Airbus, Boeing February 2016 Deliveries and Orders Disappoint

By J. Kasper Oestergaard, European Correspondent.

Boeing and Airbus delivered 56 and 46 commercial jets in February 2016, compared to 63 and 46 in the same month last year, respectively. Both Boeing and Airbus have had a slow start this year and had only delivered 105 (compared to 113 in 2015) and 68 (82 in 2015) commercial jets as of February 29.

In 2015, Boeing delivered 762 aircraft, ahead of Airbus’ 635, and both companies beat their 2015 delivery targets of 750-755 and ~630 aircraft, respectively. In 2014 and 2013, Boeing delivered a total of 723 and 648 jets, respectively, compared to Airbus’ 629 and 626. For 2016, Airbus aims to hand over more than 650 jets, an increase of 15, or 2.4 percent, from the 635 delivered last year. Boeing, by contrast, has announced that deliveries could drop by 22, or 2.9 percent, to 740 from last year’s record of 762 deliveries.

Boeing has been able to increase deliveries significantly in recent years, mainly due to the ramp-up in production of the 787 Dreamliner (135 delivered in 2015). Airbus is slowly ramping up deliveries of its A350 XWB and this, combined with a higher A320 production rate of 46 per month from Q2 2016, means that the company will soon begin to narrow the gap in the deliveries race. In February, Airbus delivered four A330s, two A380s and 39 A320s. Earlier this year, on January 20, the company delivered the first A320neo, to German legacy carrier Lufthansa. Also, Airbus delivered one A350 during the month of February and has now delivered 16 aircraft of this type to date (first delivery in December 2014). The company expects to deliver more than 100 A350s in 2018, when the production rate hits 10 per month. In February, Boeing delivered 40 737s, one 767, five 777s, and 10 787s.

In the orders race, both companies had an unusually weak month, with only three net new orders combined. Airbus booked just two net new orders (two gross orders with no cancellations). During the month of February, Airbus landed an order for two A320ceo narrowbody airliners from an undisclosed customer. Boeing had an equally weak month and booked just a single net new order (one gross and no cancellations), for a 737-800 for an undisclosed customer. Boeing currently plans to raise its 737 production rate from 42 per month today to 47 and 52 in 2017 and 2018, respectively. In January 2016, Boeing’s CEO, Dennis Muilenburg, announced that demand supports a further increase to 57 737s per month in 2019.

In 2015, Airbus booked a total of 1,036 net orders, while Boeing finished the year with 768 net new orders, or 268 fewer than Airbus. In both 2014 and 2013, Airbus won the orders race with 1,456 and 1,503 net new orders, respectively, ahead of Boeing with 1,432 and 1,355. In 2015, net new orders for both Boeing and Airbus were significantly down from their 2014 levels, due, among other factors, to the sharp decline in the price of oil. Cheaper oil makes it financially more attractive for airlines to keep operating older, less fuel-efficient aircraft. On January 20, the U.S. WTI oil price closed at $26.68, the lowest level since May 2003. As of the afternoon of Monday March 7, the price of WTI crude (NYMEX April futures) had recovered to $37.76.

Airbus’ order backlog as of February 29, 2016, stands at 6,774 jets (of which 5,531, or 82%, are A320 narrowbodies), ahead of Boeing’s 5,758 (of which 4,378, or 76%, are 737 narrowbodies). The number of Airbus aircraft to be built and delivered represents a 10-year backlog (10.67 years of production). In comparison, Boeing’s backlog would “only” last 7.56 years at the 2015 production level.

An important question for the industry is whether the massive backlogs peaked in 2015 or will continue to grow throughout 2016. The industry is off to a slow start in 2016, but new orders were equally slow in the beginning of 2015 and it is therefore too early to jump to conclusions. According to both Airbus and Boeing, the demand for passenger aircraft is tied to the growth in worldwide revenue passenger miles (RPMs), which again is highly correlated with global GDP growth.

Boeing 777 Rate Cut Announced

Boeing and Airbus are both facing challenges going forward. Boeing is struggling to bridge the gap in production between its current-generation 777 (777F and 777-300ER) and the future 777X to maintain the current production rate of 8.3 per month (100 per year). The 777 is a very profitable aircraft for Boeing and an important “cash cow.” In 2015, Boeing only booked 38 orders for the 777 (16 777Fs and 22 777-300ERs). In recent months, we have made the case that Boeing will likely cut the rate to first seven per month (84 per year) and later six per month (72 per year). On January 27, in connection with the presentation of the company’s 2015 financial results and the forecast for 2016, Boeing’s CEO Dennis Muilenburg announced that the company will reduce the 777 production rate by 16 percent in 2017 to 84 aircraft per year. Boeing also indicated that in 2018, as it begins to build the first of four 777X test aircraft, production of the current-generation 777 will likely sink below seven per month. We would like to emphasize that without a large increase in orders, Boeing could very likely be forced to cut the rate to six per month as early as 2017. Boeing has remained upbeat on the 777 order intake for quite some time, but orders are simply not coming in fast enough and in sufficient quantities.

Airbus Ramping Up A320 and A350 Output

Airbus faces challenges now that production and deliveries of the A350 XWB will be ramping up in the coming years. The company plans to produce 10 aircraft per month by 2018. Also, the company plans to increase the monthly production rate of the A320 to 46 this year and 60 by mid-2019. The company delivered the first A320neo in January 2016. Airbus has officially opened its new A320 final assembly line in Mobile, Alabama, the company’s first production site in America. Deliveries from Mobile are scheduled to begin in 2016 and reach an annual output of 40 to 50 A320 series jets by 2018. The first Mobile-assembled jet is slated for delivery to JetBlue in the second quarter of this year, and five aircraft for American Airlines are in various stages of assembly.

Airbus Eases Planned A330 Output Cut

On February 24, Airbus adjusted its plans to cut production of its profitable A330 aircraft, easing the transition to newer models. The company now plans to build seven A330s per month from 2017, partially unwinding recent cuts in output to six from 10 per month as it prepares to ramp up A350 production and launch the A330neo.

A380 Uncertainty

Another major challenge for Airbus centers on the future of the A380 as the company considers launching NEO and stretch variants of the aircraft. The company has to make a tough choice: either 1) invest billions in developing the NEO and stretch to reduce the aircraft’s cost per seat mile; or 2) phase out the platform and terminate production when orders run out in four or five years. In December 2015, after a long order drought, Airbus was able to book an order for three A380 superjumbos from an unidentified customer. On January 29, 2016, the customer was confirmed as All Nippon Airways (ANA). The airline becomes the first Japanese operator of the A380. It will take delivery of the first jet in 2019. ANA plans to use the planes on flights from Tokyo to Honolulu.

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