Boeing and EADS are looking to diversify their interests with space and communications instead of relying on airframes for future success
CHRIS JASPER / LONDON
With Europe's Airbus now matching US giant Boeing blow for blow in terms of airliner orders, it is tempting to see the Paris air show as a key battleground for the wider success or failure of both Airbus majority shareholder EADS and Boeing.
Sales figures achieved at last year's Farnborough show, when the pair chalked up orders worth more than $33.3 million (Airbus edging it with 64%) serve to reinforce this image of arch opponents slugging it out to the bitter end.
Yet it is possible to regard a high proportion of airliner sales in total group turnover as a liability rather than a strength, leading inevitably to the conclusion that future planning should be based on diversification away from the civil sector.
Evidence is mounting that both Boeing and EADS share this point of view. Sonic cruisers and A380s may dominate the headlines, but both companies are working frantically to reach a position where their survival depends less on success or failure in the civil arena.
This conclusion has been reached in the face of one basic reality: the airline industry remains cyclical, largely due to its exposure to the global economic cycle.
Only a few years ago Boeing had its hands badly burned when the Asian economic downturn led to a wave of order cancellations by airlines. Now the US downturn has brought the industry up short again. Even re-fleeting can lead to cyclic movements.
Once, manufacturers were able to take all this in their stride. Workers would be sacked, horns drawn in and hard times ridden out. In much of the world, governments came to the rescue of national manufacturers with state hand-outs, while the indestructability of the home market, together with generous government funding via military contracts, would see companies through. But now the handouts are gone, and Boeing and Airbus find themselves competing in a global market without a safety net.
Globalisation has also meant that even giants like Boeing can become the prey of larger beasts. When Boeing gets the market wrong, its share price falls and, overnight, it becomes an attractive take-over target. Few companies - GE apart - are big enough to swallow a firm the size of Boeing whole, but the threat is certainly there. While both it and EADS remain vulnerable to cycles beyond their control, their future will always be uncertain.
EADS may itself be a big hitter in the aerospace world, but to shareholder DaimlerChrysler it is useful only while it produces cash. Should Airbus falter, EADS will quickly appear to be an ill-fitting appendage to the German-US company's core motor-manufacturing business.
Hence the urgency with which both Boeing and EADS view diversification. The pair are, of course, already diversified in one sense - indeed they remain the only truly diversified primary manufacturers in the industry, with fingers in many pies. Yet for as long as civil production continues to account for around two-thirds of sales, they must be viewed, first and foremost, as airliner makers.
The fact that airliner manufacturing is itself a duopoly represents both a cushion and a risk. Each company can expect to net roughly 50% of the global airliner market, but they are also hideously exposed to any calamitous of that market collapse.
Well-established activities linked to defence production offer some sort of hedge - military aircraft and helicopter production, for example. But, in the longer term, both are aware that higher value is likely to be had from the space sector and communications, and from defence electronics and systems - areas in which both are already strong, but need to be stronger.
Source: Flight International
