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Here's How American Airlines Plans to Cap Its All-Time High Long-Term Debt

American Airlines is said to take initiatives to reduce its long-term debt that remains at its all-time high by end of second quarter 2016

With the aim to remain the US number one airline in terms of traffic, American Airlines Group Inc. (AAL) has been expanding its flight operations through an aggressive aircraft fleet renewal plan. In addition to this, the company is also focusing to satisfy its shareholders through share repurchase program along with payments in the form of dividends. However, these strategies have been hitting its cash flows and have been weighing on its long-term debt that is now at its all-time high.

The increase in American Airlines long-term debt has been denting its balance sheet as well as the cash flows. According to the second quarter 2016 earnings release, the airline reported long-term debt and capital leases, net of current maturities at $21.13 billion – the all-time high – increasing its total non-current liabilities to $31.8 billion.

Review of the long-term debt over the last five years, shows that the airline has been increasing its dependence on borrowings instead of funding the projects through its own operations. The strategy might have worked for the airline over these years, but it is expected to hurt the company’s credit rating in the long run. The airline has been borrowing more as compared to payments made to lower the debt over the last few years.

Most recently during the second quarter 2016, the company reported proceeds from issuance of long-term debt at $4.5 billion versus payments on long-term debt and capital leases of $2.16 billion. The two highest payments that usually eat out of American Airlines’ cash flows are the Capital Expenditure and Aircraft Purchase Deposits and the Treasury stock repurchases.

How the Airline Plans to Reduce Long-Term Debt

American Airlines management has also realized that its long-term debt should be lowered despite its aggressive aircraft fleet renewal plan. However, the airline may not reduce the cash returning to its shareholders in order to maintain their confidence amid fierce competition and tough market conditions.

American Airlines CFO, Derek Kerr announced the strategy in the earnings transcript by saying: “Going forward, our peak capital spending for aircraft will occur in 2016 and decline going forward. As we see it today, we expect our total net debt to follow the same path, peaking in 2016 and improving each year thereafter.” Mr. Kerr's comment can be attributed to the company’s decision to defer deliveries of Airbus Group SE (EADSY) A350 commercial aircraft by an average of 26 months that will save around $1 billion cash in capital expenditure.

Mr. Kerr further stated that the airline will invest around $4.4 billion in capital expenditure this year that will be reduced to $4 billion next year. The investment will stand at $2.1 billion, $2.5 billion, $2.5 billion through fiscal years ’18, ’19, and ’20, respectively. “So the significant reduction in the CapEx will help all those leverage ratios out,” commented Mr. Kerr in the earnings transcript.

Furthermore, as per its share repurchase program announced in fiscal year 2014, American Airlines returned approximately $8.4 billion to the shareholders. The airline has only $1.2 billion more to complete the strategy after which it will be able to save cash in investing activities that can be used to repay the long-term debt.

The current downturn in the international flight operations might not be good for the airline’s international unit revenues; however, it might be good for the airline’s balance sheet as through the decline in international travelling, the airline has the option to reallocate its aircraft fleet to temporary eliminate the demand of new jets. The Brexit vote resulted in decline in US-UK travelling and the airline can now reallocate the jets used on those routes. Based on the same concern, the airline deferred deliveries of Airbus' A350 jets.

Conclusion

American Airlines long-term debt seems to touch its peak by the end of this year. However, going forward, the company has plans to lower its capital expenditure and share repurchase program that is expected to support the airline in lowering its long-term debt. The reduction in capital expenditure might slow down the unit revenues in future, but it is expected to improve the airline’s balance sheet and cash flow position.

For more information on American Airlines financial performance and history, refer to our American Airlines Data Analysis section.

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Airbus Still Struggling to Overtake Boeing

Despite getting orders at the recent airshow, Airbus is still struggling to book commercial orders as compared to Boeing

Airbus Group SE (EADSY) investors remained bullish post the Farnborough Airshow after the aircraft manufacturer booked a handful of orders to add to its aircraft backlog. That said, Airbus’ biggest rival Boeing still had the lead by 11 jets as per the year-to-date (YTD) order sheet ending July 31, 2016.

