Boeing Set to Win 2017 Orders Race – A320neo Deliveries Finally Ramping Up
by J. Kasper Oestergaard, European Correspondent.
Boeing and Airbus delivered 56 and 63 commercial jets in October 2017, respectively, compared to 54 each during the same month last year. This year to date, Boeing has delivered 610 jets (617 at the same time last year), while Airbus has delivered 517 (516). 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 October 2017, Boeing delivered 37 737s (of which four were 737 MAXs), three 747-8s, one 767, two 777s, and 13 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 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 34 jets delivered to date, 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 October 2017, Airbus delivered 49 A320s (26 ceo / 23 neo), five A330s, eight A350s, and one A380. Airbus is currently struggling with late deliveries of PurePower engines from Pratt & Whitney for the A320neo family of aircraft. The company originally expected to deliver 200 A320neos this year, but only 112 have been delivered with two months of the year remaining. Airbus expects to deliver 80 A350s in 2017 (22 to go) and up to 120 A350s in 2018 when the production rate hits 10 per month. Airbus is considering a further increase 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 deliveries gap and could surpass Boeing by 2019 or 2020. By mid-2019, Airbus expects to deliver 60 A320 jets per month.
In the orders race, both manufacturers had a slow month in October. Boeing logged 64 gross orders (minus 16 cancellations => net of 48). Boeing’s October orders included a substantial order from China Southern Airlines – specifically, for 30 737 MAX narrowbodies and eight 777-300ERs. Also, on October 15 Boeing booked an order from an unidentified customer for 16 737 MAXs. Boeing has landed 546 net new orders this year to date (612 gross orders), compared with 457 net new orders during the first 10 months of 2016.
Airbus’ severe order drought continues. In October, the company logged only 17 net new orders (24 gross), including an AirAsia order for 14 A320ceos. Airbus has landed 288 net new orders this year to date (343 gross orders), compared to 395 net new orders during the first 10 months of 2016.
With only two months of 2017 remaining, Boeing is 89 aircraft ahead of last year’s order haul, while Airbus is over 100 orders short and needs a strong finish to avoid considerably “tapping” the backlog.
Airbus’ order backlog as of October 31, 2017 stands at 6,645 jets (of which 5,488, or 83%, are A320ceo/neo family narrowbodies), ahead of Boeing’s 5,651 (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 7.6 years.
Following a surge in orders in late 2016, Airbus’ backlog set a new record with 6,874 jets on order; however, after a very weak orders haul so far this year, the backlog has been reduced by 229 aircraft. Airbus booked 731 orders in 2016, resulting in a book-to-bill ratio of 1.06. For January-October 2017, Airbus’ book-to-bill ratio is just 0.56. 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 162 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 2017, it now seems unlikely that Airbus will be able to surpass 700 deliveries for the first time ever; however, Airbus has pulled off tremendous late-year delivery surges in the past. At its Q3 2017 earnings call at the end of October, Airbus stated that it still expects to deliver more than 700 aircraft this year, depending on “engine manufacturers meeting commitments.” Airbus has struggled with delays in receiving PW1100G Geared Turbofan (GTF) engines from Pratt & Whitney for the A320neo, but was able to deliver 23 of the jets in October. This compares to only 13 in September and eight in August. Airbus reported that it has seen evidence that technical difficulties are being overcome. For Airbus to deliver 700 jets this year, there is no margin for error. The company needs to deliver 70-75 jets in November and finish up with a December surge like last year, when the company delivered an impressive 111 jets. Such a scenario will only play out if the company has many A320neos sitting on the tarmac waiting for their engines and/or if the percentage of completion (POC) at Airbus’ final assembly locations is very high.
In January 2017, Boeing set a target of 760-765 deliveries for 2017, but when compared to the company’s production rates, that figure was clearly conservative. In his previous article in this series, the author raised his 2017 delivery target to 770-780 aircraft following faster-than-expected 737 MAX shipments; however, Boeing reported weak deliveries in October, making 760-770 aircraft the most likely end-year tally. If the company had followed its official production rates 1:1, Boeing would have delivered 780 jets this year.
Backlogs are set to decline this year for both companies. Following a better-than-expected order intake in October and early November, we can expect Boeing to finish the year with 675-750 net new orders. However, if Boeing’s agreement with the China Aerospace Science and Technology Corporation (CASC) signed November 9 for 300 commercial jets is firmed up this year (and not previously booked under “unidentified buyers”), Boeing’s final tally will be in the 950-1,050 range. Due to Airbus’ weak order haul in the second half of the year to date, the author now firmly expects Boeing to win the 2017 orders race and is further reducing his target for Airbus to 400-450 net new orders. The decline in ordering activity in recent years is mainly due to relatively slow GDP growth and low oil prices that make it affordable for airlines to keep operating aircraft that would otherwise have been retired. Also, the supply of aircraft capacity (passengers/cargo) appears to have caught up with demand in most parts of the world. Tremendous aviation growth in China, however, is currently driving substantial ordering activity from Chinese airlines and leasing companies. 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 temporary decline in orders should not be a major source of concern for jet makers. Backlogs are near all-time highs and 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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