787 Delays Could Align With Demand, Help Limit Cancellations
Boeing’s struggles handing over 787s during much of the COVID-19-induced long-haul traffic collapse may have an unintended upside—a forced pause in deliveries during a temporary stretch of low demand when many customers do not want the aircraft.
The timing of Boeing’s 787 production struggles coincides with an historic drop-off in long-haul flight demand, rendering even the most efficient of widebodies all but useless for many airlines. Despite the pair of challenges, the 787’s backlog has stayed relatively healthy.
Boeing started 2021 with a backlog of 458 787s. It has delivered 14 in 2021, added 14 new gross orders, and canceled 27. Add in the shifts into and out of the company’s ASC 606 accounting category that flags at-risk firm orders, and the backlog sat at 421 on July 31, not counting 65 in the ASC 606 category.
Boeing has not delivered any 787s since May and before that went through a five-month stretch starting in early October 2020 without handing over a single customer aircraft. The company continues to sort through post-production quality issues on the program, inspecting aircraft and, where necessary, making repairs.
Despite the problems, airlines are not lining up to cancel deliveries, even as delays hit the 12-month-late mark that entitles customers to take action. Those that seek compensation for the late deliveries may not cancel them, but rather will assess the market and their needs—and act accordingly.
“We’re looking at that on an airline-by-airline basis,” Air Lease Corp. (ALC) board executive chairman Steven Udvar-Hazy said on a recent earnings call. “There could be situations where we may have to face the reality of giving notice to Boeing to cancel an aircraft. And then we’ll just have to see what the response is from Boeing and whether we can satisfy our airline customers accordingly.”
ALC went through similar scenarios with 737 MAX customers during that model’s grounding and subsequent production issues. Some elected to cancel, but many simply reworked their order book to fit their needs, while taking advantage of compensation to lower the costs of new aircraft used to either replace older models or provide lift for anticipated growth.
“It’s entirely possible that if that were to happen, we could have a similar situation to what we had with the MAX,” ALC President and CEO John Plueger said.
As deliveries approach, “We could have an airline say, ‘You know what, hold off ... we’re going to exercise that 12-month clause,’” he continued. “And then three or four months later, we could reinstate” the delivery.
While 787s have not been needed on many of their intended long-haul routes because of travel restrictions, they are among the widebodies seeing the most utilization.
Aviation Week Fleet Discovery shows 84% of the 990 787s in service were active, or flying at least one or two times per week, as of Aug. 14. The 787’s active-fleet percentage was slightly higher than the Airbus A350 fleet, 12% higher than the 777 fleet, and 24% higher than the A330 fleet, Aviation Week data shows.
Boeing has been “very accommodating, very flexible ... They want to get their [787s] delivered, and we want to get the airplanes delivered,” Plueger said. “We work in our best interest and our customer’s best interest with Boeing collaboratively. But it’s certainly possible some of these 12-month cancellation points could be triggered.”