Airbus remains confident that the company is on track to book more orders until the end of this year and beat Boeing Co (BA) in the remaining five months. This would not be an easy task, as the company faces tough competition and challenging market conditions.

According to the order sheet, Boeing booked total gross orders of 383 commercial aircraft that resulted in 334 net orders after cancellation of 49 jets. One the other hand, Airbus booked total gross orders of 373 jets, resulting in total net orders of 323 jets with cancellation of 50 aircraft.

Out of 334 orders, Boeing received 296 orders for its 737, four 747, seven 767, eight 777, and 19 787 Dreamliner jets. Comparatively, out of a total of 323 net orders, Airbus received 154 orders of A320neo, 16 A320ceo, 67 A321ceo, 21 A321neo, 11 A330-200, 10 A330-300, 14 A330-900, and 25 A350 series jets.

Airbus A320Neo Technical Issues

The comparison of orders shows that Airbus received less orders for its single aisle commercial aircraft, which contributed to the lag in commercial order bookings. This can be attributed to changing market conditions and A320neo engine issues, which have kept the company from delivering the aircraft at full pace.

Airbus has faced technical issues in restarting the A320neo aircraft engine. The company has been working closely with its engine supplier, United Technologies’ Pratt & Whitney unit, and was said to have resolved the issue recently.

However, the engine issue has dented the A320neo's image in the market, with Qatar Airways refusing to take delivery of the troubled aircraft in January this year and ultimately cancelling the order. Consequently, Airbus had to change its launch customer from Qatar Airways to Lufthansa Airlines, which took the delivery of the first A320Neo in January.

One of the biggest A320neo customers, IndiGo Air is also looking to delay deliveries to give the company more room to resolve the issue. Considering the current conditions, industry experts opine that deliveries of the A320neo will remain on the lower side until the end of this year.

Fierce Competition

Airbus also faces fierce competition as its rivals are offering jets at lower prices in a bid to gain market share. Bombardier and COMAC have also commercially launched their jets, which means added pressure on Airbus.

COMAC conducted the first commercial flight of its new ARJ21 commercial aircraft on June 28, 2016 through Chengdu Airlines that took off from Chengdu and safely arrived at Shanghai. Bombardier also conducted the first commercial flight of its CS100 on July 15, 2016 through Swiss Global Air Lines, while the CS300 is slated to enter service before the end of this year.

An increased number of aircraft manufacturers in the market is expected to intensify competition, as airlines will have more options to choose from that will allow them to further negotiate aircraft prices.

Conclusion

Airbus has reportedly resolved the A320neo engine issue and is said to be in the process of installing the revamped engines in the jets. The company will have to initiate the deliveries of the upgraded jets to regain confidence.

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Airbus A320NEO Still Facing Downturn Over Engine

The company has lost out on capitalization opportunities because of consistent delays

In 2010, Airbus Group SE (EADSY) launched the revamped A320NEO (New Engine Option) single-aisle commercial aircraft. This version attracted higher demand compared to the A320CEO (Current Engine Option). However, recent technical issues with the aircraft engine have delayed the delivery process of the aircraft by a few more months.

Airbus A320NEO is equipped with PW1100G engines manufactured by United Technologies Corporation’s (UTX) Pratt & Whitney unit. The company faced engine restart issues even during the testing phase. It then had to conduct a few test flights with CFM International built LEAP-1A engines.

The company has received fierce criticism from customers and investors alike because of unsatisfactory performance. Qatar Airways was expected to become the launch customer, but declined the deliveries. Lufthansa Airlines has now agreed to become the launch customer with its A320NEO deliveries due January 25, 2016.

Airbus has so far delivered a total of eight A320NEO units over the past six months, out of the total orders of 3396 as of June 30, 2016. In the same period, the company delivered a total of 138 A320CEO planes.

