by J. Kasper Oestergaard, European Correspondent.
Boeing and Airbus delivered 71 and 57 commercial jets in May 2016, compared to 60 and 47 in the same month last year, respectively. In 2016 to date, Boeing and Airbus are still trailing last year’s delivery figures and had delivered 301 (310 in 2015) and 234 (243 in 2015) commercial jets, respectively, as of May 31.
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 635 last year. Boeing, in 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). In May, Boeing delivered 47 737s, one 747-8, nine 777s, and 14 787s. 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 May 2016, Airbus delivered 48 A320s, three A330s, three A350s, and three A380s. Earlier this year, on January 20, the company delivered the first A320neo, to German legacy carrier Lufthansa. In early June 2016, Qatar Airways announced it had canceled its first A320neo due to an impasse with Airbus over delays in deliveries caused by problems with the Pratt & Whitney PW1100G geared turbofan engine. The airline refuses to accept further deliveries until the issue has been resolved, and has held talks with Boeing over switching to the 737. This comes after Pratt & Whitney in February announced that the problems would be solved by April. According to Qatar, the engines require additional time to start under certain conditions. At the end of May, Pratt & Whitney confirmed that the first engines, incorporating hardware modifications to speed up the start time, had been shipped to Airbus.
With three A350 deliveries during the month of May, Airbus has now delivered 24 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 will hit 10 per month.
After a relatively weak order intake in April (34 net new orders), Boeing had a terrific month and landed 113 net new orders in May (125 gross/12 cancellations), including an order for 100 737 MAX 200 jets from VietJet. Also, Norwegian exercised eight of its 100 737 MAX 8 options, while Nigerian carrier Arik Air ordered eight 737 MAX 8s. 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 the orders race, Airbus had another strong month and landed about 70 net new orders in May (83 gross orders minus 13 cancellations), including a large order from an undisclosed customer, which Airbus announced is a new client for the NEO jetliner. The undisclosed buyer placed an order for 45 A320neo and 15 A321neo jets. Furthermore, Philippine Airlines placed an order for six A350-900s, while Cebu Pacific ordered two A321neos – see full list of orders in data table below.
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 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 Monday June 13, WTI crude (NYMEX July future) is trading at $49.21.
Airbus’ order backlog as of May 31, 2016, stands at 6,759 jets (of which 5,497, or 81%, are A320 family narrowbodies), ahead of Boeing’s 5,762 (of which 4,428, or 77%, are 737 narrowbody jets). The number of Airbus aircraft to be built and delivered represents a 10-year backlog (10.6 years of production). In comparison, Boeing’s backlog would “only” last 7.6 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 orders have been strong in April and May. Airbus is 57 net orders down so far this year compared to January-May 2015, while Boeing is up 105. The end result is still too early to call, but it is the author’s firm belief that backlogs at both companies will decline in 2016, due to slower GDP growth and low oil prices. 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.
A320neo vs. 737 MAX
The A320 and 737 narrowbody families are Airbus’ and Boeing’s bread and butter and account for the vast majority of deliveries. Airbus had 4,561 A320neos in backlog as of May 31, 2016, well ahead of Boeing’s order book of 3,213 737 MAX aircraft. Closing this gap is a top priority for Boeing in the coming years. Currently, the 737 MAX 9 is being outsold by a five-to-one margin by the A321neo. This is a major concern for Boeing right now. At the end of May, it was reported that Boeing is considering a plan to put a larger engine on the 737 MAX 9. In so doing, Boeing would add range to the aircraft while lengthening it to fit approximately 12 extra passengers (from 178 to 190 seats) and thereby gain a capacity advantage over the 185-seat A321neo.
Both Airbus and Boeing have been unsuccessful in securing solid order books for their smallest aircraft, the A319neo and 737 MAX 7. Boeing is currently considering a larger version of the 737 MAX 7.
In the Middle of the Market (MoM) segment, the A320neo competes with the 737 MAX 8 and the slightly larger 737 MAX 200. Boeing is trailing Airbus’ order book of 3,378 A320neo jets by about 350-400 aircraft.
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 2015, we 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 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. As of May 31, 2016, Boeing had landed just 12 net new orders for the 777 while delivering 40. And Boeing currently has only 190 777s in backlog (149 777-300ERs and 41 777Fs).
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 in 2Q 2016, then 50 by early 2017 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. The Mobile site is expected to reach an annual output of 40 to 50 A320 series jets by 2018. The first Mobile-assembled jet, an A321 for JetBlue, was completed on March 4, 2016, and took flight on March 21. JetBlue took delivery of the aircraft on April 25.
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 All Nippon Airways (ANA). The airline will be the first Japanese operator of the A380 and will take delivery of the first jet in 2019. ANA plans to use the planes on flights from Tokyo to Honolulu. Also, on March 31, 2016, Airbus booked an order for two A380s from Dubai’s flagship carrier, Emirates. On May 10, 2016, Emirates announced it will buy more of the existing A380 model even if Airbus decides not to press ahead with a NEO/stretch version.
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