- [Jaden] This parking lot in California
is piling up with empty Boeing and Airbus aircraft,
planes that, until recently,
were busy flying people to places,
and then suddenly people stopped flying.
Daily traffic is down some 80% from its peak in 2019.
Airlines are fighting for survival
as airport activity has fallen to near zero.
Meanwhile, industry giants, Boeing and Airbus,
have seen order cancellations
and furloughed or laid off staff.
- I don't believe the industry
has ever seen anything like this,
and because of that, there's no one you can turn to.
We're literally all learning as we go.
- [Jaden] Boeing, already weakened by the 737 MAX crisis,
saw its stock drop more than 70% in February and March
while Airbus' fell about 65% in the same period.
The plane makers employ hundreds of thousands of people
in several countries,
and they're major economic players,
often at the center of global politics.
- Both those companies are in many ways too big to fail.
- [David] Nobody has an interest in retaining
government equity in their company.
- We can recover from this crisis.
- So as the coronavirus pandemic shakes up the industry,
we wanted to know,
what will it take for Boeing and Airbus
to survive this unprecedented crisis,
and what does it mean for the future of aviation?
- Before coronavirus,
Boeing was already struggling to get regulator approval
to return its 737 Max to the skies,
as the jet was grounded after two deadly accidents
linked to a faulty flight control system.
In another blow, Boeing recently dropped
its 4.2 billion dollar bid to team up
with Brazilian jet maker, Embraer,
which was supposed to transform the aviation industry,
and Airbus had already overtaken Boeing
as the world's top plane maker in terms of deliveries.
- We think our capacity to compete
and be strong on the long term is intact, if not improved.
- [Jaden] I wanted to get a better idea
of how well-positioned the plane makers are
to withstand this crisis
so I called Addison Schonland, a partner at AirInsight.
- It appears as we sit here right now,
there's an advantage to Airbus
given its particular tools available to airlines.
Boeing is at a disadvantage now
because of the MAX grounding
and the incompletion of the Boeing/Brazil project.
- [Jaden] Now, the coronavirus pandemic
has forced the companies to draft survival plans.
- We will be suspending all travel
from Europe to the United States for the next 30 days.
- [Jaden] Air passenger volumes fell more than 90%
sending airlines into crisis.
In February, major airlines like Delta and United
started to cut their losses by canceling some flights.
Only weeks later, the collapse in air travel
had already trickled down to Boeing and Airbus,
with many orders being postponed or canceled.
In the first three months of 2020,
Boeing saw customers cancel 196 of its aircraft orders.
Airbus had 66 cancellations
and said almost all of its customers have approached it
to discuss deferring or canceling orders.
- We're accustomed to bad years like 9/11
or the SARS year, Gulf War One,
but at the end of the day this is just an unprecedented
freezing up of the end user market.
- Even in this crisis, both Boeing and Airbus
have a key customer they can count on, governments.
They're some of the world's biggest defense contractors,
with the U.S. Navy even ordering new planes
from Boeing amid the pandemic.
- The ultimate safe haven right now is defense,
particularly U.S. defense programs.
- [Jaden] Through their history,
Boeing and Airbus have become ingrained
in defense, industrial development, and geopolitics.
Boeing has worked with the U.S. government
to build military planes since World War I,
and Airbus' very inception
is deeply rooted in European politics,
as it was formed as an example of how European countries
and companies are stronger when they come together.
- Airbus doesn't have a hundred years of history,
but if you look at what Airbus consists of,
all those European aerospace companies
that came together that were also very old,
brought with them amazing amount of knowledge.
- Boeing and Airbus both spend millions of dollars
on lobbying every year.
They've criticized each other
for getting unfair government subsidies,
and they're both massive employers
with roughly 161,000 and 134,000 employees respectively,
so a major hit to one of their bottom lines
means a potential hit to a lot
of American and European jobs.
When the U.S. government was crafting
its two trillion dollar coronavirus stimulus package,
a big part of the bailout was focused
on the aviation industry.
The bill included 17 billion dollars
for companies deemed essential to national security,
which could potentially include Boeing.
Here's the thing, as of early May,
some airlines had applied for government aid,
but Boeing hadn't,
and the idea of Boeing getting bailed out
by taxpayer money is sensitive.
- You can imagine that those companies,
the management is going to fight tooth and nail
to prevent the government saying,
"Here's 60 billion dollars.
"By the way, here's the warrants
"and here's the stuff that we're taking.
"We own you."
- [Jaden] Any loans offered by the government
would likely come with strings attached,
like limiting stock buybacks, layoffs,
and giving the U.S. government a stake in the company,
something Boeing CEO suggested he wouldn't be open to.
- [David] I don't have a need for an equity stake.
If they force it, we just looked at all the other options,
and we've got plenty of them.
- So what are the options for Boeing and Airbus
to keep the cash flowing?
Well, they have assets.
In May, Boeing raised 25 billion dollars
from private investors and said it didn't expect
to need anymore funds, including government aid.
But Boeing has already suffered a number of new setbacks.
It's now facing civil and criminal scrutiny
over the 737 MAX crisis.
It suspended its dividend,
is offering staff buyout packages,
and plans to cut its workforce by 10% this year.
- Airbus and the border (mumbles) sector,
we emerge from this difficult period eventually.
- [Jaden] Airbus also needs to cut spending,
but after the pandemic, analysts expect the market
for smaller planes to grow
because domestic travel is expected to bounce back first,
and Airbus can offer its direct competitor to the 737 MAX,
its best-selling A320 family.
That includes the A321LR, a single-aisle plane
that's capable of transatlantic routes.
- Boeing really doesn't have a competitor to that jet.
- [Jaden] And both companies will likely face
a big supply chain issue.
Boeing and Airbus rely on a massive network
of smaller companies that are struggling to survive.
- The million parts that you see flying in close formation
that is actually an airplane,
all those parts come from all kinds of places
around the globe.
Some of these places,
the companies that make these small parts,
are literally family-owned, they're tiny.
They don't have the resources
if the system is shaken up like this.
How do you protect them?
- [Jaden] Analysts say it could potentially
take several years before the aviation industry recovers,
but whenever people will need new planes,
they'll likely come from Boeing or Airbus.
Not that there are many alternatives.
The duopoly makes up about 99%
of all large commercial plane orders,
with China's state-run plane maker
believed to be 10 to 20 years out
from becoming a real competitor.
- Will the companies be different
at the end of this pandemic?
Probably, the longer it goes,
the more that there will be some kind of structural change,
but neither of those companies,
based where they are, are dispensable,
so I think that whatever happens, we come through this,
and they may be different,
but they will remain the two top dogs in that industry.
(light music)