Following Lufthansa, IndiGo Airlines also received its A320NEO orders on March 18, 2016, while GoAir took the first delivery of the aircraft on June 8, 2016. Last month, Airbus executives reported that the company had solved the engine issues in collaboration with Pratt & Whitney, and the deliveries of the jets with resolved engine issues would start in July.

No new deliveries have yet been reported during the past month. Yesterday, IndiGo Airlines announced it may consider giving Airbus and Pratt & Whitney more time to fix the engines before demanding delivery. Earlier, the airline had placed an order for 430 units of the A320NEO, of which the delivery of 24 was expected by March 2017.

It is possible that IndiGo Airlines will change its first order of 150 units of the A320NEO, to be equipped with CFM International’s LEAP-1A engines to speed up deliveries. Qatar Airways called off its order because of the delay, and high demand and the absence of new jets affected the airline's capacity growth.

At the Farnborough Airshow, Qatar Airways was reportedly taking interest in Boeing Co’s (BA) 737 commercial aircraft following the cancelled order for the A320NEO. However, despite the issues, Airbus received a substantial number of orders for the jets, and surpassed Boeing in terms of total orders at the event.

The delays in the deliveries of the A320NEO deliveries also dragged down Airbus Group earnings before income tax, which declined from 1.53 billion euros last year, to 1.27 billion euros during the first half of 2016. In the report for the period, the company said: “On the A320 programme, preparation for the ramp-up continues with temporary issues, mainly linked to the supply chain, expected to be recovered by year-end.”

The new jets will continue to face a cold reception till customers are certain about the engine issues having been addressed. Although Airbus did much better than Boeing at the Farnborough Airshow, the year as a whole treated Boeing better. It is highly likely that Airbus would have reported higher operating revenues this year if not for the continual mishaps.

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Boeing Remains Bullish Ahead of Farnborough Air Show

Amid tough market conditions, Boeing remains confident it will receive healthy orders at the Farnborough airshow

Aviation investors and manufacturers have high expectations from the ongoing Farnborough air show that will last throughout the second week of July. Among various companies, the two industry giants, Boeing Co (BA) and Airbus Group SE, will be in the spotlight who are known for their competition in the market.

It is a common practice that Aircraft manufacturer and suppliers receive high level of orders at such airshow’s. In June 2015, the Paris airshow recorded the highest number of sales. This year’s aviation event revolves around the Farnborough airshow, amid investors’ concern about declining aircraft sales and a less-than-expected order trend.

Earlier in fiscal year 2014 (FY14), the Farnborough airshow generated sales orders of total 503 commercial aircraft, worth approximately $68.9 billion. Of this total, aircraft manufacturers sold jets worth $23.2 billion directly to airlines, while $45.7 billion worth of jets were leased.

This year, the airshow might not generate similar results, as aircraft industry has experienced low market demand this time around, compared to previous years. Airbus Group SE (EADSY) is playing on a weak wicket, as it faced technical issues in two of its star products, A320 and A350. Along with this, Brexit has increased the intensity of threats to Airbus sales amid concerns of slow demand in the aviation industry.

Along with current market conditions, Boeing increased the 20-year future outlook by projecting a total aircraft demand of 39,620 new jets. This represents an increase of 4.1% to the year-over-year (YoY) future outlook released. "Despite recent events that have impacted the financial markets, the aviation sector will continue to see long-term growth with the commercial fleet doubling in size," said Boeing Commercial Airplanes vice president of Marketing, Randy Tinseth.

Potential Orders to be Announced at Farnborough Airshow

Boeing remains bullish that it is still in demand in the airline industry and expects a large number of orders at the airshow. Among various airlines, Air Europa Lineas Aereas, the Spanish airline, is said to be in talks with Boeing to place an order of 20 latest 737 single-aisle commercial jets, valued at $2.2 billion.

