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Boeing 64% Discount To WN For MAX. Wow!  
User currently offlineebbuk From , joined Dec 1969, posts, RR:
Posted (2 years 1 month 3 weeks 5 days 1 hour ago) and read 24046 times:

According to Leeham

http://leehamnews.wordpress.com/2012...base-price-34-7m-for-max/#comments

Quote:

"....Wells Fargo estimates that Southwest Airlines paid a based price of $34.7m each for the Boeing 737-8 MAX.
..... a 64% discount off the 737MAX-8 list price"

AND

"This is a somewhat deeper discount than we thought: 60%. If true, we can say that discounts of 60% for top customers are not unknown, even if they are not common. We understand Boeing is currently offering the MAX at discounts in excess of 50% but we can’t nail it down any closer than this."

Further

"We are hearing United Airlines also came down to price. We expect this Boeing win to be announced before at at Farnborough."


I am aghast at the amount of discount. According to Boeing, they have the better plane. They also have slots that Airbus hasnt. So why try and hawk your planes at more than half price?
Didn't they pull this same stunt with the 787 and are now going to sell 1400 of them at below cost price? History repeating itself?

Leahy's decry of a price war initiated by Boeing is clearer to see. So for every subsequent MAX and NG order announced, we'll know Boeing didn't sell the plane, nor did the plane sell itself. In fact Boeing practically gave them away. Nice business

173 replies: All unread, showing first 25:
 
User currently offlinehatbutton From United States of America, joined Mar 2005, 1500 posts, RR: 14
Reply 1, posted (2 years 1 month 3 weeks 5 days 1 hour ago) and read 23978 times:

Quoting ebbuk (Thread starter):
Leahy's decry of a price war initiated by Boeing is clearer to see. So for every subsequent MAX and NG order announced, we'll know Boeing didn't sell the plane, nor did the plane sell itself. In fact Boeing practically gave them away. Nice business

I see what you're saying, but there are many many more millions to be made from the parts market and support contracts. If WN is going to end up buying 400-500 of them to replace their entire fleet, that's a lot of extra money coming in from other sources than just the initial sale. Plus WN will get sales rolling and others will follow suit and I'm certain they won't be getting as steep of a discount.

Someone correct me if I'm wrong but I thought I've read that over the lifetime of the airplane the manufacturer can expect about the equivalent of the purchase price in just the support and parts business?


User currently offlineodwyerpw From Mexico, joined Dec 2004, 840 posts, RR: 2
Reply 2, posted (2 years 1 month 3 weeks 5 days 1 hour ago) and read 23909 times:

Lots of 737Max hatred about today. Three different threads in fact.

If Boeing can tame it's production costs and deliver planes at reduced prices and still receive a reasonable ROI, so be it. This helps defeat more than just Airbus..It makes it that much difficult for the emerging players to compete.

In the end, it helps to preserve the Duopoly, with Airbus enjoying healthy margins on the planes it sells as well.



Quiero una vida simple en Mexico. Nada mas.
User currently offlinePlaneAdmirer From United States of America, joined Jul 2009, 559 posts, RR: 1
Reply 3, posted (2 years 1 month 3 weeks 5 days 1 hour ago) and read 23859 times:

Don't early buyers of a new model, and the Max should qualify as such, always get better discounts? Some of the early 787 pricing that leaked is pretty low as well.

User currently offlineDreadnought From United States of America, joined Feb 2008, 8780 posts, RR: 24
Reply 4, posted (2 years 1 month 3 weeks 5 days 1 hour ago) and read 23725 times:

Quoting ebbuk (Thread starter):
I am aghast at the amount of discount. According to Boeing, they have the better plane. They also have slots that Airbus hasnt. So why try and hawk your planes at more than half price?
Didn't they pull this same stunt with the 787 and are now going to sell 1400 of them at below cost price? History repeating itself?

Leahy's decry of a price war initiated by Boeing is clearer to see

Well, Airbus did start it about a decade or so ago giving huge discounts on the A320, when they were trying very hard to seize the title of biggest selling manufacturer from Boeing.

That said, it is a hell of a discount, but it got in one swoop enough orders to justify launching the project. United should not expect the same discount.



