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Posted 22.8.16

Scale Of Boeing’s Widebody Sales Challenge Revealed

 

  • While Boeing has already given plenty of signs this year that sales of new widebody aircraft have slowed to a crawl, the full extent of the current order shortfall is becoming more apparent, thanks to internal company forecast figures obtained by Aviation Week.

With only one-third of the year remaining, Boeing is hoping for a strong fourth quarter to rescue dismal widebody aircraft sales, as decision-makers consider potential production rate slowdowns recently hinted at by the company for the 777 and 787. According to the forecast, Boeing hopes to win 535 orders for the year, of which 215 are expected to be for widebody aircraft. However, of the 335 net orders announced by mid-August, 297 are for the single-aisle 737 family, meaning Boeing has so far this year achieved less than 20% of its remaining widebody-aircraft sales goal.

The forecast numbers show that of the 215 twin-aisle models the company is targeting, almost 180 are expected to be split equally between sales of the 777 and 787. So far in 2016, however, only the 787 has made it into double figures, with 19 net orders. The 777, which is in search of orders to bridge the 2017-19 gap until production of the successor777X ramps up, has accrued a mere eight new orders since the start of the year.

BOEING WIDEBODY MARKET SLOWS

Company is 20% off 2016 widebody-aircraft sales goal

777 in search of orders to bridge gap till 777X production ramps up

747 remains hardest hit of widebody orders

Of Boeing’s other widebody aircraft models, the 747 remains the hardest hit, with only four new orders so far in 2016, while the 767—production of which is increasing in support of the KC-46A military tanker derivative—has taken seven. The company has already signaled it may end production of the 747 unless new orders, particularly from the cargo market, are forthcoming.

Despite delays to active sales campaigns around the globe, Boeing still hopes to clinch several major 777 and 787 fleet deals over the next three months. The company, which declines to specify ongoing marketing targets or details of its 2016 sales forecast, says: “We need to secure about 40-50 orders a year to fill the bridge [to the 777X]. We’ve not discussed the specific number of campaigns. Suffice it to say that we’ve got a lot of campaigns in work.”

 

 

Airline sources indicate the completion of hoped-for twin-aisle wins at Emirates has slowed, while another at Turkish Airlines has been affected by the political turmoil triggered by the July military coup attempt in Turkey. In addition, the large reequipment order for Iran Air announced this summer, which provisionally includes as many as 34 Boeing widebody aircraft, continues to hit headwinds on its way toward U.S. government approval.

Other factors slowing sales include low oil prices—which are keeping older aircraft in service longer—and contracting GDP in several countries. Financing for many prospective Boeing customers has also been hampered by delays to the re-establishment of the U.S. Export-Import Bank following its temporary closure in 2015, while other prospects have hit loan-credit issues associated with the financial fallout of the U.K.’s June vote to leave the EU, or “Brexit.”

Boeing achieved a book-to-bill ratio (one order for every aircraft delivered) of around 1.0 for 2015, after taking 768 orders and delivering 762 aircraft. Although Boeing has targeted the same ratio for this year, the forecast information given to Aviation Daily indicates the company is trimming its internal orders forecast to match the realities of a softening market. The overall order backlog, meanwhile, remains strong with almost 5,700, of which 4,400 are for the 737 family. The two big twinjet programs, the 777 and 787, together account for almost 1,200.

 

 

At the recent Farnborough International Airshow—notable for the scarcity of orders for widebody aircraft—Boeing Commercial Airplanes President Ray Conner acknowledged: “We have work to do this year,” to bridge to the 777X. “The focus [has] got to be around the second half of 2017 and early 2018. Up to that point, we are pretty solid,” he said. For 2018, Boeing’s 777 line is believed to be about 55% sold out. This drops to as low as 30% in 2019, but begins to fill up again in 2020, as 777X assembly becomes established.

“Where we are selling availability, particularly on the 777X,” added Conner. “I think people are in a wait-and-see type of mode, and with fuel prices being down a little bit, they can fly the older aircraft a little bit longer, and they don’t have to make these longer term decisions just yet. We haven’t seen a slowdown with respect to the single-aisles, but the widebodies have slowed down a little in terms of sales. We’ll adjust ourselves accordingly. Our view is to always get ourselves balanced with demand,” he said.

This view is reflected by Boeing CFO Greg Smith who, at the Jefferies Industrials Conference Aug. 10 in New York, outlined the possibility of adjustments to production plans for the 777 and 787. “We’ve got a lot of campaigns and work on the widebody. The real question is, do they come to fruition in the time period that we need to match the production through the bridge, for example, on the 777? So, over the next couple months, we’ll know. We’ll either solidify those orders and be able to do that, or we’ll modify the production rate, at least through that bridge,” he said.

The 777 line is scheduled to slow from its current 8.3 per month to seven per month in early 2017, a move which effectively eliminates as many as 16 unsold positions from next year’s line. Should the squeeze continue and insufficient orders emerge over the next few months, then Boeing will consider a further rate reduction in 2018. If sanctioned, this would likely see the rate slowed to around 5.5 per month in 2018, as production of the first 777X ground- and flight-test airframes gets underway.

Boeing has more time to determine if it needs to moderate plans to grow 787 production to 14 from 12 per month. The current rate was reached earlier this year, when output from the Everett, Washington, and Charleston, South Carolina, lines stabilized at seven and five aircraft per month, respectively, for a combined tally of 12. Under existing plans, Boeing intends to ramp up to 14 per month by the end of the decade, possibly as early as the start of 2019.

“I would tell you it’s not the end of the world if you went from 14 to 12, and we’re not at that point to make that decision. But we can still be profitable with the program, as I see it today, at 12, through that time period,” Smith added.

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