Alongside this, German tour operator TUI AG is also expected to order 787 Dreamliner, valued at approximately $1.3 billion. These two companies will generate $3.5 billion worth of new orders, anticipated to be announced during the airshow.

Boeing was reportedly also in talks with the other US and foreign airlines, and might receive more orders for its single-aisle commercial jets. On the other hand, Airbus is also said to be in negotiations with AirAisa Bhd. for a potential order of 100 new A321jets for $12.57 billion.

Boeing Fight with US Congress Over Iran Aircraft Order

Apart from targeting new orders at the airshow, Boeing is also fighting against the US Congress, which opposes its aircraft deal with Iran. Announced last month, the deal included an order of more than 80 jets. However last week, Congress opposed the deal and called for government influence into the matter.

Yesterday, Boeing CEO, Ray Conner, in a response to the US congress reservations said that if Iran’s deal with the company is blocked, the US aircraft equipment suppliers to its rivals should also be blocked. The reason behind this statement is that the company does not want its rivals to take unfair advantage of the blockage. Even if Boeing’s deal with Iran is blocked, industry analysts expect that the company might recover the blocked sales by getting more orders from other existing customers.

Conclusion

The Farnborough airshow promises healthy orders for aircraft manufacturers. However, considering the market condition and performance, Boeing is expected to take the lead as compared to Airbus by the end of this week. Boeing also remains confident that it will book more orders, as compared to its rivals, and sustain its position by the end of 2016.

For more information on Boeing financial performance and history, refer to our Boeing Data Analysis section.

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Does Boeing Current Plans Coincide with its Long-Term Business Outlook?

Boeing’s long-term business outlook and market condition focus on single aisle smaller jets; Does Boeing’s current plan to tap the jumbo jet market makes sense?

Boeing Co (BA) has been announcing various strategies with the aim to dominate the market share. However, even the aviation giant has no powers over the market conditions.

Most recently, Boeing is considering various options in the jumbo jet market. The company is reviewing the possibilities of stretching its revamped version 777X as it is reportedly in talks with various operators of jumbo jets, including Emirates. The new model is expected to be called 777-10X, with seating capacity of 450 passengers. This version will compete with Airbus Group SE (EADSY) A380 model.

The question arises if the company’s strategy coincides with the current market conditions and if the long-term plan is synced with it. Currently, airlines have shifted their focus from wide-body bigger jets to small single aisle commercial jets to reduce operational expenses.

Very few airlines are still interested to operate wide-body jumbo jets, which has shrunk to a small portion of the overall market. No final decision has been made on the development of the stretched 777-10X version, but in case it does, high development and manufacturing costs will be there with shaky demand just like the suffering Airbus’ A380.

Suffering A380 Jumbo jet

Since the Airbus’ A380 inception, the company has received only 319 orders till date, most of which came from Emirates airlines summing up to 142 orders. Out of the total 319 orders, the company has already delivered 190 jets to a total of 13 operators. Now the real problem exists with stagnant demand, which the manufacturer is not receiving.

During fiscal year 2015, Airbus received only three orders of its A380; 20 orders were received in fiscal year 2014. With the A380’s backlog shrinking, the company will not have any option, but to cut down its production capacity in order to keep the production line running for longer period till it receives more orders.

Boeing’s 20 Years Future Outlook

Boeing itself estimates insignificant demand of the larger wide-body commercial aircraft in its 20-year future outlook. As per the report, the company expects to receive total orders of 540 large wide-body jets in next two decades having total worth of approximately $230 billion.

Out of the total 540 jets, the company expects to receive the highest orders of 300 jets from the Middle East and then 140 jets from Asia. These orders remain on the lower side as compared to single aisle and smaller wide-body aircraft orders as reported in the same report.

Boeing expects orders of around 26,730 single aisle commercial jets valued at $2,770 billion. The single aisle commercial aircraft would be the biggest market for all of the aircraft manufacturers in future. That is why Airbus is also focusing on the market share of its single aisle models.