Veni Vidi Castratavi Illegitimos
User currently offlineCALTECH From Poland, joined May 2007, 2167 posts, RR: 25
Reply 5, posted (2 years 1 month 3 weeks 5 days 1 hour ago) and read 23648 times:

Quoting ebbuk (Thread starter):
Leahy's decry of a price war initiated by Boeing is clearer to see. So for every subsequent MAX and NG order announced, we'll know Boeing didn't sell the plane, nor did the plane sell itself. In fact Boeing practically gave them away. Nice business

Yes, such nice business that only Boeing participates in.  http://www.canadianbusiness.com/arti...t-big-discount-to-1-63b-list-price

'Hong Kong's Cathay Pacific buys 6 Airbus A350 aircraft at big discount to $1.63B list price'

http://www.nytimes.com/2011/01/18/business/global/18airbus.html

'The airline’s new order with Airbus has a list price of $5.1 billion, but airlines typically receive steep discounts from manufacturers, especially for new airplanes. Airbus does not disclose the actual sale price for competitive reasons.'



UNITED We Stand
User currently onlinecipango From Ireland, joined Jul 2009, 569 posts, RR: 0
Reply 6, posted (2 years 1 month 3 weeks 5 days 1 hour ago) and read 23613 times:

Now we can get an idea of the discounts FR got on their 738's.


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User currently onlineMortyman From Norway, joined Aug 2006, 3812 posts, RR: 1
Reply 7, posted (2 years 1 month 3 weeks 5 days 1 hour ago) and read 23554 times:

Norwegian most likely got atleast 50 % off on their order for 100 Max too.

User currently offlineqf002 From Australia, joined Jul 2011, 2947 posts, RR: 2
Reply 8, posted (2 years 1 month 3 weeks 5 days ago) and read 23439 times:

If this is a base price, does it include things like engines? The figure might sound small, but there might be a lot of extra cost that WN pays to Boeing for these aircraft that isn't included in the base figure...

User currently onlineStitch From United States of America, joined Jul 2005, 30434 posts, RR: 84
Reply 9, posted (2 years 1 month 3 weeks 5 days ago) and read 23355 times:
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The thing to be aghast about is the inflated list prices of aircraft today. As such, discounts of over 50% are now becoming the rule, not the exception.

And Boeing Commercial certainly has the margin to play with, so if they want to extend their best customers lower prices for larger orders (WN should be good for what, 500 frames, over the life of the program?), the financials should do okay.

Also, Boeing will be building 40+ of these a month - the production cost of a 737-8 should be lower than the production cost of the 737-800's WN is taking today.

The article notes Airbus is discounting 60%-plus for A320 orders and I know of A330 and A350 orders that have gone out for almost 70% off the list price at the time. So should we be aghast that Airbus discounts even deeper than Boeing?  

Let us not forget it is no longer a two-horse race. Bombardier is said to be close to first flight of the CSeries and both Airbus and Boeing will be fighting COMAC for orders not just in China, but also the developing world (where China has major financial influence).

Better for Airbus and Boeing to lose a few million up front to secure an order that will bring in a few tens of millions in high-margin ancillaries than stand firm on price and watch that order - and maybe that customer - go to Bombardier or COMAC.



Quoting cipango (Reply 6):
Now we can get an idea of the discounts FR got on their 738's.

$29 million a frame.

[Edited 2012-05-18 11:28:43]

User currently offlineredrooster3 From United States of America, joined Oct 2010, 229 posts, RR: 2
Reply 10, posted (2 years 1 month 3 weeks 5 days ago) and read 23321 times:

Quoting Mortyman (Reply 7):

Norwegian most likely got atleast 50 % off on their order for 100 Max too.

   Lion Air probably got a nice discount for being the MAX 9 launch customer. No MAX7 launch customer yet, as we know.

I remember reading an article, an EK executive mistakenly released the price EK buy's their A380's. They recieve a 38% discount for $234 Million. Can be found here.

Quoting cipango (Reply 6):

Now we can get an idea of the discounts FR got on their 738's

It all makes sense, What if FR only bought 100 737-800's at (lets say) 30% discount, well Boeing would probably make more money if they discounted down to 60% if FR bought 300 738's (it was probably more of a discount.)



