2017 Off to a Very Slow Start – Boeing Leads January Deliveries and Orders

by J. Kasper Oestergaard, European Correspondent.

On January 27, 2017, Boeing was awarded a $2.1 billion order for 15 KC-46A Pegasus tanker aircraft for the U.S. Air Force. The KC-46A is based on the 767-2C platform. Photo: The Boeing Company

Boeing and Airbus delivered 44 and 25 commercial jets in January 2017, respectively, compared to 49 and 22 during the same month last year. January is traditionally a very slow month for both shipments and new orders. Airbus in particular delivers very few aircraft during the first month of the year. In 2016, Boeing delivered 748 jets (762 in 2015), in line with company expectations, while Airbus surpassed its delivery target of 650 jets by handing over 688 jets during 2016 (635 in 2015).

In January 2017, Boeing delivered 30 737s, two 777s, and 12 787s. Boeing currently plans to raise its 737 production rate from 42 per month today to 47 and 52 during 2017 and 2018, respectively. Boeing’s CEO, Dennis Muilenburg, announced that demand supports a further increase to 57 737s per month in 2019. Airbus is ramping up deliveries of its A350 XWB and this, combined with a higher A320 production rate of 46 per month (commenced Q2 2016), means that the company is narrowing the gap in the deliveries race and will likely surpass Boeing in 2019. In January 2017, Airbus delivered 21 A320s, three A330s, and one A350. During 2016, Airbus was dogged by issues with the supply of A350 interiors and Pratt & Whitney PW1100G turbofan engines for the A320neo, but these problems now appear to have been resolved. The company expects to deliver 80 A350s in 2017 and more than 100 A350s in 2018, when the production rate will hit 10 per month.

In the orders race, both companies had a very weak month. Boeing landed 26 gross orders (minus two cancellations => net of 24). Boeing’s January orders included one for 15 767-2C (KC-46A) jets placed by Boeing Defense, Space & Security for the U.S. Air Force tanker program (third low-rate initial production lot – LRIP-3). Nigeria’s Arik Air ordered two 787-9 Dreamliners, while multiple unidentified customers ordered a total of eight 737s, including six 737 MAX aircraft and two 737-800s. Also, an unidentified customer ordered a single 777 Freighter. Airbus had an even weaker order haul in January and landed just four gross orders (minus two cancellations => net of two). During the month, Air France converted its remaining order for two A380s, replacing them with three of the smaller A350-900s. Also, Mexican low-cost airline VivaAerobús ordered a single A320ceo.

Airbus’ order backlog as of January 31, 2017, stands at 6,851 jets (of which 5,625, or 82%, are A320 family narrowbodies), ahead of Boeing’s 5,695 (of which 4,430, or 78%, are 737 narrowbody jets). The number of Airbus aircraft to be built and delivered represents a 10-year backlog at the 2016 production level. In comparison, Boeing’s backlog would “only” last 7.6 years.

Following the surge in orders in December 2016, Airbus’ backlog set a new record with 6,869 jets on order. After a weak month in January, the backlog has been reduced by 28 aircraft. Airbus booked 688 orders in 2016, resulting in a book-to-bill ratio of 1.06. Despite Boeing’s very strong order haul in December, its backlog continues to hover below the peak level of 5,813 jets on order exactly one year ago. Boeing’s backlog is now 118 jets off.  Boeing booked 668 net new orders in 2016, for a book-to-bill ratio of 0.89. Boeing booked 768 and 1,432 net new orders in 2015 and 2014, respectively. Airbus has retained an order lead over Boeing every year since 2012.

For 2017, based on the official production rates, the author expects Airbus to easily surpass 700 deliveries and further narrow the gap in production between the two major plane makers. Following fewer than expected shipments in January, the author now expects Airbus to deliver 715-730 jets during the year. The key for Airbus is to successfully manage the continued ramp-up in production of the A320neo and A350. In January, Boeing set a target of 760-765 deliveries for 2017; however, based on previously announced production rates, that figure seems conservative. Following Boeing’s announcement, the author has reduced his delivery target for Boeing to between 770 and 780 aircraft. For Boeing, the planned increase in production of the 737 and a smooth transition to the MAX are critical. While Airbus’ impressive December 2016 order surge came as a surprise, the author expects backlogs to decline in 2017 for both companies. A level of 400-600 net new orders can be expected for each manufacturer. This is mainly due to slower GDP growth, lower airline profits, and relatively low oil prices. According to both Airbus and Boeing, the demand for passenger aircraft is tied to growth in worldwide revenue passenger miles (RPMs), which again are highly correlated with global GDP growth. While worldwide airline profits peaked in 2016, the International Air Transport Association (IATA) expects airline profits to fall in 2017 for the first time in six years due to higher oil prices and labor costs, combined with a slowdown in demand. World airline profits are expected to fall 16 percent to $29.8 billion in 2017.

A decline in orders should not be a major source of concern for jet makers. Backlogs are at or near all-time highs and will provide stability and growth for years to come. The main focus for both companies continues to be managing cost and extensive global supply chains. According to Boeing, about 65 percent of the cost of a jet is from the supply chain. It is therefore no surprise that both Airbus and Boeing put immense pressure on their suppliers not only to deliver quality parts on time but also to cut costs.

Please feel free to use this content with Forecast International and analyst attributions, along with a link to the article. Contact Ray Peterson at +1 (203) 426-0800 or via email at ray.peterson@forecast1.com for additional analysis.

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