Premium #154 – Boeing’s Evolving Commercial Aircraft Mix

Boeing ended 2104 in very good shape. The company secured net orders of 1,432 aircraft last year and surpassed the 1,355 net orders in 2013. But the order tally is not as interesting as the make-up. For example, orders for larger aircraft are worth much more in revenue and profit terms. The following table breaks down the order tally by seating capacity segments from 2000-2014. The two most interesting columns are at either end of the table. In the first column, with 100-130 seats (717 and small 737), we see that Boeing is apparently exiting this segment. At the other end of the capacity range, over 400 seats, a resurgence in orders has occurred since the 777X was offered, even as the 747-8I is not selling well. The heart of Boeing’s business is the 737 seating between 131-175 seats; which is the 737-800 and in future MAX8. Since 2000 this segment averages 54% of Boeing’s annual orders. As the table illustrates, in recent years this number has been surpassed frequently, indicating a strong growth in the segment. The interest in this segment is matched by similar numbers at Airbus. In the next segment up, 175-200 seats (737-900, MAX9, 757), we see that Boeing has been stumbling. The historic average for this segment averages 14% but Boeing hasn’t seen that level since 2007. It is a weakness in the market proven by the success of the Airbus A321. This is a segment we expect to see Boeing revisit because whereas the 757 and 737-900 fit the segment, the 757 is no longer made and the 737-900 and MAX9 seem to not have gained the traction Boeing needs. Were this segment weak overall, Boeing could ignore it. But Airbus’ success demands a response. The 201-350 seat segment has averaged 8% of orders and recently this segment has lagged. But 2014 saw it come back. The primary models in this segment have been the 777-200s which have seen sales fall off. But the 787-9 also falls into this segment and has revitalized it. 787-9 orders are 3.6 times that of 777s for the period listed in the table. In addition the 787-10, which also falls into the segment, also boosted sales, especially in 2013 when Boeing sold 122. The segment’s future lies with these two 787s. It is likely to be a robust segment going forward. Airbus’ A330neo faces stiff competition. Next comes the 350-399 seat segment, or as we call them, Super Twins. These aircraft have been disruptive to the VLA market in as much as they have eclipsed the 747 and threaten the A380. Boeing saw sales decline for its 747 even as sales of the 777-300ER stayed strong. Although the 777-300ER seating is much lower than that of the 747, there is an interesting data point here. Boeing claims the 747-8i can seat 467 in a three-class layout. Yet the primary operator of this aircraft, Lufthansa, seats only 362. We view this seating segment as the future domain of the Super Twins. VLAs need to go significantly higher in seating capacity. For a company that sees the VLA market (>400seats) as around only 620 aircraft by 2033 there is something odd going on, because in 2013 and 2014 Boeing secured 369 orders for their new VLA. Perhaps Boeing has moved its definition VLA upward, or considers the 777-9 a medium twin. The 777-9 shows that Boeing is back in the VLA segment and we would not be surprised to its next forecast show a bigger VLA market by 2033.

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