The only thing you should change about a woman is her last name.
User currently offlineDocLightning From United States of America, joined Nov 2005, 19285 posts, RR: 58
Reply 11, posted (2 years 1 month 3 weeks 5 days ago) and read 23225 times:

You know, when you buy a new razor, you will notice that it's pretty cheap. It's the blade cartridges that get expensive.

When you buy a new blood sugar monitor (if you're diabetic) it's often inexpensive to the point of being free. It's the proprietary test strips that cost a lot of money.

When you buy a new printer, it's often very cheap or even free with a rebate. It's the ink cartridges that rack up the bills.

It seems that the same is true of aircraft. Boeing may not make money off the frames themselves, but they will make plenty of money off parts and support. It works out well for the OEM and the customer, whether airplanes, glucometers, or razors because it reduces the initial barrier to purchase by taking some of the sting out of the initial bill, while spreading out the income potential and spending over a longer term.


User currently offlineRoseflyer From United States of America, joined Feb 2004, 9466 posts, RR: 52
Reply 12, posted (2 years 1 month 3 weeks 5 days ago) and read 23127 times:

Quoting ebbuk (Thread starter):
Leahy's decry of a price war initiated by Boeing is clearer to see. So for every subsequent MAX and NG order announced, we'll know Boeing didn't sell the plane, nor did the plane sell itself. In fact Boeing practically gave them away. Nice business

This article is all about price (not profit). I think the article in this thread disproves that:

A Vs B Orders And Profits Analysis (by kanban May 15 2012 in Civil Aviation)

I know there are some program accounting questions to be answered in the thread, but Boeing Commercial Airplanes has a profit margin of 9.7% versus 1.7% at Airbus. Boeing isn't giving anything away, and according to investors is the more profitable business. If Boeing can make bigger profits and gain large orders & market share with lower prices, then that sounds like absolute business sense!

In the article in the other thread, it made the point that Airbus was cutting prices in order to gain market share which eroded their profit margin. Boeing did not do that, and now they appear to have emphasis on taking back market share which seems to be what has instigated the price war claims made by Leahy.

Quoting PlaneAdmirer (Reply 3):
Don't early buyers of a new model, and the Max should qualify as such, always get better discounts? Some of the early 787 pricing that leaked is pretty low as well.

Absolutely! The early planes off the production lines never meet the target performance criteria that are advertised. There are also significant numbers of Service Bulletins and retrofits along with rework from the flight test programs.

A.net loves threads about compensating for delays and performance shortfalls, but in reality those are overinflated on the threads. The early customers getting the first airplanes know they are getting airplanes that will not have the same performance specification as airlines later in the production cycle. This is compensated by much lower purchase prices (as opposed to compensation payments/concessions which look bad on the accounting books for everyone).

Also, huge orders come with discounts since the airline only has to pay the cost of customizing the airplane into their configuration once. Once the production system for that airline's configuration is established, engineering costs are lower since they are essentially gone and supplier contracts are negotiated in larger quantities which can also lower costs.

Quoting Stitch (Reply 9):
The thing to be aghast about is the inflated list prices of aircraft today. As such, discounts of over 50% are now becoming the rule, not the exception.

I absolutely agree. This is more of a case of inflated list price than lowering the actual contract price. Boeing has been cutting costs with the 737 program. They have very publicly shown how they have used lean strategies to decrease the production costs significantly, yet list prices have not gone down.

[Edited 2012-05-18 11:31:20]

[Edited 2012-05-18 11:32:55]


If you have never designed an airplane part before, let the real designers do the work!
User currently onlinefpetrutiu From United States of America, joined Aug 2007, 872 posts, RR: 0
Reply 13, posted (2 years 1 month 3 weeks 5 days ago) and read 23124 times:

Well, to be fair, that is from Airbus's point of view and they will always say that they lost the order because of the price, and NEVER because it is a better fit or definitely because it is the better aircraft.

I part it is true that large and early orders get steeper discounts than normal, but that is tru across the board. Airbus could have offered a lower price too, when UA said you are too high, they could have said ok, how about this and it would be a race to the bottom until one says I cannot go any lower (which I think it happened). I think Boeing has a lot more room to lower prices since the airframe, correct me if I am wrong, is cheaper to produce in the first place.