Among various models, Boeing had only 747-8 variant that falls in the large aircraft category. Therefore, it might be looking ahead to offer the latest model with more fuel efficient engines; however, the market conditions remain challenging that might not return profits in the long run.

Conclusion

According to Boeing’s future outlook, the company can only receive orders of 540 jets of its proposed jumbo jets by next 220 years that might not be feasible for the company considering the market conditions. Focusing on its single aisle and smaller wide-body commercial aircraft might be beneficial for the company, considering the changing market trend and future outlook.

For more information on Boeing financial performance and history, refer to our Boeing Data Analysis section.

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How GE Aviation Segment has Evolved with Increase in Commercial Jets Demand?

General Electric Aviation segment has been reacting to the changes in demand of commercial jets; here’s how it might react in future

Being one of the leaders in supplying engines for commercial jets, General Electric Company (GE) Aviation segment is outperforming other segments amid increase in demand of commercial jets. As more and more airlines place new orders of commercial aircraft in the wake of meeting the increase in air travelling demand, aircraft manufacturers are also placing more orders of GE Aviation’s latest fuel efficient engines.

Based on this increasing demand, the backlog of GE Aviation segment also soared as reported in its latest first quarter 2016 earnings. As per the report, the segment reported total backlog of $153.4 billion that increased as compared to the backlog of $140.6 billion in the same quarter last year .

GE Aviation segment reported operating revenues of $6.3 billion during the quarter that also increased from $5.7 billion reported in the first quarter of 2015. The segment attributes much of this growth in backlog and revenues to increased potential in the Service segment along with the Equipment, as 56% of the total revenues were generated by the Service segment. Furthermore, the Service sub-segment’s backlog reported higher growth as compared to Equipment sub-segment’s backlog during the period.

Out of GE Aviation’s total operating revenues, the Commercial Engines & Services contributed the highest 73%, while the Military and the Systems segment contributed 14% and 13%, respectively. Further review of the details reveal that the company delivered 677 engines during the first quarter 2016 that increased 28% YoY. However, the military engine deliveries dropped 18% YoY to 151 engines during the same period.

This growth in engine orders can be attributed to healthy backlog of Boeing Co (BA) commercial jets that remained consistent over the last year. According to company’s first quarter earnings, Boeing reported commercial aircraft backlog of 5,700 valued at approximately $424 billion. Boeing reported the same number of commercial aircraft in its first quarter 2015 backlog; however, its total value slightly decreased from $435 billion.

GE Aviation segment is expected to receive healthy demand by next two decades as the airline industry is expected to boom according to Boeing’s executives who believe that the industry would generate demand of over 30,000 jets in future. Out of the total demand, the airlines are expected to order higher volume of smaller single aisle commercial jets as compared to wide body jumbo jets as the airlines increase competition and try to reduce the operational costs.

The same pattern is also evident in Boeing’s current backlog as its total number of aircraft remains at 5,700 while the total value declined YoY due to increase in its single aisle commercial jets that are priced less as compared to jumbo jets.

Ahead in the Competition

GE Aviation segment can be considered ahead in its competition as its rival United Technologies Corporation (UTX) Pratt & Whitney segment that also manufactures aircraft engines is facing technical issues with the engines developed for some of the latest aircraft in commercial use. Due to this, GE Aviation has bright chances to capitalize on its rival’s weaknesses and get new orders.

Among various models, Airbus Group SE (EADSY) is facing issues in its A320neo commercial aircraft that is equipped with Pratt & Whitney’s PurePower PW1100G engine. GE Aviation also offers its LEAP-1A engines that can be used in Airbus’ A320neo commercial aircraft in replacement of PW1100G through which it can take the market share if its rival’s issues prevail.

Conclusion

Given the market future outlook of the aviation industry, the air transport demand is expected to increase by next 20 year that would in turn result in increase in demand of commercial jets and aircraft engines. GE Aviation has a bright future ahead of itself as it remains ahead in the competition. It is already showing a growing trend that is expected to prevail in future.

