Airbus vs. Boeing: Logistics, Backlog, and the A380 Strategy
This paper examines Airbus's competitive position in the early 2000s, focusing on logistics process improvements aimed at cutting costs by 20%, the significance of its order backlog, and the threat posed by a declining U.S. dollar to European exporters. It compares Airbus and Boeing across key metrics including operating margins, net orders, and production capacity, and discusses the strategic importance of the A380 superjumbo as Airbus's vehicle for entering high-growth markets such as Japan, India, and China. The paper draws on sources including Business Week, CNN, Reuters, and Airwise to assess Airbus's short- and medium-term outlook.
- Introduction: Logistics Reform and the Production Backlog: Airbus cuts costs and accelerates manufacturing output
- Currency Risk and the Falling Dollar: Falling dollar threatens European export competitiveness
- Competitive Dynamics: Airbus vs. Boeing: Airbus outperforms Boeing on margins and net orders
- Sales Trends and Production Capacity: Sales growth slows but backlog remains manageable
- The A380 and Emerging Market Strategy: A380 targets Japan, India, and China expansion
- Conclusion: Airbus outlook cautiously positive amid market recovery
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What makes this paper effective
- Integrates multiple credible sources — Business Week, CNN, Reuters, Airwise — to support each analytical claim with concrete figures.
- Uses specific financial data (operating margins, order volumes, development costs) to ground competitive comparisons between Airbus and Boeing.
- Demonstrates awareness of macroeconomic factors, particularly currency risk, and explains how they affect corporate competitiveness in a global market.
Key academic technique demonstrated
The paper demonstrates comparative industry analysis: it consistently evaluates Airbus's strategic decisions not in isolation but against Boeing's parallel actions, using quantitative benchmarks (e.g., 16.5% vs. 10.5% operating margins, net vs. gross orders) to draw meaningful conclusions about relative competitive standing.
Structure breakdown
The paper opens with logistics and backlog analysis, moves to macroeconomic risk (the dollar), then addresses the head-to-head competitive record between Airbus and Boeing. A section on sales trends and production capacity follows, leading into a forward-looking discussion of the A380 and Asia-Pacific market entry. A brief conclusion wraps the argument. The structure is largely thematic rather than chronological, though it anchors claims in the 2001–2003 timeframe throughout.
Introduction: Logistics Reform and the Production Backlog
Airbus is currently implementing new logistics processes that it expects will cut costs by 20%. Part of this initiative involves flying parts to central locations to facilitate assembly. More importantly, however, the reforms are designed to increase inventory turnover. Like all airplane manufacturers, Airbus carries a significant backlog: if this backlog is eliminated or reduced through more expedient manufacturing, Airbus can produce at a faster rate and sell more products.
The backlog is also counter-cyclical — customers receive their orders faster when fewer buyers are competing for delivery slots. The current backlog stands at over four years, while market cycles generally last ten years or fewer, with prolonged recessions being rare. Only a sustained recession of more than several years could seriously threaten Airbus's production pipeline, which is unlikely given that air travel had already recovered from its early-2003 low. According to the course exercise, a new airplane requires a total of 85 days in the Toulouse plant, although for many of those days the aircraft — or portions of it — may not be physically present within the plant itself.
Currency Risk and the Falling Dollar
Perhaps more disquieting is the falling U.S. dollar. Because most international banks use the dollar as a reserve currency, the euro has been able to purchase drastically more than it could three years ago. Although this benefits Western consumers, it comes at the expense of European manufacturers who wish to export their products. Airlines such as Gulf Air that operate outside Europe and North America must now choose between expensive Airbuses and comparatively inexpensive Boeings.
Analysts have noted that Airbus and other European companies have so far protected themselves against the dollar's decline by using hedging instruments — specifically, forward contracts designed to lock in exchange rates at a specific price. Euro-denominated contracts already in Airbus's backlog are safe from this exposure. However, The Economist and other sources contend that the dollar will stabilize at a lower level, making the American economy more competitive on a sustained basis. This bodes poorly for Airbus both inside and outside Europe.
Competitive Dynamics: Airbus vs. Boeing
It is important to note that Boeing is reaping the benefits of several defense contracts, which are bid on by EADS and BAE Systems — which own 80% and 20% of Airbus, respectively — but not by Airbus itself. Airbus's operating margin last year was 16.5%, exceeding Boeing's 10.5%. Airbus budgeted $10.2 billion to develop the A380, and that spending has now reached its peak (Business Week).
Airbus sold an average of 100 planes per year between 1972 and 2002. However, this figure is misleading due to exponential sales growth in later years. According to CNN, "sales rose to $20.5 billion from $17.2 billion in 2000 as it delivered a record 325 aircraft [in 2001], up from 311 in 2000." CNN also notes that orders dropped to 375 from 500, though these orders are projected several years into the future. When production capacity exceeds the number of new orders, the backlog will begin to shrink; so far the reverse has been true and the backlog has grown. Cancellations are a concern, and pre-orders have already begun to shrink — but not by an amount threatening enough to halt development of the A380.
Most notably, Airbus beat its arch-rival Boeing for the second time in three years in 2001. Boeing received 335 gross orders that year but was left with only 272 net orders after accounting for conversions and cancellations. This dynamic has since shifted, largely due to U.S. military orders. Boeing's CFO was forced to resign due to corruption charges, and there is a possibility that rival firms may bring Boeing before an international trade court for unfair business practices, though this outcome appears doubtful.
Boeing has begun work on a new aircraft engine that will allow it to modify its 767 — a competitor to Airbus's A320-family models — enabling that aircraft to travel at near the speed of sound. Airbus expects to be able to develop a modified version of this engine technology in order to retain the market share it has gained at Boeing's expense.
Conclusion
Orders dipped in 2003 but are expected to recover to 2001 and 2002 levels in the future. Production efficiencies could allow Airbus to better align its production capacity with annual order volumes. If Airbus successfully transitions from high-volume production of narrowbody models to the higher-margin A380, its financial outlook improves considerably. The company's stronger operating margin, longer backlog, and strategic focus on Asia position it well relative to Boeing, provided that currency pressures remain manageable through hedging and that the global air travel recovery continues to gain momentum.
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