User currently offlinebikerthai From United States of America, joined Apr 2010, 2056 posts, RR: 4
Reply 14, posted (2 years 1 month 3 weeks 5 days ago) and read 23060 times:

I would be interested in seeing the fine prints . . .

Remember, launch customer will face the consequences of any teething problems, so the discount is justified.

My real question is whether the discount is for the whole order or is it for the first batch of aircrafts (where the teething problems are expected). So even if the order is for 100 aircraft per se, I wonder if the initial contract is for a smaller batch and the final price for the remaining batches would be higher (or remains to be negotiated)?

bt



Intelligent seeks knowledge. Enlightened seeks wisdom.
User currently onlineStitch From United States of America, joined Jul 2005, 30434 posts, RR: 84
Reply 15, posted (2 years 1 month 3 weeks 5 days ago) and read 22969 times:
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Quoting bikerthai (Reply 14):
My real question is whether the discount is for the whole order or is it for the first batch of aircrafts (where the teething problems are expected). So even if the order is for 100 aircraft per se, I wonder if the initial contract is for a smaller batch and the final price for the remaining batches would be higher (or remains to be negotiated)?

For large aircraft orders that will be delivered over a period of many years, the contracts often have price escalation clauses written into them to account for increases in raw material and labor costs.

So I could see where WN's price starts low (to account for production efficiencies brought about by the higher production rates planned for the MAX's introduction) and then future tranches have an "Inflationary Index" cost adjustment.

An example of this is Air India and the 787-8 - their first 787-8 delivers at $109.6 million while their 7th delivers at a price of $111.1 million.

And Kingfisher's MoU with Airbus for their "Sampler Plate" order of 2007 has a Price Revision Formula that applies to later deliveries.


User currently offlineUALWN From Andorra, joined Jun 2009, 2731 posts, RR: 2
Reply 16, posted (2 years 1 month 3 weeks 5 days ago) and read 22864 times:

Quoting CALTECH (Reply 5):
'The airline’s new order with Airbus has a list price of $5.1 billion, but airlines typically receive steep discounts from manufacturers, especially for new airplanes.

We all know this. But in the case of WN we know exactly how much it is: 64%, which looks surprisingly high. Most people here would have guessed 55-60%.



AT7/111/146/Avro/CRJ/CR9/EMB/ERJ/E75/F50/100/L15/DC9/D10/M8X/717/727/737/747/757/767/777/AB6/310/319/320/321/330/340/380
User currently offlineplanespotting From United States of America, joined Apr 2004, 3517 posts, RR: 5
Reply 17, posted (2 years 1 month 3 weeks 5 days ago) and read 22765 times:

Let's all just settle down. Both Boeing and Airbus need hundreds of planes in their order books to get the lowest unit cost possible as they ammortize those costs over a long, long period of time. At this early in the game, sale price probably doesn't matter as much as the number of orders you're getting.

I'm sure they could sell a few hundred planes at a price that for individual orders would be a loss, but priced together, come in at a decent margin over time.

Quoting DocLightning (Reply 11):
It works out well for the OEM and the customer, whether airplanes, glucometers, or razors because it reduces the initial barrier to purchase by taking some of the sting out of the initial bill, while spreading out the income potential and spending over a longer term.

Yep ... in economics it's referred to as extracting the buyer's surplus.

[Edited 2012-05-18 12:04:22]


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User currently offlinebikerthai From United States of America, joined Apr 2010, 2056 posts, RR: 4
Reply 18, posted (2 years 1 month 3 weeks 4 days 23 hours ago) and read 22680 times:

Quoting UALWN (Reply 17):
64%, which looks surprisingly high.

Well, since WN remains one of the few airlines with an all Boeing fleet, it should surprise no one here that Boeing will bend over backwards to please it.

Maybe I'm way off the mark on this, but it sees that Boeing and WN have a "friendly" relationship that allow for these types of interactions. There are thing that Boeing will do for WN that they don't usually do for other airlines. Pricing is just one of these things.

bt



Intelligent seeks knowledge. Enlightened seeks wisdom.
User currently onlineStitch From United States of America, joined Jul 2005, 30434 posts, RR: 84
Reply 19, posted (2 years 1 month 3 weeks 4 days 23 hours ago) and read 22682 times:
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Quoting UALWN (Reply 17):
But in the case of WN we know exactly how much it is: 64%, which looks surprisingly high.

