The Airbus A330-300 has an economic advantage over the Boeing 787-9 of $113,000 per month, or $1.36m per year, claimed John Leahy, COO-Customers, at the recent Airbus Innovation Days.
How can this be, you might ask?
It’s all in the assumptions. Laying out the information in a chart that follows the format we’ve seen since 2006 when Leahy first began comparing the A330-200 with the 787-8, Airbus comes up with this:
- 2,000nm trip;
- “Typical marketing rules”; we don’t know what this means;
- Lease rates: A330, $900,000/mo; 787-9 $1.2m/mo;
- Fuel at $2.50 per US gallon
We’ll add a couple of other factors into the mix. The A330-300 at January 1 had a list price of $231.1m and the 787-9 a list price of $227.8m. This is a difference of $3.3m or 1.45% more for the A333.
Note particularly the lease rates assumed, which based on our decades in the business believe suggest a blue-chip airline (if there is such a thing anymore) and a lease rate factor of 0.8%. To get to a monthly rate, you take the purchase price of the airplane, divide by 12 and multiply by the lease rate factor.
Using this methodology, this suggests a sales price for the 787-9 of around $172.8m and a price of the A333 of $129.6m. These numbers equate to an assumed discount price of 44% for the A333 and 24% for the 787-9.
We’ll be the first to admit that there could be, and probably are, flaws in our pricing model. Only Airbus and Boeing truly know what they sell the airplanes for and how much the discounts are, as well as what the lease rate factor used in the Airbus assumption is.
But what we can conclude from the chart above is we have reservations. First is the use of a 2,000nm trip. We’ve actually asked Airbus about this before and it claimed then that this is the average mission for the A330. We think Airbus must be using intra-Asia or intra-Europe, because this range sure isn’t the typical mission from the USA to Europe or Asia.
Next, using $2.50 as the average price per gallon strikes us as nearly a buck too low. What is the figure for the 787 fuel advantage if today’s pricing is used?
Finally, the ownership cost strikes us as out of kilter without “looking under the hood.” The A333 is a more expensive airplane, even if not by much. We can’t imagine Boeing is only discounting the 787-9 at 24% for a blue chip customer. But let’s set that aside and say the customer is not blue chip. A 24% discount by Boeing is probably not unreasonable. But look at that 44% discount for the A333. We don’t think that’s unreasonable, either.
If you want to simplify the analysis on lease rates, assume the $900,000 and $1.2m represent a 1% lease factor. This, then, indicates the purchase prices of the A333 and the 789 at $90m and $120m, respectively–a $30m gap in ownership costs with a large, related gap in the lease rate factor. The price for the planes represent a 61.1% discount on the A333 and a 47.7% discount on the 789.
Check this post out on Leeham News and Comment and note particularly the Reader Comments by CM, who works for Boeing. There is more discussion on these assumptions.
Boeing likes to say Airbus makes up for a less efficient airplane by price (though the context has typically been A320 v 737). This illustrates Boeing’s point.
Still, let’s take all the Airbus assumptions at face value. All-in-all, it would take very little change in the assumptions to shift the advantage back to Boeing’s 787-9. And that’s why we like to rely on information from airlines and our our, independent analysis. In this case, we haven’t reached out to airlines. But in March, AirInsight conducted an independent analysis of the prospect of an A330neo which included a look at the A330-300 and 787-9 in a more narrowly-based economics analysis than the Airbus slide above. Here’s what we concluded, using $3 per gallon:
Airbus is undertaking Performance Improvement Programs (PIPs) for the A330, consisting of the usual engine tweaks and likely the addition of sharklets. These could reduce fuel consumption by several percentage points, making the plane more attractive. But from Airbus’ own figures above, it looks like price discounting is what will keep the A333 competitive.
© 2012, Addison Schonland. All rights reserved.