In a week of bad news, Boeing is pumping out some good news – the celebration of the first anniversary on Aug. 26 of joint certification by EASA and the FAA of the 787.
All Nippon Airways took first delivery on Sept. 28, 2011 so expect to hear more about birthday cakes next month.
The party pooper to this celebration is Qantas, which pulled back -- yet-again -- from what was once the largest airline order on Boeing’s books for the twin-aisle, 250-290-seat jet. On Wednesday, Qantas cancelled 25 787-9 orders.
(The face-savings element for both Qantas and Boeing is that the carrier retained those 25 placements as options or purchase rights. My colleague, Adrian Schofield, reports that Qantas is hinting that the cancellations are really more of a delay. Nonetheless, it asked for its deposit money back.).
At one time, the Australian carrier said it wanted 65 787s, fifty of the long-range 787-9s and fifteen of the standard-sized 787-8s. Now it cites broken promises on delivery times as a reason it can walk away from the deal.
Boeing’s stock dropped on the news and the loss of the eventual Qantas order revenue underscores the financial strains that Boeing and the program’s partner-suppliers have had to accept for development delays. By some estimates, Boeing’s bill alone is north of $20 billion.
The certification birthday celebration is occurring as the new president and CEO of Boeing Commercial Airplanes, Ray Conner, felt it necessary to beat back a Seattle Times report that the company has gotten cold feet on development of the 777X, it’s next major development project. “We are absolutely committed to the 777X,” he says.
The Times will jumps on uncertainty in a Boeing program because local jobs are at stake. In an internal memo to employees, Conner tried to ally fears by also saying that the 787-10X stretch remains on track.
But there is a caveat, for those who are noticing. He says Boeing wants “to make sure” that it responds with a development plan “that is well defined and leads to success.”
Translation: the $$ to be earned from orders need to line up with the costs of development in an equation that takes due note of the health of production capacity. Boeing has had trouble getting that equation right in the 787.
Qantas’ 15 remaining orders mean it’s tied with Air Berlin and Air China as Boeing’s 17th largest 787 customer, a bit of a drop from the old No. 1 ranking.
Launch customer All Nippon Airways is No. 1 among airlines with 55 orders; International Lease Finance Corp. is tops overall with 74 orders.
Qantas’ decision says as much about the airline as it does about the 787 program. Clearly the Aussie fleet team was overly ambitious when it placed its orders in 2006, particularly in its forecast of long-haul demand. It’s not easy to tell how strong markets will be years from now when you’re committing to buy airplanes that cost $150 million, or so, each.
In 2009, when it first cuts back its 787-9 order by 15 airplanes, Qantas cited a falloff in demand. It also opted to push-back delivery dates in order to give markets a chance to recover. Obviously, this week’s decision to lop off the remaining 35 787-9s means the markets have not come back as strongly as Qantas hoped.
The Aussies first acted during the 2009 recession when order rates at both Airbus and Boeing were dipping. Remarkably, the dip was relatively short-lived. Demand has been on an upward pace across single-aisle and twin-aisle markets ever since.
It’s worth remembering that as the recession hit in 2008 Boeing held 910 firm orders for the 787. By my count it now holds 809.
There were early defections, but very few from carriers walking away because of delivery delays, or at least not that they said publicly.
Instead, those opting out were suffering from market woes. In hindsight, most were probably guilty of taking a flier on the excitement that Boeing’s composite jet was generating.
In the lost order count, 2012 has been an especially rough year. The company counts 24 new 787 orders but the Qantas cancellation brings the number lost up to 50. That’s half the total cancellations recorded since the 2008 high water mark.
The best celebrations Boeing can hope for the remainder of the year is a very busy delivery schedule from now on. Since January, Boeing’s plan has been to deliver 35-43 787s this year. But only 14 have left the factory as of now.
Until just a few weeks ago, the only carriers to take delivery have been Boeing’s two Japanese customers, ANA and Japan Airlines. Now Ethiopian has joined the list and Air India and United Airlines are just around the corner.
The good news for Boeing -- and its customers -- is that both All Nippon and JAL report better than expected fuel burn performance on the combined 16 airplanes they have in service.
The sobering order story from Qantas is, perhaps, a reality check on what can happen to order rates. That brings to mind two programs that are the current hot sellers, Boeing’s 737 MAX and Airbus’ A320 NEO. Their combined orders are now well past the 2000 mark after just two years.
Single-aisle jets are the industry’s work horses and MAX and NEO are to be the most fuel-efficient ever. There’s no doubt that carriers are eager for the efficiencies they promise. So the fundamentals that underline their order books are sound.
But don’t be surprised to see stretch outs and cancellations for NEO or MAX as time goes by. This is, after all, an industry where bankruptcies and mergers remain an important business strategy.
Remember, American Airlines got this all started for Boeing. The company hurried out a 737 re-engining concept when it feared that American would give all its single-aisle re-fleeting orders to Airbus.
American committed to 100 but has yet to write that order as it struggles with bankruptcy and its pilots union.