August Duopoly deliveries highlight instability

We can draw some conclusions now that both duopoly OEMs have published their August numbers. Item #1 - It's tough out there. [caption id="attachment_85540" align="aligncenter" width="580"] AirInsight[/caption] That chart does not give anyone in commercial aviation comfort. Boeing is the worse of the two, but in no way is that any comfort to Airbus. The 2024 curves are down because the data is only through August. However, we estimate the year will also be down compared to last year, so only the slope level will change. [caption id="attachment_85541" align="aligncenter" width="580"] AirInsight[/caption] Game theory says for a stable duopoly, you need rational actors and an approximate even market share. We have not seen a stable market share since 2018. This is a more significant problem that we don't hear enough about. Six years of duopoly instability is creating fundamental change in the supply chain. Firms will move towards Airbus because that is where the market is and looks like it is staying. This adds to Boeing's problems. Yesterday's news made it worse. Commercial aviation programs are long-term bets for every participant. An OEM's first sale is to the supply chain, not a lessor or airline. As we are constantly reminded, stable program industrialization is crucial. This industry carries enough exogenous risk, and mitigating risk is essential. We want to highlight two other items. Regular readers know that one of these is the MoM segment. [caption id="attachment_85547" align="aligncenter" width="580"] AirInsight[/caption] The difference between the two OEMs is massive, and as we have stated before, we think this is the Achilles Hell of the duopoly. Airbus's advantage in this segment benefits its entire product offering. And that is not just in terms of transfer pricing, although that helps pay for a lot. Boeing cannot match Airbus' ability to combine models in a blended sales offering. The lack of a MAX 10 hurts Boeing more than we hear about. Delta is confident because it is so heavily involved with the A321. United is far more vocal because it came to the A321 party late, and United has been dilly-dallying with Airbus orders for the A350 for years. The following chart explains why the MoM segment is so important - it's growing quickly. [caption id="attachment_85549" align="aligncenter" width="580"] AirInsight[/caption] Boeing's absence from being a full participant in this segment is the underlying reason the duopoly is unstable. The second item we want to highlight is the large segment, the 777X and A350-1000. Boeing notes the A350-1000 is not a big seller, and their 777-9 will eclipse it in short order. Well, it is taking a long time to get there, isn't it? Customers can get an A350-1000, and big names are buying it; Delta is the latest big-name customer. Will United go for it, too? Then there are other 777X customers such as Lufthansa (a big A350-900 operator) and Emirates (about to get its first A350-900), whose patience is being tried as they watch the 777-9 deliveries likely slide into 2026. Boeing already lost longtime customer Qantas to the A350-1000 for Project Sunrise. When the time comes to replace its A380s, what are the odds that Qantas tops up with more of the same? Finally, we want to reiterate our thoughts on the supply chain that supports the duopoly. The supply chain wants the duopoly to be stable and robust. This is truly a case of a rising tide lifting all ships (or planes). Ongoing instability will create more instability. A case in point is the possible strike at Boeing. Labor wants more, but can Boeing afford to pay for it? If the strike happens, Boeing's deliveries tank again. And the cycle takes another hit.

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