Airbus Struggling with A320neo as PurePower Delays Persist
by J. Kasper Oestergaard, European Correspondent.
Boeing and Airbus delivered 202 (78+66+58) and 148 (55+46+47) commercial jets in Q3 2017, respectively, compared to 188 and 164 during the same quarter last year. This year to date, Boeing has delivered 554 jets (563 at this time last year), while Airbus has delivered 454 (462 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 Q3 2017, Boeing delivered 145 737s (of which 26 were 737 MAX models), four 747-8s, two 767s, 16 777s (note: 777 rate reduced), and 35 787s. Boeing raised its 737 production rate to 47 per month in Q3 2017 from 42 previously, and plans to increase it further to 52 during 2018. Boeing’s CEO, Dennis Muilenburg, has announced that demand supports a further increase to 57 737s per month in 2019. This year more than 50 737 MAX jets are expected to come off the production line in Renton, Washington. With 30 jets delivered to date and 14 in September alone, the company should easily be able to exceed that target. In September 2017, Boeing announced it will raise its 787 production rate to 14 per month during 2019, up from 12 today.
In Q3 2017, Airbus delivered 11 A320s, 14 A330s, 20 A350s, and three A380s. Airbus expects to deliver 80 A350s in 2017 (30 to go) and up to 120 A350s in 2018, when the production rate hits 10 per month. Airbus is considering a further increase up to 13 A350s per month in 2019. The ramp-up of A350 XWB deliveries 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 be delivering 60 A320 jets per month.
In the orders race – following a solid Paris Air Show where Boeing came out as the winner with 571 net new orders and commitments ahead of Airbus’ 326 – both manufacturers had a weak third quarter. In Q3 2017, Boeing logged 127 gross orders (minus 10 cancellations, for a net of 117). Boeing’s Q3 orders included an order for 50 737 MAX narrowbodies from an unidentified customer (most likely Lion Air Group’s commitment for 737 MAX 10s announced at the Paris Air Show). Also, on August 31, Boeing booked an order from the U.S. Air Force for two 747-8 jets for the Presidential Aircraft Replacement program to produce the next Air Force One. Boeing has landed 498 net new orders this year to date (548 gross orders), compared to 380 net new orders during the first nine months of 2016.
Airbus experienced a fairly severe order drought in Q3 2017 and only logged 68 net new orders (71 gross). Airbus’ largest order was from Hong Kong-based Cathay Pacific for 32 A321neos, placed on September 19. Airbus has landed 271 net new orders this year to date (319 gross orders), compared to 380 net new orders during the first nine months of 2016.
With only Q4 remaining, Boeing is more than 100 aircraft ahead of last year’s Q1-Q3 order haul, while Airbus is over 100 orders short and needs a strong Q4 to avoid considerably “tapping” the backlog.
Airbus’ order backlog as of September 30, 2017 stands at 6,691 jets (of which 5,520, or 83%, are A320ceo/neo family narrowbodies), ahead of Boeing’s 5,659 (of which 4,431, 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 7.6 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 order haul so far this year, the backlog has been reduced by 183 aircraft. Airbus booked 731 orders in 2016, resulting in a book-to-bill ratio of 1.06. In the first three quarters of 2017, Airbus’ book-to-bill ratio is just 0.60. Boeing’s backlog continues to be below the peak level of 5,813 jets on order at the end of January 2016. Boeing is now 154 jets off its record backlog. Boeing booked 668 net new orders in 2016 for a book-to-bill ratio of 0.89. This compares to a book-to-bill ratio of 0.90 this year to date. Airbus has retained an order lead over Boeing every year since 2012, but 2017 could very well be the year when Boeing retakes the orders crown.
For the full year of 2017, we can expect Airbus to surpass 700 deliveries for the first time. The author expects Airbus to deliver 700-710 jets during the year – adjusted down from the 710-720 projected in the last article following fewer than expected deliveries in Q3. Airbus continues to struggle with delays in receiving PW1100G Geared Turbofan (GTF) engines from Pratt & Whitney for the A320neo. Airbus is reported to have many undelivered planes sitting on the tarmac at its final assembly locations waiting for their engines. For Airbus to deliver 700 jets this year, there is very little margin for error. The company needs to deliver 70 jets in both October and November and finish up with a December surge like last year, when the company delivered an impressive 111 jets.
In January 2017, Boeing set a target of 760-765 deliveries for 2017; however, based on previously announced production rates, that figure is conservative. As 737 MAX jets appear to be coming off the assembly line faster than expected, the author has updated and increased his 2017 delivery target for Boeing to between 770 and 780 aircraft. In his June article, the author wrote, “Boeing will see higher deliveries in Q3 and Q4 2017 when the 737 production rate is raised to 47 per month from 42 now. In part this is offset by fewer 777 shipments.” This is what we are seeing right now. For Boeing, the planned increase in production of the 737 and a smooth transition to the MAX are critical.
We can expect to see backlogs decline in 2017 for both companies. Following a better than expected Paris Air Show, the author raised his target for 2017 orders and expects Boeing to land 600-700 net new orders in 2017. Due to Airbus’ weak order haul in Q3, the author now firmly expects Boeing to win the 2017 orders race and is lowering his Airbus order target to 450-500. The decline in orders in recent years 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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