On the surface I agree it does look surprisingly high. During the last order boom, discounts of around 30-40% were more the norm.

However, since this is Boeing's largest 737 customer and will almost certainly be their largest 737 MAX customer, it strikes me as not exactly untoward.

Also, Airbus and Boeing have significantly raised the list price of their "upgraded" models. As an airframe, the A320-200neo is not a significant jump in upgrades over the A320-200, but with a list price $9 million higher, it is a significant jump in price (10%). Boeing has jacked the list price of the 737-8 up $11 million over the 737-800. Even with the additional upgrades, that's still a significant jump.

So when you take 64% off the $95 million list, that's $34 million. A 737-800 at $34 million would be a discount of 60% - what Leeham.net was expecting. So of that $11 million extra Boeing wants at list, they're getting $4 million - 36%.


User currently offlineWolbo From Netherlands, joined Mar 2007, 482 posts, RR: 1
Reply 20, posted (2 years 1 month 3 weeks 4 days 23 hours ago) and read 22650 times:

Wow. Must say I've never seen a mention of a 64% discount before. I thought it was one of those 'prevailing A-net wisdoms' that only Airbus gave deep discounts. Oh well, I guess that's another A-net myth shot down.

User currently onlineUnited1 From United States of America, joined Oct 2003, 5929 posts, RR: 9
Reply 21, posted (2 years 1 month 3 weeks 4 days 23 hours ago) and read 22490 times:

Quoting Stitch (Reply 9):
The thing to be aghast about is the inflated list prices of aircraft today. As such, discounts of over 50% are now becoming the rule, not the exception.

Not really the company I work for initially builds in a ~300% markup on any RPF that we reply to....it gives us a place to start negotiations at. The final margin that we sign the contract at is much much much smaller....

Quoting Wolbo (Reply 21):
Wow. Must say I've never seen a mention of a 64% discount before. I thought it was one of those 'prevailing A-net wisdoms' that only Airbus gave deep discounts. Oh well, I guess that's another A-net myth shot down.

The 788s and 359's that UA bought were supposedly discounted around 50-60% off list so it's not unheard of.



Semper Fi - PowerPoint makes us stupid.
User currently offlineER757 From Cayman Islands, joined May 2005, 2484 posts, RR: 7
Reply 22, posted (2 years 1 month 3 weeks 4 days 23 hours ago) and read 22491 times:

Quoting ebbuk (Thread starter):
I am aghast at the amount of discount.

Unless you are a Boeing shareholder, why should you care?
I'm not and really don't care how much they or any manufacturer charges for their planes. I'm just in favor of anything that puts more shiny new aircraft out there for us spotters  


User currently offlineUALWN From Andorra, joined Jun 2009, 2731 posts, RR: 2
Reply 23, posted (2 years 1 month 3 weeks 4 days 22 hours ago) and read 22149 times:

Quoting Stitch (Reply 20):
So when you take 64% off the $95 million list, that's $34 million. A 737-800 at $34 million would be a discount of 60% - what Leeham.net was expecting. So of that $11 million extra Boeing wants at list, they're getting $4 million - 36%.

Actually no: they're getting nothing extra. 40% of $84m (the list price of the 738) is about $34, which is what Boeing is getting for a 738-MAX. So Boeing is selling the MAX to WN for the price of the non-MAX discounted by 60%.



AT7/111/146/Avro/CRJ/CR9/EMB/ERJ/E75/F50/100/L15/DC9/D10/M8X/717/727/737/747/757/767/777/AB6/310/319/320/321/330/340/380
User currently offlinePHXA340 From United States of America, joined Mar 2012, 877 posts, RR: 1
Reply 24, posted (2 years 1 month 3 weeks 4 days 22 hours ago) and read 22053 times:

Quoting ebbuk (Thread starter):
Leahy's decry of a price war initiated by Boeing is clearer to see. So for every subsequent MAX and NG order announced, we'll know Boeing didn't sell the plane, nor did the plane sell itself. In fact Boeing practically gave them away. Nice business

Lets wait and see what Airbus sold AA's 320 Series for - some of us might be aghast. And to take Leahy's words for granted is just a bad idea - you would be kidding yourself if you thought Boeing was the only one that does this.