For more information on General Electric financial performance and history, refer to our General Electric Data Analysis section.

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Boeing Maintains YTD Lead Despite Airbus' Efforts

Would Airbus be able to book more orders during the second half of 2016?

Yesterday, Airbus Group SE (EADSY) posted its disappointing year-to-date (YTD) order and delivery sheet, updated till 31 May, 2016. When compared to its rivals, the aircraft manufacturer’s total new orders remained on the lower side; it only booked 83 new orders during the month.

With addition of the new orders, the total gross YTD clocked in at 200 jets, which after cancellation resulted in 162 net orders. In comparison, Boeing Co (BA) booked a total of 298 gross orders YTD, and with 30 cancellations its net orders summed up to 268 jets during the same period.

Boeing has left behind Airbus in delivering the most commercial jets to customers. While the latter recently reported 234 total deliveries by the end of May, Boeing had already delivered 230 jets by the end of April. Although the US manufacturer has not updated its delivery book for the month of May yet; however when updated, the deliveries are expected to be far higher when compared to Airbus.

Airbus has made many efforts to secure new orders from its existing and new customers; however, the company has not been able to do so due to tough competition in the market. Boeing, which has been trailing behind peers, seems to have the upper hand this year, in terms of booking new orders.

Possible Reasons Behind Airbus Lag

One of the most prominent reasons for Airbus’ reduced demand is its A320neo and A350 commercial jets that are faced with technical problems. This can be attributed as the main reason behind customers losing confidence in Airbus’ aircraft.

Recently, Qatar Airways decided to walk away from its order of 50 A320neo, based on engine issues that are yet to be resolved. The airline was slated to be A320neo’s launch customer in January this year; however Qatar Airways put a hold on deliveries earlier this year.

As a result, Lufthansa Airline became Airbus’ launch customer. According to rumors, Qatar Airways was considering the option of placing an order with Boeing to acquire its 737 Max series jets, that are similar in configuration to Airbus’ A320neo.

Way Forward

In an attempt to uplift its top and bottom line to regain stakeholders’ confidence, Airbus promised to deliver 650 commercial jets by the end of this year, which is a higher number than the 635 jets delivered last year. However, achieving this target seems to be a big challenge for the aircraft manufacturer, considering the unresolved aircraft issues.

Airbus is said to be closely working with United Technologies’ Pratt & Whitney, which manufactured the engines used in its A320neo commercial aircraft. Considering its current problems, Airbus too is of the opinion that it will only be able to increase deliveries, and book more orders during the second half of 2016.

However, this would not be an easy feat for Airbus, as its rival Boeing continues to move ahead to increase deliveries. Bombardier Inc. (OTCMKTS:BDRBF) too, is expected to give its peers a tough time, as it recently conducted a demonstration flight of its CS100 carrying 100 passengers, including Star Alliance Members. Airlines from all around the world have shown interest to acquire Bombardier’s latest CSeries aircraft; an announcement about new orders is expected, following the jet’s first commercial flight expected this summer.

Conclusion

Airbus seems to be focused on resolving its A320neo and A350 commercial aircraft technical issues; however, delivery delays have already hurt the company. Loss of customers’ confidence is obvious from Airbus’ order book. This situation is expected to improve during the second half of 2016, that is if the company resolves the aircraft issues and meets delivery targets.

For more information on Boeing financial performance and history, refer to our Boeing Data Analysis section.

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Airbus Vs Boeing: Who's Holding Better Cards?

Boeing and Airbus look towards improving their offerings to better compete in a declining sales market

In a recent announcement from Airbus, the aircraft manufacturer is considering options to upgrade its range of airplanes to better compete against Boeing Co’s (BA) offerings. The announcement comes amid declining aircraft sales and decelerating air-travel.

