Premium #311 – Boeing’s 787 future lies with the -9 & -10

The industry adage is that airlines order aircraft in good times and take delivery of them in bad times. Timing, as always, is everything. Ordering aircraft is something airlines do with a long-term view. This chart shows how the long term book to bill ratio has been tracking. As we can see, 2017 looks likely to go below 1:1. This is a cyclical business and we definitely in the midst of a down swing. As the following chart shows, ordering a 787 required a long-term view. Even though Boeing is doing much better at delivering 787s to customers more quickly than a few years ago, it still takes, on average, well over five years between the time an order is placed until the aircraft is delivered. The lead times are long because of the materials - for example titanium leads times are about 56 weeks. Business cycle variances make delivery times tough to plan around business cycles. Fortunately, ICAO traffic data shows demand for air travel remains robust. Air traffic typically has doubled every fifteen years. Boeing had planned to go to 14 per month for 787, but kept it at 12 last year – the handwriting must be on the wall, as production was scaled back. Besides there is no longer the rush to get the 787 as there once was since fuel prices moderated. Over time Boeing has improved its 787 production efficiencies. But the main improvement has come for the 787-9. The following chart shows delivery timing for the 787-8 by customer region. Note that not every customer is facing the same amount of time between orders and deliveries. Two markets seem to be rushing deliveries compared to the average. The program seems to have hit a plateau. Why one might ask? We believe the -8 is not going to see any improvements, and the focus at Boeing is on the -9 and -10. The 787-8 turns out be the critical learning model of the program. The newer, larger models are almost different aircraft. The following chart illustrate this and comes from our affiliate AirInsightResearch.com. Looking at the 787-9 shown in the chart below, it has been in production for a shorter period of time. But Boeing has seen much better success in moving down the learning curve with the newer model. The -9 is redesigned, with a lighter and simpler structure. More work was passed back to suppliers, improving integration. All markets are seeing improvements in delivery times. Air New Zealand is pushing for faster deliveries. This is because of its location and the benefit the 787 offers to its long haul services. For this airline the 787-9 has been a significant enabler and a big improvement over the 767 which had fuel stops when serving North America. In East Asia the main customers are in Japan and are they are also taking aircraft more quickly. This is driven by competition - many Asian airlines now fly the 787. Plus the Japanese airlines have found the 787 to be a great tool to develop new, long thin markets in the US. The data for Japanese deliveries shows that Boeing went from nine deliveries in 2015 to 28 in 2016. So not only did the company work faster, it also delivered more aircraft over the same time period. There are some deliveries that have come especially quickly as the table illustrates. Korean only took one aircraft for government use while Air Austral took two. For reference, 1,825 days equals five years. That means airlines from Saudi Arabian on down the list took five years for a delivery on average. The table lists the top 25 Boeing 787 customers by deliveries, showing average delivery days, through 2016. Bottom Line Boeing is going to be under pressure across the board. But focusing on the 787, the -8 appears to be ex-development and orders are unlikely to grow. The -9 and -10 are the future. However market conditions are tough looking forward. Airbus' A330neo and A350 combination actually squeezes Boeing on both price and capabilities. We believe that the 787-8 is likely to be replaced by a forthcoming MoM new aircraft, the 7M7. The 787-8 structure, built for ultra-long haul, is too heavy and complex to effectively compete as a mid-range aircraft. Given the superiority of the larger variants, we may have seen the last order for the 787-8.

No results