The Apple IPhone literally costs cell carriers 100s of dollars , which they then sell to the consumer at a loss. Yet since they make up the revenue via fees and services , they rake in millions. I wouldn't worry about Boeing too much ... likewise for Airbus.

I don't know if everyone was drinking hate on MAX water this week ...


25 davs5032 : Hmm...but I thought this site was being overrun with Boeing fanatics on this side of the pond pushing their anti-A agendas on the un-biased Airbus po
26 DocLightning : And, by some measures, succeeded. Their business model has been very expansion-based. Boeing has not needed to focus as much on expansion since they
27 tdscanuck : Because the list price is a completely meaningless number except as the starting point for negotiation. It bears almost no relevance to actual sales
28 ebbuk : To be factual, the facts were revealed not by Airbus but by Wells Fargo that Leeham reported. Very different. A discount is justified yes. But 64% di
29 ebbuk : Absolutely agree. Well why would Boeing need to fight on price, if they already have 1000 commitments? Why are Boeing playing Airbus's game. What are
30 homsar : It's not "Airbus's game." It's how things work in the industry. As others have noted, it's not even an airline industry-specific practice. It happens
31 ebbuk : Yes you may well ask. I hate to say it but perhaps the MAX is having trouble getting to the minimums of its promised spec perhaps? Of course list pri
32 Post contains images ER757 : I think Benadryl will help with that but Doc Lightning is probably a little better qualified than I on this topic
33 Post contains images ebbuk : ha ha very good. Of course i meant analogy. I even put SW as the code for Southwest in the title for the thread instead of WN. Early onset old age me
34 par13del : The US aviation market is one of the largest in the world at this time - single country - if Boeing can take back DL, UA and maintain WN in their fol
35 Post contains images DocLightning : I hear Benadryl works for those, too.
36 SEPilot : The list prices exist so that JL can say that FR is free to buy as many planes as they want at list price. If the list price was closer to the real pr
37 ebbuk : Actually what is the %age discount for the Ryanair planes? Does it compare to Southwest's whopping 64%?
38 Post contains images Stitch : Personally, if this 64% projected discount was for a customer ordering 10 737-8s, as opposed to 100 (or more),I would say this is indeed a sign Boeing
39 flightsimer : That is not true at all. I believe, and i believe every airline will tell you the same, that the 777-300ER not only meet its targeted performance, bu
40 AirbusA6 : yes there are new entrants nibbling around the edges, but Boeing and Airbus effectively have a duopoly, so why can't they accept they will each get 50
41 Post contains links ebbuk : Or didn't Boeing try that trick with the NG whilst they spoke of a new-build narrowbody? Heck they even said that their loyal customers would wait fo
42 Post contains images PHXA340 : You keep bashing Boeing yet Airbus does the same thing ... You are kidding yourself if you don't think Airbus gave Air Asia and their best customers
43 tdscanuck : The size of the discount has *nothing* to do with what customers are actually paying; it's just a measure from how far the actual sales price is from
44 Post contains images lightsaber : Whatever Narrowbody WN buys will have a perceived boost in resale value. So winning WN is required for Boeing to convince lease companies to use a slo
45 UALWN : All of it, apparently. WN will pay for a 737-8 (MAX) 40% of the list price of a 737-800 (non MAX). Heck, it's very possible that WN will pay for the
46 XT6Wagon : I would expect the new tail, and other revised parts to be cheaper to build than current 737s. Much better tools today to drive out labor cost and re
47 fpetrutiu : Exactly how is Wells Fargo involved in this? Are they the one providing the loan for the aircraft? If so, it is umbelievably unprofessional to leak ou
48 Stitch : Honestly? I don't think so. I think WN told Boeing "we plan to buy 500 of these things, so you should be able to get significant price concessions fr
49 Post contains images lightsaber : They are one of the top aircraft financiers. Would you loan money on a new type without knowing the price being charged for planes out the door? Why
50 Post contains images PlanesNTrains : You're that old? I would have guessed much, much, much younger. You hate to say it? Really? So the list price is worthless, but you still care what t
