Premium #155 – Airbus’ Evolving Commercial Aircraft Mix

Airbus recently reported its 2014 numbers and claims the annual order race while conceding the delivery race to Boeing. Airbus added 1,796 (1,456 net) orders from 84 customers (14 new customers) which is the company’s second best year ever. Orders comprised 1,321 single aisle and 135 twin aisle aircraft. Boeing achieved 1,547 gross orders (1,432 net) in 2014 and trailed Airbus by 249 aircraft. A history of orders between the two companies is shown in the following graph, indicating just how close this race has been over time. Over the 15 year period, the overall market share is 50.6% Boeing to 49.4% Airbus. In terms of deliveries, Boeing won the battle in 2014, continuing a recent trend. Boeing relinquished the lead in deliveries to Airbus in 2003, and re-gained it in 2012, as shown in the chart below: Market Segmentation Just as we did last week for Boeing, we decided to take a look at the make-up of these orders by seat category. The following table breaks down aircraft orders by seating capacity segments from the years 2000-2014. Let’s take a look at each segment. 100-130 Seats: Airbus appears to be abandoning this segment; it is not receiving significant new orders for either A319 or A319neo. We saw the same dramatic reduction in orders in this seat category at Boeing with respect to the 737-700 and -7MAX. Airbus aircraft in this segment are a shrink of a larger aircraft and find it difficult to economically compete with new aircraft being introduced from Bombardier and Embraer. While some will argue the segment is fading and airlines are seeking to minimize seat-mile costs rather than trip costs, there are many markets that would fit well with an aircraft of this seat capacity. This segment, which averaged 119 orders per year from 2000-2019, garnered only an average of 23.8 orders per year between 2010-2014 illustrates the significance of the drop in demand. Only 12 orders in this segment were received in 2014. But we would argue airlines are waiting for the new aircraft to show their capabilities. 131 – 175 Seats: The largest segment in terms of orders is the mid-sized narrow-body, which for Airbus means A320 and A320neo. This sector averaged 277.5 orders per year from 2000-2009, and 739 orders per year from 2010-2014. One reason for the spike in orders in recent years is the introduction of the A320neo, which was initially offered in 2011 and resulted in a record 1,219 orders that year. In 2014 Airbus saw 81 A320ceo conversions to the A320neo. While the one-year spike could be dismissed as unusual, demand remains strong with 979 orders in 2014. Boeing has achieved a similar spike in orders for its 737-8MAX in this size category. The key question in this segment is whether these orders are for replacement of smaller and similarly sized aircraft, or to a degree speculation on tight delivery positions in the market, as the OEMs each have a seven year backlog in narrow body aircraft. This segment is the heart of the narrow-body market, and appears to potentially have absorbed much of the demand found formerly in the 100-130 seat segment. 176-200 Seats: Airbus is currently winning the battle in the large narrow-body segment, and has done much better than Boeing in orders in recent years. From 2010-2014, the A321 and A321neo have outsold 737-900ER and 737-9MAX by a ratio of 2 to 1. With the launch of the newly introduced A321LR, with 4,000nm range, as a replacement for transatlantic Boeing 757s, we expect that lead to widen in the near future. The 737-900 and -9MAX are simply less effective aircraft than the A321, and Airbus is winning the battle by a wide margin in this sector. 201-350 Seats: Airbus took advantage of the delays in the 787 program to build a lead from 2007-2012 in this segment with its popular A330. Since the 787 issues have been largely resolved, Boeing is re-gaining ground against the aging A330, for which Airbus announced a neo program. Airbus key offering in this segment is the A350-900, which competes with the larger variants of the 787. This segment is likely to be a dogfight between high technology 787 and A350. In addition, there will be strong competition from Airbus against the 787 with a lower cost A330neo, which while not as efficient as the 787, can make up much of the difference through significantly lower capital costs. Airlines, being bottom feeders, will appreciate the A330neo pricing. This pricing is also likely to see Boeing's 787-8 discounts improve. With the A350 now entering service with Qatar, we would expect to see a spike in orders as the performance of the new aircraft becomes better known. Growing airline confidence in the A350 is something we anticipate. Airbus ran the flight test program superbly, ensuring industry confidence. Moreover, having the often cantankerous Qatar as the launch customer serves to add to this confidence. If Qatar is happy, everyone should be happy. 351-399 Seats: This segment, which we named the Super Twins, has been very effective for Boeing and its popular 777 family. Airbus competed with the no-longer produced A340-600, and now competes with the A350-1000, scheduled to enter service in 2017. While the A350-1000 is a much more capable aircraft than the A340, it has seen soft orders. Boeing’s 777-300ER remains the benchmark in this category and with the forthcoming 777X models from Boeing are likely to extend its lead. However just last week Airbus is reported to have revised its rear cabin layout and added 20 more seats on the A350-1000. This will make the aircraft an even better competitor and keep the heat on the 777X. >400 Seats: The A380, Airbus' flagship, is the market leader in this segment. However, much like the 100-130 seat segment, this segment has not received as many orders as the Super Twins have. The Super Twins look better placed to replace older 747s. Nonetheless, the A380 is a better offering than the 747-8, and still has a multi-year backlog at its current production rate. The A380 backlog, however, is shrinking by 30 per year, and there is growing talk of an A380neo re-engining to revitalize a program that was perhaps a decade before its time. (AirInsight has just published its "The A380neo Business Case") We foresee a growing niche for this aircraft in the future, as airports become more congested and traffic continues to grow, and continued production for the foreseeable future. The largest of the Super Twins, the 777-9, will seat 407 passengers in a typical configuration. While this aircraft has technically more than 400 seats, by the time it enters service it is likely that the 747-8i will be retired, leaving the much larger A380 in a category of its own. In this segment which focuses on long haul flights, airlines like to offer four class cabins. We estimate that a four class 777-9 might end up with under 400 seats, while the A380 could accommodate up to 600 seats. This will considerably improve the economics of the A380 - even without a neo version - and ensure its trip costs per seats beat those of the 777-9. The net takeaways from an analysis of Airbus order book is that the A320 and A321 and doing well, the A350 has a backlog likely to see growth, and the A330/330neo needs additional orders or face a significant production cut. The A380 continues to struggle, and may require a neo program to stimulate additional sales for the flagship of the Airbus fleet. Even as Boeing has played down the VLA segment (>400 seats), 777-9 sales last year accounted for 17% of the company's orders. The market for VLAs is brighter than Boeing would like us to believe.

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