Premium #318 – Slowing wide-body fleet renewal

Wide-body passenger aircraft orders have slowed considerably over the last three years, as the following chart shows. There were some very exciting and great years between 2002 and 2013 - but for every peak there is a valley. Our analysis, based on the data below, indicates that another peak in unlikely in the near future. Airbus and Boeing are effectively a duopoly today, and we expect it might be some time before a new competitor will enter with a credible product. The forthcoming Chinese/Russian cooperation on the C929 will be interesting to watch, as the aircraft will have a protected market. While we do not expect strong sales outside of the home markets, every order it receives will be one the duopoly loses. The in-service wide-body fleets are only beginning to reflect the impact of the new technology programs, with older programs having the largest in-service fleets. Airbus wide-body fleet, as shown below, consists primarily of A330-200 and -300 models. With a new A330neo program just coming on board, the A330 family is likely to remain atop the leader board at Airbus for the next few years while the A350 moves into full production. Next let's look at Boeing. Boeing invented the wide-body with its 747, but there has been a steady decline in interest in four engine aircraft in recent years. The A340 was not as successful as its sister A330, and the 747-8 and A380 are not selling well, as preference for twin-engine aircraft is strong for all but niche markets. Boeing's 777 occupies a unique niche at the top of the wide-body twin market. While multiple versions of the aircraft have been developed, the 777-300ER has emerged as a market leader. After a difficult start, the Boeing787 is beginning to come into its own as production has ramped up. The 787-9 has become a best seller, and the 787-10 will soon join it in service. Changing Market Dynamics The wide-body market has changed in recent years, and new technology composite wide-bodies, the 787 and A350, will be the next models to dominate the industry. The following chart shows Airbus current wide-body backlog. The A350 is the future for Airbus' big twins. And it has a tough act to follow and beat the A330neo, which remains a credible solution for many airlines who don’t need the longer range of the A350. At Boeing, the 787-9 has a commanding lead in backlog. The 787-10 is about to eclipse the 787-8 in backlog. The shrinking of the 787-8 backlog provides an opportunity for a NMA or new middle market aircraft - a potential replacement for the 757-767 families. Opportunities for Replacement Wide-Bodies The following chart illustrates the age of the current wide-body fleet at the end of the 3rd quarter 2016. Breaking the data into 5- year ranges, we can project when the existing fleet of older aircraft will need replacement. The 753 aircraft that are 15-19 years old today will not move into the 20-24 year range for another five years, which is when we would expect a pick-up in replacement demand. The number of new aircraft that have been delivered in the last 5 years reflects a tremendous market growth, particularly when compared to the prior five years. The data indicate that a market “breather” is likely. Looking deeper into the data, many of the aircraft in the 15-19 years range are 767 and A330 models that are “middle of the market” in size. The question today is whether demand appears strong enough for a new “middle of the market” wide-body, or whether extended range narrow-body flights, including a number across the Atlantic, will obviate that need. The Bottom Line Orders for wide-body aircraft today represent about 60% of the active fleet, resulting from two order spikes for new technology 787 and A350 models. One would normally expect about 33% of the active fleet to be in the order backlog, considering replacement, growth and lead times. With the high order volume already on the books, we expect slower order intake over the next few years for new wide-body aircraft.

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