Insight: Monday 8 February 2021: Filling the Gaps at Boeing – Part 2

News:

Last Monday, Boeing reduced its firm backlog on the 777X to 191 aircraft, a 38% drop, as the delay until 2023 allows customers an “out” to their orders. Emirates, the largest customer for the existing 777 and key customer for the 777X indicated that it may split its orders between the 777X and the smaller 787.

This does not bode well for the 777X, which hasn’t won a new order in quite some time and, given that it will be the largest aircraft available from Boeing and a 747 replacement, is unlikely to gain new orders in the near future.

Analysis

The 777-X from Boeing is a derivative aircraft, which will be built using the type certificate of the original 777 model, much as the MAX was derived from the initial 737-100. This will be the first major update to the 777 series, unlike the MAX which was the fourth major update to the 737. Nonetheless, given the certification oversights with the MAX, we anticipate full FAA scrutiny on the 777-X program.

EASA, Europe’s safety agency, has indicated that it wants a larger role in examining the 777-X, and has already requested a more detailed review of the flight control systems for the aircraft.  EASA, to continue the reciprocity relationship with the FAA, needs to ensure that it can trust the US agency after it dropped the ball and enabled Boeing to conceal flaws with the 737 MAX that resulted in two fatal crashes.  Certification of the 777-X will not be as quick and easy as Boeing had initially hoped.

The problem with the 777-X is its size, which is larger than many carriers want or need as they re-tool their networks for a post pandemic environment. Airlines are risk averse, and would rather turn people away that have overcapacity in key markets. A full seat is a profitable seat, and airlines would rather right size each route with aircraft like the 787 rather than the 777-X.

Insight

The drop in 777-X demand brings the program totals to extremely low levels for the passenger version, with a very small number of orders for the smaller -8 version. It is unusual to see no new orders for a model several years after its initial introduction, which indicates a potential change in the market away from what the aircraft offers.

However, the smaller -8 version, which would likely be cancelled on passenger aircraft demand alone, has the payload-range characteristics that make it ideal for a future freighter derivative. Boeing will likely need a very successful freighter variant to achieve financial break-even on a program that appears to be stalled, with no indication of increasing airline interest.

The outlook for the 777-X, orders are heavily weighted to the Middle East Big 3 (Emirates, Etihad, Qatar) is currently quite weak, as the criteria for airline fleet planning are rapidly changing to adopt to a post-pandemic environment. We are not optimistic that this aircraft will achieve its initial product block goals, and like the 747-8i and A380, may never break even without an extremely successful freighter version.