over the past decade, Boeing has provided a 7.1% annual return to shareholders, including reinvested dividends. In comparison, Airbus' American Depositary Receipts (ADRs) have yielded a higher return of 9.5%.
These numbers not only highlight the disparities between Boeing and Airbus but also indicate a potential solution for Boeing to overcome its current challenges. To maintain its market share, Boeing must adopt a spending strategy similar to that of Airbus. This could involve allocating funds towards the development of new aircraft models, intended to replace a portion of Boeing's existing 737 lineup.
Ultimately, this pivotal decision lies in the hands of Boeing's management.
