The Airbus A330-300 has an economic advantage over the Boeing 787-9 of $113,000 per month, or $1.36m per year, claimed John Leahy, COO-Customers, at the recent Airbus Innovation Days.
How can this be, you might ask?
It’s all in the assumptions. Laying out the information in a chart that follows the format we’ve seen since 2006 when Leahy first began comparing the A330-200 with the 787-8, Airbus comes up with this:
Let’s look at the fine print. The assumptions are:
- 2,000nm trip;
- “Typical marketing rules”; we don’t know what this means;
- Lease rates: A330, $900,000/mo; 787-9 $1.2m/mo;
- Fuel at $2.50 per US gallon
We’ll add a couple of other factors into the mix. The A330-300 at January 1 had a list price of $231.1m and the 787-9 a list price of $227.8m. This is a difference of $3.3m or 1.45% more for the A333.
Note particularly the lease rates assumed, which based on our decades in the business believe suggest a blue-chip airline (if there is such a thing anymore) and a lease rate factor of 0.8%. To get to a monthly rate, you take the purchase price of the airplane, divide by 12 and multiply by the lease rate factor.
Using this methodology, this suggests a sales price for the 787-9 of around $172.8m and a price of the A333 of $129.6m. These numbers equate to an assumed discount price of 44% for the A333 and 24% for the 787-9.
We’ll be the first to admit that there could be, and probably are, flaws in our pricing model. Only Airbus and Boeing truly know what they sell the airplanes for and how much the discounts are, as well as what the lease rate factor used in the Airbus assumption is.
But what we can conclude from the chart above is we have reservations. First is the use of a 2,000nm trip. We’ve actually asked Airbus about this before and it claimed then that this is the average mission for the A330. We think Airbus must be using intra-Asia or intra-Europe, because this range sure isn’t the typical mission from the USA to Europe or Asia.
Next, using $2.50 as the average price per gallon strikes us as nearly a buck too low. What is the figure for the 787 fuel advantage if today’s pricing is used?
Finally, the ownership cost strikes us as out of kilter without “looking under the hood.” The A333 is a more expensive airplane, even if not by much. We can’t imagine Boeing is only discounting the 787-9 at 24% for a blue chip customer. But let’s set that aside and say the customer is not blue chip. A 24% discount by Boeing is probably not unreasonable. But look at that 44% discount for the A333. We don’t think that’s unreasonable, either.
If you want to simplify the analysis on lease rates, assume the $900,000 and $1.2m represent a 1% lease factor. This, then, indicates the purchase prices of the A333 and the 789 at $90m and $120m, respectively–a $30m gap in ownership costs with a large, related gap in the lease rate factor. The price for the planes represent a 61.1% discount on the A333 and a 47.7% discount on the 789.
Check this post out on Leeham News and Comment and note particularly the Reader Comments by CM, who works for Boeing. There is more discussion on these assumptions.
Boeing likes to say Airbus makes up for a less efficient airplane by price (though the context has typically been A320 v 737). This illustrates Boeing’s point.
Still, let’s take all the Airbus assumptions at face value. All-in-all, it would take very little change in the assumptions to shift the advantage back to Boeing’s 787-9. And that’s why we like to rely on information from airlines and our our, independent analysis. In this case, we haven’t reached out to airlines. But in March, AirInsight conducted an independent analysis of the prospect of an A330neo which included a look at the A330-300 and 787-9 in a more narrowly-based economics analysis than the Airbus slide above. Here’s what we concluded, using $3 per gallon:
The 787-9 has a substantial fuel cost per ASM advantage over the A333, which Airbus acknowledges.
Airbus is undertaking Performance Improvement Programs (PIPs) for the A330, consisting of the usual engine tweaks and likely the addition of sharklets. These could reduce fuel consumption by several percentage points, making the plane more attractive. But from Airbus’ own figures above, it looks like price discounting is what will keep the A333 competitive.
No doubt the A330 will remain a pricefighter for the next 5 yrs. But Airbus doesn’t have to discount deep as long as 787s ramp-up is delayed and slots fully booked. The list of airlines that switched to more A330s in recent years is impressive. They were happy to be able to introduce A330 capacity fast, heavy discounts were probably not on the table, no pressure. The first few hundred 787 were sold assuming unrealistic cost prices..
That said Leahy’s assumptions look smartly selected.
– A330-300’s strenght is on 2000-5000NM flights
– Costprice of the A330-300 probably will be low, it’s a paid for production line
– Economies of scale reduce A330 costs price (going to 10 a month soon)
– Airbus used the A330 as a tool in combined A330/A350 deals to offer customer continuity & risk reduction
– It’s impossible to say what THE discount rate for a A330 or 787-9 is. If the 787-9 proves to meet its promises, it looks very competitive. The programs track record prevents me from assuming that at this early stage.
