[UPDATE – Boeing has communicated with us that the company has made no decision about 777x assembly and they continue to explore all their options]
With Japan Air Lines breaking Boeing’s lock on the Japanese market with an order for the Airbus A350, the focus is now turning to ANA, which is also looking at replacing its existing 777 fleet. The two choices in the market are the A350, which enters service in 2015, and the 777-X, which is expected to enter service in 2020.
Traditionally, Japan has been virtually an all-Boeing market for the major carriers, as Japan has had significant portions of Boeing aircraft programs. Approximately 35% of the 787 is made in Japan, a content just about equal to that made in the US for that program, and Japan has been Boeing’s traditional outsourcing customer for 777 and other programs. The risk, should ANA order Airbus, is that Boeing could dramatically cut its Japanese content for future programs, risking jobs in an already fragile Japanese economy.
But the countervailing issue is timing. Had Boeing been on time with 787, the 777X would be flying sooner. But coming five years after the A350 entry into service, the issue for carriers is whether they can wait while their competitors acquire more fuel efficient aircraft. In the case of ANA, its major competitor, JAL, has placed its order, and it will need to react to remain competitive in offering new technology aircraft.
Several industry analysts are predicting an Airbus win at ANA, and a potential shift in partners on the 777 from Japan to potentially South Korea or China, each of whom is eager for aerospace business. Our sources indicate that this is now being viewed as a “must win” by Boeing in Seattle, while Airbus is viewing this as a key conquest customer that would be a “strategic victory” that could be leveraged globally. The stakes are high, and ANA is in the driver’s seat to get a great deal on whichever of the two aircraft they order.
With anticipation of launch orders for more than 300 777X aircraft in the works at the Dubai Airshow from Emirates, Etihad and Qatar, joining the launch order for 34 aircraft from Lufthansa, the 777X will have gain a significant number of orders when formally launched later this year. But with those orders potentially taking up early delivery slots, will there be room for ANA early enough in the program to dissuade them from A350?
During the 787 battery crisis, Boeing held its briefing in Japan, as the two most impacted customers, ANA and JAL, lost face by ordering a high technology airplane, with significant Japanese content, that was grounded. We commented at the time that Boeing failed to properly read cultural nuances, and faced continuing issues in Japan. With the JAL order, the chickens have come home to roost, and were we to bet on the ANA selection, we’d be laying odds on Airbus to win the order, as the cultural imperative is to send a strong message to Boeing.
Boeing’s traditional influence in Japan appears to be waning, and we would expect Japanese participation on the 777X to be lower than for 787. The all composite wing for the 787 is currently built in Japan, but we expect the 777X wing may come back to the United States. This would have a significant impact on Japan’s aerospace industry, which is gearing up for the Mitsubishi Regional Jet, Japan’s first commercial aircraft since the YS-11 four decades ago. With that program coming on line, and the strong 787 contracts in place, Japan will need to fill the gap if participation in 777X is reduced from that of the current 777.
We understand from industry sources that, at this stage, it is unlikely that the 777X will be built in Everett, Washington. Potentially the aircraft would be produced in Charleston, South Carolina, where there is space for a major facility expansion. While no announcement has been made, we understand that a preliminary decision has been taken, but management will fully play the political game to gain as many additional incentives as possible from state and local governments before announcing their decision.
Should Boeing lose the ANA order, this could significantly impact decisions on outsourcing and component manufacturing locations for Boeing, and may be a positive for Seattle area employment, which will likely lose 777X assembly, but perhaps gain some 777X manufacturing initially planned for Japan.
And what about Airbus moving a bit of the wing works in Japan?
No news on this….yet
Some perspective on JAL’s A order:
1. B still has a powerful wide body presence with both JAL and ANA with the 787. JAL has ordered 25 788s and 20 789s, while ANA has 36 and 30 on order, for a total of 111 now, with 789s replacing some of these carriers’ 772/ERs, along with the A359s.
2. B has had two monopolies or near monopolies not only in Japan but also worldwide for decades; eg the 744s and 777 long range family. Although political factors no doubt influenced the fleet decisions of the Japanese and other carriers, the primary motivator was that, until now, A has had no viable competitors in the 300-400 pax long range wide body mkt; eg. The A340 family did not compete at all with the 777 family. s).
3. The A350 has finally changed all that, so it is no wonder that B is losing some of their monopoly mkt share. Fact is, the A350 is the first and only long range wide body A has produced that is well conceived (twin engines, wider cabin, & aimed at a real as opposed to phantom mkt like the A380), and well executed (no heavy wings like the A346, no production botches like the A380’s wiring and wing design, and complete transparency with their customers). Imagine the terrific position A would have been in if instead of doing the A380 and 345/6 they had bitten the bullet and built a three-plane twin-engined family within the 300-400 seat segment.
4. As good as the A359/1000 are, they are confined to a small 300-350 pax segment of the mkt, so naturally that is where the two monster OEMs collide. It is only in this segment that each offers true, composite, state of the art competitors; eg for B 789/10 and -8X and A 359/1000. Viewed this way, B is not doing too badly because they have sold 391 779s and 102 7810s, total 493 and A has sold 473 A359s and 163 -1000s, total 636. Basically about 55% to 45%.
5. I do not understand the constant comparisons between the -1000 and the 9-X because they are very different planes. For carriers that do not need 400 pax, the -1000 should do, and is doing, very well; eg United’s that are replacing their 744s with -1000s. For those carriers, like LH, that want 744 performance with only two engines, the -9X is the one. The issue is not whether or not a carriers is “replacing” it’s planes with one or more of the OEM’s offerings. The question is, what do the carriers want in this this brave new, composite, very long range world? CA, SIA, LH (359), and now JAL have made clear that they need LR planes to open up new mkts, not just replace ones used in current mkts.
6. This interest in long range to open new mkts may dampen 7810 sales because B has mkted it as being able to do 90% of current long haul mkts. Problem may be, that that percentage will drop dramatically as carriers use longer range craft to open new mkts the 7810 does not have the range to fly.
7. Finally, I think a very powerful determiner for JAL and ANA is the fact that each no longer operates 744s. This may mean that they do not want 400 pax planes, particularly because each operates large numbers of -300ERs which they used in part replace their 744s. I do not see any carrier replacing their -300ERs with -1000s before the ends of their natural 20-5 year life cycles (except EK which lives in a different world). Note, JAL will not take first delivery of their 350s until 2019, six years from now, and complete deliveries by the mid2020s. If am correct, then ANA will likely buy the A359s (314 pax) for similar delivery times.
#Christopher Dye aka Cub3
I largely agree with all your analysis except over the 787-9 (ref: ‘para 4’).
I position this in the A330-200 replacement space, an area where Airbus are looking very weak (and, no, I haven’t forgotten about the A350-800!).
I see the 787-10 as the only real competitor in the c.300-360 pax sector (but mainly in the A330-300 replacement space), and I disregard the 777-8x for many of the reasons I disregard the A350-800.
I doubt the A350-800 will be built as the number of orders are very low and I believe some airlines have switched their orders to the A350-900.