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How is the 787 doing in the market?  The 787 program is key to Boeing’s financial success, and needs additional sales to enable recovery of the $29 billion in development costs over the life of the program.

Boeing has a huge amount of its capital tied up in this program.   A leading analyst estimates that Boeing must recover $36 million per 787 yet to be delivered to offset the $29bn development costs, never mind production costs and profit. That number is no small hurdle.  Consider the 2016 current market value, per Collateral Verifications,  for a 787-8 at $117 million and the 787-9 at $143 million. Take the $36 million off those values (787-8 at under $81 million and 787-9 under $107 million) and Boeing must build a 787 for less than the balance to earn a profit. Continue reading

The news that Ray Conner is being replaced at the helm of Boeing commercial comes as no surprise. Since January last year there was a definite sense of inevitability following the rise of Dennis Muilenburg as CEO.

It is logical and expected that Mr Muilenburg would surround himself with his own team and begin to shape it to begin moving forward with his own strategy. To that end, it became clear that Mr Conner and Mr Muilenburg were not singing the same tune for the past few months.

The appointment of Kevin McAllister to replace Mr Conner is the latest phase in what we would call the “financialization” of the Boeing company. Namely, a gradual migration away from core industrial activities towards a more balanced portfolio of production and service capabilities. This gradual shift had been initiated under the leadership of Jim McNerney and will now extend fully into the… Continue reading

In March, United Airlines announced it had done a deal with Boeing for 25 more 737-700s after its January deal for 40.  This deal was hotly contested by Bombardier for its CSeries.  The Boeing selection was a blow to Bombardier, but also seen as Boeing playing a weak hand .  United had both OEMs on the run.

Now United has decided to defer 61 737s, and it is going to save $1.6Bn in capex. United further noted it will convert these 737-700s into four -800s and MAX9s.  The 61 deferrals at $1.6Bn equates to $26m per aircraft.  This was the general understanding of the price level Bombardier was facing off against when trying to sell United the CS300.  We understand the airline operations people preferred the CS300 to the 737-700, but the financial people were looking at the killer Boeing offering.  Finance won.… Continue reading

Delta Air Lines is well known for its commitment to older aircraft.  Delta has a world-class MRO in Atlanta.  Even with such an MRO, it must be tough to keep that big fleet at work.  We decided to take a look at delays, and searched the US Department of Transportation on-line database.

Delta Airlines operates older aircraft, and appears to take more delays than its counterparts.  The following table shows the average carrier delay for 2016 for domestic operations.  Delta is at the bottom of the list.

2016-11-11_13-41-28Delta is the worst performer, suggesting that there may be a connection between older aircraft and delays.  After all, these airlines are all serving the same markets and having to face the same conditions.  But Delta is the only airline devoted to keeping older aircraft in service.  We have previously noted that this strategy was… Continue reading

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