– We must remain very careful with the unexplained “typical” seat counts used by OEM’s. Why has the A350-800 significantly more seats then the longer 787-9? I think not..
– It is marketing smart and logical of Airbus to deny any efforts looking into a A330 NEO at this stage. Just like Apple keeps dead silent on an Iphone5; the 4Plus would immediately collapse.. I see the chances of a A330 NEO higher then 50%. If GE moves, RR can’t sit by. Sharklets, weightreductions, A350 technology, cabin enhancements. An efficiency gain >15% is not impossible at all IMO. The A350-800 doesn’t look so great. Better sell 600 A330 NEOs then 200 A350-800s, using more profitable -900/-1000 slots.
http://cdn-www.airliners.net/aviation-photos/photos/1/8/9/2091981.jpg
Scott, since you’ve called me out in this article, there’s two things I should clarify…
1. The quick thoughts I posted on the Leeham site were comparing a -8 to a -200. I failed to notice until I saw the Leahy chart above that you were making a -9 to -300 comparison. That obviously changes some things I opined on in the other thread.
And 2. My opinions are simply that. I am not in any capacity representing anyone or anything else.
If people inferred that we suggested you were “representing” Boeing, we didn’t mean to do that. CM has identified himself in the past as a part of Boeing and we believe (1) his insight as such is valuable and (2) his affiliation puts comments in context. We hope, CM, you don’t think we were “calling you out” in a negative sense. On the contrary, we thought your comments on Leeham News were the most fruitful of the entire discussion, so “calling you out” was entirely meant as a positive.
Here is what we posed to CM on Leeham News; there was a little ambiguity in how this was posed to CM:
CM, recognizing that you work for Boeing and aren’t disinterested, what do you think of Airbus’ argument:
Yes, the 787 beats the A330 (200 or 300 vs -8 and -9) on SFC, maintenance, landing weights, etc.–all things operational–but when it comes to ownership costs and extra payload capability, A330 nets between $192,000 (-200 v 8 ) to $113,000 (300 v 9) per month as an advantage over the 787?
Assumptions are typical 2000nm mission, standard load factors, $2.50 fuel, and (for the 300) $900k lease rate vs $1.2m lease rate for the -9.
We have our opinion, which will be published shortly on AirInsight.
Keesje,
in your comment you mention “I see the chances of a A330 NEO higher then 50%. If GE moves, RR can’t sit by.”
This is assuming a new engine for the A330 by GE, I suppose.
But RR might already have a suitable engine for a A330neo, the trent 900. The correct thrust level, certified, efficient, and used on a A340 testbed at the time.
Or do I see this the wrong way?
Regarding the trip length. Airbus assumes 2000 Nm trip. Does this matter so much, because the analysis is per month, not per trip? If longer trips (e.g. 4000 Nm) then there would be fewer trips per month… Which leads us to my main question: what is the average flying length per month for a given a/c model? I obviously recognize that the number of starts is higher with shorter trip length, which has an effect, but the cruise portion might be less affected than one might think at first. Scott, your take?
GEnx anyone? I do not remember the take-off thrust req’s exactly right now, but the CF6-80E1 has max 72,000 lbf I think and GEnx-1B can provide 74,000 lbf if I am not mistaken (it has been a few years since I worked with either and I cannot bother to look it up right now).
It might be that the GEnx-2B might be able to do the trick if they optimizer smartly (less MTOW due to less fuel needed and some weight losses); it gives up to 64,000 lbf IIRC.
Usually lease rates are higher for more popular models. In a open market has corrected already for costs of usage. When selecting an aircraft to lease (assuming both are available) the ‘buyer’ would select the one with the best value.
Is Airbus comparing a new 789 with a 7 year old 330 possibly.
Also to be factored in is the life of the asset and the major C and D checks. On the 737 v 320 the residual value of the 737 has been holding up better than the 320 . As the 789 is a new model v the 330 being older the residuals should be better for the 789
Great Comment!
Better sell 600 A330 NEOs then 200 A350-800s, using more profitable -900/-1000 slots.
Right, and it would even be correct to write 200 A330 NEOs, as long as the 350 line is full!
Just out of couriosity: Do the fans developed for the 787-9 fit under te 330 wings?
Dear John Leahy:
Kindly produce the new Airbus A340-400/700 with 4 cfm56-5c and also keep producing the airbus a330 continuously without stopping because this is the best plane and the most economical twin engine jet plane among airbus.
Airbus A340-400 derived from the A340-500’s with 4 cfm56-5c,same wings, winglets, landing gear and the range of 10,000nmi=26-27 hrs in flight.
Airbus A340-700 derived from the A340-600’s with 4 cfm56-5c, same wings, winglets,landing gear and the range of 9,000nmi=20-22 hrs in flight.
Sincerely yours
Dustin Patrick Peters