Airbus’ Order Drought Continues as Boeing Rolls Out 787-10 Dreamliner

Airbus, Boeing Report February 2017 Commercial Aircraft Orders and Deliveries

by J. Kasper Oestergaard, European Correspondent.

On February 17, 2017, Boeing rolled out the 787-10, the third member of the 787 Dreamliner family, at Boeing South Carolina in North Charleston. President Donald Trump and South Carolina Governor Henry McMaster were present, along with Boeing CEO and Chairman Dennis Muilenburg and thousands of Boeing employees.  Photo: The Boeing Company

Boeing and Airbus delivered 51 and 49 commercial jets in February 2017, respectively, compared to 56 and 46 during the same month last 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 February 2017, Boeing delivered 36 737s, one 767, five 777s, and nine 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, has 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 likely will surpass Boeing in 2019. In February 2017, Airbus delivered 39 A320s, four A330s, five A350s, and one A380. During 2016, Airbus was dogged by issues with the supply of A350 interiors and Pratt & Whitney PW1100G turbofan engines for the A320neo, but these matters now appear to have been resolved. The company expects to deliver 80 A350s in 2017 (74 to go) and more than 100 A350s in 2018, when the production rate hits 10 per month.

In the orders race, Boeing had a weak month and landed 43 gross orders (minus 9 cancellations => net of 34). In February Boeing received multiple orders from unidentified customers for a total of 28 737-800s as well as orders for nine 737 MAX aircraft (unidentified customer) and five 787-9s (unidentified customers). In February, Boeing also received a rare order for a 737 Boeing Business Jet (BBJ).  Boeing has landed 58 net new orders this year to date (69 gross orders), compared to 68 net new orders during the first two months of 2016. Airbus surprisingly did not land a single order in February and received 10 cancellations – six were for the A321neo and four for the A330-800. Airbus has landed -8 net new orders this year to date (4 gross orders), compared to 11 net new orders last year.

Airbus’ order backlog as of February 28, 2017, stands at 6,792 jets (of which 5,580. or 82%. are A320ceo/neo family narrowbodies), ahead of Boeing’s 5,678 (of which 4,423, or 78%, are 737 NG/MAX 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 a surge in orders in December 2016, Airbus’ backlog set a new record with 6,874 jets on order. After a weak start this year, the backlog has been reduced by 82 aircraft. Airbus booked 731 orders in 2016, resulting in a book-to-bill ratio of 1.06. Despite a very strong order haul in December, Boeing’s backlog continues to hover below the peak level of 5,813 jets on order at the end of January 2016. Boeing’s backlog is now 135 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 full-year 2017, we can expect 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 and February, Airbus, the author believes, will deliver 710-720 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 2017, Boeing set a target of 760-765 deliveries for 2017; however, based on previously announced production rates, that figure is conservative. Following Boeing’s announcement, combined with a slow start to 2017, the author updated and reduced his delivery target for Boeing to between 765 and 775 aircraft. For Boeing, the planned increase in production of the 737 and a smooth transition to the MAX are critical. Backlogs can be expected to decline in 2017 for both companies, and a level of 400-500 net new orders can be anticipated. In February, Airbus reported that it expects net new orders for the industry to decline by 30 percent in 2017, mainly due to slower GDP growth and 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 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 on managing cost and extensive global supply chains. According to Boeing, about 65% 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.

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