51 EY460 : But what kind od discount wants Ryanair to buy the plane? They said the 737Max is too expensive. Isn't 64% enough?
52 Post contains images Stitch : Not really. Airbus matched it years ago with at least one A350 order and was within 1% with an A330-200F order. They even went 70% with a large A320-
53 7673mech : Cool - a clear Boeing bashing thread from the start. The bottom line is Boeing's bottom line - last I checked they were making money. So long as the s
54 Post contains images astuteman : The fact that you are more than happy to post numbers which bear no relationship to one another in the way in which they are derived is exactly why t
55 CM : Per Michael O'Leary, when Boeing does business with FR, it is like getting "raped" for Boeing. Compounding the pain for the OEM, FR then turns around
56 Post contains images cmf : The easiest way to manipulate statistics is to use ratios when absolute numbers is appropriate and vice versa. This is chapter one in understanding p
57 PlanesNTrains : I guess I wonder why, when someone tries to point out that both manufacturers do it, it must then be pulled back into the a.net A vs B thing? We seem
58 ebbuk : Ahh the wisdom of anet. So to summarise then. Price paid is not important relative to list price. Check. Boeing and Airbus discounts are not an issue,
59 par13del : Wonder why Airbus continued to push sales which resulted in them building new factories, or Boeing doing the same then purchasing McDonald, somehow I
60 UALWN : There's a BIG (I like capitals too) difference between keeping WN, which in all likelihood will never go Airbus, and stealing AA, which in all likeli
61 rheinwaldner : It is. Your post is post #25 and to that point there were only 4 (!) posts which did not express support for Boeing's discount. Better don't guess th
62 garpd : Problem is that IS why they became successfull. There is no secret in Airbus' incredibely competitive pricing aimed at gaining market share. You do n
63 par13del : I missed this one, gotta go back to the archives, I always read the sayings of Airbus selling cheap to gain market share especially to customers that
64 CALTECH : The MAX frame has been conceived but has not completed gestation yet. So you are from the future? Saying it sarcastically, these MAX airframes are go
65 Post contains images Stitch : No there was not. As to the argument that Airbus offering American Airlines a "cracking good deal" to land the A320 order, that could be interpreted
66 RubberJungle : Anyone following the EasyJet branding dispute closely enough would have learned how much of a discount the airline secured from Airbus.
67 SEPilot : From what I have read, I believe that Ryanair (or Michael O'Leary, in any case) have so ticked off both Boeing and Airbus that they will have a lot o
68 Roseflyer : I understand there is some accounting confusion but regardless of how it is divided by program Boeing is earning a lot of money every year. Most inve
69 tdscanuck : That question is based on a false premise: that the size of the discount *in percent* somehow relates to how much Boeing is willing to "buy customers
70 AirlineCritic : Unfortunately, it doesn't quite work that way. Customer - vendor relationship is never equal. There might be some public statements to the contrary,
71 Post contains images astuteman : I made an innocent query over what appears to be a discount at the lowest end of the range, so as to get a better view on the data point. And defend
72 Post contains images Stitch : Then Boeing probably should not have lost the AA deal since they were selling into a 737 customer and not an A320 one. And Boeing probably should not
73 goosebayguy : This price makes no sense at all. Airlines basically have two choices B737 or A320. The A320 line is busy and airlines are desperate to grow by buying
74 Stitch : Maybe not to you, but it does to me. *shrug* Not any more. There is now the CSeries and COMAC C919. As well as lease-returns with very attractive val
75 XT6Wagon : Both Boeing and Ryanair have stated they came to a deal on the money side of the deal that would work for both of them. What neither of them has said
76 Post contains images par13del : Well it also dispels the myth that if one is a Boeing only customer and only go there for new a/c you will be raked over the coals since they are you
77 DocLightning : Not a hostile question: What is the point of a list price if the OEM is never going to sell a single frame at that price?
78 Post contains images Stitch : You have to start pricing negotiations somewhere. But seriously, a commercial aircraft sales contract involves more than just the purchase price of t
