The recent issues surrounding Boeing’s 737 MAX have sparked a debate about the necessary qualities of leaders in global commercial aerospace companies. Analysts and investors are divided between the importance of having ace engineers versus professional managers at the helm.
According to Rob Stallard, an analyst at Vertical Research Partners, the problem lies in Boeing’s management rather than its engineers. Stallard’s view is supported by data that highlights the significance of strong leadership. Although Boeing declined to comment on this matter, Airbus did not respond to a request for comment.
The aerospace industry presents unique challenges due to substantial investments, strict regulations, and product cycles that can span decades. Consequently, making strategic decisions is just as crucial as engineering choices. Larry Culp, CEO of General Electric (GE), spoke about the significance of long-term product development in this industry. While he was referring to GE’s leadership in jet engines, his insight resonates with Boeing’s current situation. GE takes pride in powering three out of every four commercial airline flights, a feat accomplished through decades of investment under different management regimes.
This observation sheds light on how Boeing ended up in its precarious MAX dilemma. The company has invested less in research and development, as well as new facilities, compared to its main competitor. According to FactSet, between 2010 and 2023, Boeing spent approximately $70 billion on research and development and new plants and equipment. This expenditure constitutes only about 6.2% of the sales generated during that period, as far as FactSet data can confirm.
In contrast, Airbus invested around $93 billion, which accounts for about 9.5% of its sales during the same timeframe.
Although these numbers serve as rough estimates, they illustrate the disparity in spending between the two companies. It is important to note that both businesses operate in both commercial aerospace and defense sectors, so total spending factors in various segments.
In conclusion, the aerospace industry requires a delicate balance between technical expertise and effective management. Strong leadership is crucial for companies like Boeing to navigate the complexities of the industry successfully. By investing in research, development, and infrastructure, companies can position themselves for long-term growth and success.
Boeing vs. Airbus: A Tale of Shareholder Spending
In the competitive world of aviation, Boeing has emerged as the frontrunner when it comes to spending related to shareholders. Over the past decade, Boeing has dedicated a staggering $59 billion towards returning cash to its shareholders. This includes a substantial $20 billion in dividends and an impressive $39 billion on share repurchase.
Between 2014 and 2018, Boeing actively bought back its own stock, resulting in a significant reduction in shares outstanding. Starting with approximately 751 million shares in 2014, this number dropped to 568 million by the end of 2018. Presently, Boeing has around 610 million shares outstanding.
Contrastingly, Airbus has taken a different approach. Throughout the same ten-year period, Airbus has invested essentially nothing in share repurchases and has allocated approximately $10 billion towards dividends.
These decisions made by management in regards to capital returns and investment spending play a crucial role in shaping the overall performance. Interestingly, Airbus currently holds about 62% of the total backlog for 737-size jets and has successfully delivered approximately 57% of those planes over the past 15 years. This suggests an upward trend for Airbus.
However, the responsibility for these management decisions cannot be solely placed on the companies themselves. Shareholders also play a part in influencing these choices. Boeing’s commitment to returning capital to its shareholders has been rewarded with significant gains in its stock. From the end of 2013 to the end of 2018, Boeing stock experienced an average annual return of about 20%, while Airbus stock trails behind at approximately 10%.
Nevertheless, recent times have proven challenging for Boeing. Since the end of 2018, their stock has experienced an average yearly decline of around 7%. In contrast, Airbus shares have returned an average of approximately 13%. It is evident that decisions made by management years ago bear consequences in the current stock prices.
The numbers unveil a potential solution for Boeing’s current difficulties: matching Airbus’s spending to preserve its market share. A strategic focus on new aircraft designs that aim to replace a portion of Boeing’s 737 lineup could be the way forward.
Ultimately, this decision rests in the hands of the management.