Airbus Orders Picking Up Pace as Boeing Delivers First 737 MAX
by J. Kasper Oestergaard, European Correspondent.
Boeing and Airbus delivered 56 and 60 commercial jets in May 2017, respectively, compared to 71 and 57 during the same month last year. This year to date, Boeing has delivered 277 jets (301 at the same time last year), while Airbus has delivered 242 jets (234 in 2016). 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 May 2017, Boeing delivered 36 737s (of which two were 737 MAX 8s), one 747-8, six 777s, and 12 787s. Boeing currently plans to raise its 737 production rate from 42 per month today to 47 in Q3 2017 and 52 during 2018. Boeing’s CEO, Dennis Muilenburg, has announced that demand supports a further increase to 57 737s per month in 2019. From May to December 2017, more than 50 737 MAX jets are expected to come off the production line in Renton, Washington. Boeing is also considering a larger 737 MAX 10 variant to take on the Airbus A321neo, which has been outselling the 737 MAX 9. 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 by 2019. By mid-2019, Airbus expects to deliver 60 A320 jets per month. In May 2017, Airbus delivered 46 A320s, six A330s, five A350s, and three A380s. During 2016, Airbus was dogged by issues with the supply of A350 interiors and Pratt & Whitney PW1100G turbofan engines for the A320neo. In March 2017, Airbus’ CEO, Tom Enders, said that he does not expect future deliveries of A320neo jets to be significantly affected by recent problems with the Pratt & Whitney engines. Airbus expects to deliver 80 A350s in 2017 (58 to go) and more than 100 A350s in 2018, when the production rate will hit 10 per month.
In the orders race, Boeing had a quiet month while Airbus, after a terrible start this year, is finally seeing some solid orders come in. Boeing landed 13 gross orders (minus 15 cancellations => net of -2). Boeing’s May orders included a sizable order for 787-9 Dreamliners – a total of 10 – for Canada’s WestJet, as well as an order for three 737 MAX narrowbodies from an unidentified customer. Boeing has landed 208 net new orders this year to date (241 gross orders), compared to 269 net new orders during the first five months of 2016.
Airbus’ order drought finally came to a halt in May, with the company logging 50 net new orders (59 gross). China Southern Airlines placed an order for 20 A350-900s, while Delta ordered as many as 30 A321ceos. The remaining orders were for nine A320 narrowbodies from unidentified customers. Airbus has landed 73 net new orders this year to date (110 gross orders), compared to 162 net new orders during the first five months of 2016.
Going into the Paris Air Show, both companies are well behind last year’s order tally to date. Orders and commitments were considerably down at the Farnborough Air Show last year when compared with the order haul in Paris in 2015, so we are definitely on a declining trendline.
Airbus’ order backlog as of May 31, 2017, stands at 6,705 jets (of which 5,501 or 82%, are A320ceo/neo family narrowbodies), ahead of Boeing’s 5,646 (of which 4,430, or 78%, are 737 NG/MAX narrowbody jets). The number of Airbus aircraft to be built and delivered represents an almost 10-year backlog at the 2016 production level. In comparison, Boeing’s backlog would “only” last 7.5 years.
Following a surge in orders in December 2016, Airbus’ backlog set a new record with 6,874 jets on order; however, after a very weak start in the orders race this year, the backlog has been reduced by 169 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 slightly below the peak level of 5,813 jets on order at the end of January 2016. Boeing is now 167 jets off its record backlog. Boeing booked 668 net new orders in 2016, for a book-to-bill ratio of 0.89. 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. The author expects Airbus to 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, but, based on previously announced production rates, that figure is conservative. However, following Boeing’s announcement combined with a slow start to 2017, the author has updated and reduced his delivery target for Boeing to between 765 and 775 aircraft. Boeing will see higher deliveries in Q3 and Q4 2017, when the 737 production rate is raised to 47 per month from 42 at present. In part this is offset by fewer 777 shipments. 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 is anticipated. Boeing is looking better than Airbus in that regard, and still has substantial upside as a result of large potential orders from airlines in Iran. In February, Airbus reported that it expects net new orders for the industry to decline by 30 percent in 2017. This is 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 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.
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