Premium #345 – The recent A350XWB order changes

There has been some back and forth on what the recent order changes for the A350XWB mean - United switching to -900s as did Cathay. American is now seemingly uncertain of its order for 22. If there is any trend here, a sentiment perhaps, it seems to be running negative on the A350. Is that fair? Take a look at the numbers in this table. Some perspective might be useful. We believe the A350-900 is the most likely candidate to replace the 777-200ER. While the larger 787 models are fine aircraft, they do not quite match the same key numbers as well as the A350-900.On the other hand, the A350-1000 is almost identical to the 777-300ER as the next table illustrates. The airlines looking at the A350 models consider an additional aspect - crew training costs. If an airline has an Airbus fleet bias, then it is likely to stay with that OEM. On the OEM side, the markets are a break-in opportunity for Airbus. It has not had an aircraft like the A350 before - a model family which can match or overmatch the 777. Airbus' A330 has done well so far against the 777 and even the 787. But the A330 needs the neo version to stay competitive and is likely to going to be attractive to those airlines wary of the higher technology aircraft like the 787 and A350. We have seen airlines move out of A350 orders to the A330neo. (Air Portugal for example) What do orders look like for this segment so far? The 2017 numbers are through August. Airbus and Boeing had some exceptionally good order years. The score through August 2017 was 1,492 A330s ordered since 2000 compared to 1,501 777s. And since 2000, 902 A350s ordered compared to 1,278 787s. As the Airbus A350 numbers show, however, being the new competitor has meant some jockeying between models. Boeing's numbers do not show the switches from the 787-8 to the 787-9, which we know have occurred. We can say with confidence that airlines and lessors are not starved for choice. Airbus and Boeing are offering exceptional products in these segments. It is important to recognize that Boeing's 777X is a departure from what the current model - the 777-8 is a much more capable aircraft than the 777-300ER and the 777-9 is even more capable and aimed at 747-8 and A380 replacements. Airbus is clearly not expecting the A350-1000 to replace the A380, but certainly, would prefer any potential A380 customer look to its A350-1000 rather than move to the 777X. What do the data tell us? The data, in our view, suggests that the market is more eager to replace aging 777-200ERs. This is why the A350-900 is much more popular than the -1000. Indeed since the 777-300ER is still being delivered (and ordered at the lowest pricing ever) there is no immediate pressure to replace these with A350-1000s. What we can see is that the market remains attracted by the A350's promise and potential. An early 777X customer, Lufthansa, has cut back its order. So the concern with moves at United and Cathay are not a problem for the A350 program or Airbus. Indeed, it is under-reported that United not only has 45 A350-900s on order, it also has sufficient options that would enable it to replace its entire 777-200ER fleet with A350s. Cathay is a well-established Airbus customer and it's being flexible with the A350 deliveries is normal. The A350 family allows for this flexibility. Cathay has no 787s on order but has 777-9s on order. If anything this seems to indicate that Cathay is more likely to consider A350-1000s to replace its large 777-300ER fleet and use the 777-9 as a 747-400 replacement. And what about American's 22 A350s? American's current management were the people that placed the original order as US Airways. They liked Airbus back then and have not lost interest in the OEM since. The language around the review of the A350 orders that it could be added to or replaced with something else. The interest to date was using the A350 to replace the aging nine A330-300s. American also has 47 777-200ERs that will also need replacing. The airline has been deploying the 787-9 which could replace the 777-200ERs. But it would need to order many more. Could American select the 787-10 to replace the A330s? Perhaps. But American does not want to lose its A350 deposits. The options American has include taking up A330-900s, A321neos or more A350s. As the world's largest airline it will seek to balance Airbus and Boeing to ensure it gets the best pricing. In conclusion, we do not see the recent jockeying in A350 orders as anything to be concerned with. In fact, we expect this to continue as airlines and lessors optimize their fleet planning and exploit opportunities the OEMs offer to hasten selections.

No results