In the first four months of the year, Boeing led the way as it bagged a total of 256 orders, while Airbus managed to get only 92 orders. AIRBUS GROUP SE (EADSY) got 14 orders for its A330-900, whereas Boeing has 12 net orders for its 787-9 planes. Interestingly, Airbus hasn’t managed to secure new orders for A321 aircraft even though its rivals, including Boeing, offer no direct alternative to this aircraft. Both aircraft manufacturers have considered improving their value propositions, in order to bolster their sales.

Airbus plans to add more sitting fuel carrying capacity to its A330neo planes to better compete with Boeing’s 787-9 plane. The former has estimated that Boeing’s 787-9 plane can fly 1,473 more miles than its A330neo, which gives it an added advantage even though the A330 is less costly when compared to the 787-9. According to the European plane manufacturer, the added enhancements will help reduce the advantage that the 787-9 enjoys over its offering.

Airbus has considered the option to launch a larger version of its biggest twin-engine long-haul aircraft, the A350-1000, to compete with Boeing’s transition 777X model. Both companies’ designers have been looking at various options; however, any such advancement from Airbus will cost the plane manufacturer billions of dollars. Discussing modifications in its current offerings, the chief executive of Airbus’s plane-making unit, Fabrice Brégier said: “We are convinced we can do the job, but we are not convinced we should launch it.”

Airline Industry is Currently in a Mix

Interestingly, the demand for wide-body jets has decreased lately, as narrow body jetliners have proven to be the more popular plane option. Sales for Boeing’s wide body jets have dropped 51% from 2013.

Most airline carriers jumped on the wide-body programs before the 2008 economic crisis, and since then a majority of them haven’t felt the need to take on any of the larger planes; apart from Emirates, which has urged Airbus to manufacture more A380 planes, as well as a revamped version.

According to Airbus’ 20-year forecast, the aircraft manufacturer has estimated the need for 32, 600 planes in the next 20 years, of which only 1550 will be large aircraft. Boeing’s 20-year forecast states that 38,050 airplanes will be demanded in the next two decades of which only, 540 will be large-body planes, which represents nearly 1.5% of the total requirement.

Of late, older aircraft have proven to be more attractive when compared to their new counterparts, because of low fuel prices. Many airline carriers are interested to opt for re-lease and extension in leases on older planes, instead of purchasing new, fuel efficient planes.

Aircraft manufacturers have offered their planes at highly aggressive prices, to increase their respective market shares. Bombardier recently signed a 75-jet deal for its CS-100 planes with Delta Air Lines for $5.6 billion, which is less than the production cost incurred for the deal.

Boeing Considers Improving its Value Proposition

Boeing has also been looking into improving its offerings, to better compete with arch-rival Airbus. The aircraft manufacturer has considered the option to modify its 737 Max planes to better position them against Airbus’s A320neo. The latter have proven to be the more popular planes in the narrow-body category. 3340 have been placed for A320neo, while Boeing’s 737Max has gotten 3090 orders.

Boeing is weighing the option to equip the 737 Max with a larger engine. The company is likely to manufacture its own mid-sized aircraft, to compete against Airbus’ A321 aircraft. Currently the A321 has no direct competitor in the middle-sized aircraft division.

Both Plane Makers Could be Caught in a Cash Flow Problem

Any modifications to current offerings are likely to put both Boeing and Airbus in a cash flow problem. Airbus already has a number of A320neo’s parked at its manufacturing facilities, eating away at its cash flow. According to sources, after taking into account already received deposits and price discounts, the aircraft manufacturer may have roughly $1.14 billion in cash tied up in the parked planes.

Boeing has also been burning cash flow reserves recently, with widespread stock repurchases and extensive research and development on its transition programs. According to the company, it has bought back nearly $19 billion worth of shares in the last three years, and plans to buy back an additional $14 billion worth of shares. The plane manufacturer has also taken a $156 after tax charge against its KC-Tanker.

It’ll be interesting to see what both aircraft manufacturers decide on pursuing. We just might see a new plane in the market soon.