79 odwyerpw : I seriously doubt you 'hated to say it'.
80 UALWN : This is true, but no matter how you look at it, there is a large difference between a 50% discount and a 64% discount, whatever the list price is. On
81 tdscanuck : The magnitude of the difference in dollars, which is what matters, is 14% of list price. So it still depends on what the list price is which is, agai
82 homsar : You're missing the point. The point is that WN paid $34.2 million. If the list price was $34.2 million, then they got a 0% discount. If the list pric
83 UALWN : Exactly! If the list price is arbitrary, that 14% of list price is irrelevant. What is relevant is whether Boeing is getting $34.2m or $47.5m, which
84 Mortyman : I beleave Norwegian is the launch customer for the MAX in Europe ...
85 Post contains images Stitch : Fair enough. I know of one A380 order that went out at a 60% discount. Can we call it a day now?
86 UALWN : I'm afraid you're missing the point: DL payed $47.5m for each 737-8 MAX, so Boeing has "lost" $13.3m per frame with the WN deal, when compared to the
87 Stitch : Point of Order: Delta has not yet ordered the 737-8. They have ordered the 737-900ER, for which they paid $42 million a plane (51% off list).
88 homsar : Stitch's point about DL not ordering the MAX notwithstanding, the only thing you've established with this comment is that different customers pay dif
89 UALWN : Thank you for the correction. Again: list prices may be meaningless, but price differentials between customers are meaningful. That's all I'm trying
90 PlanesNTrains : I'm not saying you shouldn't have the right to pose a query - you do it all the time. We all do. I was just trying to follow the logic that you felt
91 tdscanuck : Agreed. It's the same as the difference between a deal with a 20% discount and a 41% discount. The point was that the initial assertion relative to t
92 Post contains links lightsaber : Has there been an updated thread on aircraft lease rates? Airbus is very interested in doing business with FR. They are not interested in FR taking th
93 Stitch : I haven't seen any updates from my source since February. It does seem current lease rates are taking a hit with MA, IT and JK sending back a good po
94 CM : Lease rates for a new 737-800W are averaging around $75K higher per month than for a new A320. At the peak of single aisle demand (which seems to hav
95 FlyboyOz : Wow Boeing has been so generous to WN! Congrat to Boeing and WN.
96 astuteman : As a point of order, the sale price compared to the cost of goods sold is the only thing that matters. Even the sale price, on its own, doesn't tell
97 AirlineCritic : As a point of order, the full price of both the initial delivery (the plane and engines) and the cost of spares and other service and maintenance item
98 UALWN : Agreed. That's the whole point. The 64% means nothing in itself, but the 64% compared to the "usual" 50% does.
99 Post contains images par13del : The fact that the discounts are for two different planes with different numbers of a/c only mucks up the equation, just leave it as a 737 purchase an
100 Post contains images EPA001 : If this is true, and I have no reason to doubt what Stitch has posted, why are these list prices set at an unrealistic high level? If nobody is actua
101 rheinwaldner : The 734 was not on par with the A320. The A320 itself was the incentive. Not the price. This is purely hypothetical. Neither Boeing nor Airbus are mo
102 nomadd22 : Am I the only one having a little trouble understanding the article that started this whole thread in the first place? maybe I should have slept throu
103 par13del : and Airbus?
104 Post contains images Stitch : Commercial aircraft sales contracts have price escalation clauses to account for inflation. So it sounds like Wells Fargo is calculating that WN will
105 lightsaber : There are also indications that traffic growth is below aircraft delivery rates. How current? Indications are that the lease rates have weakened in t
106 CM : A "Pre Delivery Payment" Last summer, so almost 1 year.
107 Post contains links mffoda : LAXintl use to keep us up to date on current lease rates. The last one I remember seeing was the June 2011 thread below. Perhaps, LAXintl can shed so
108 blueflyer : Me thinks that the key is what else Southwest signed up for in exchange for a 64% (or 74%, or 99% or whatever) discount off the inflated list price du
109 Roseflyer : You are right they are not on par. The 737 classic outdelivered the a320 line every year of it's production run until it's last year of production. T
110 nomadd22 : Thanks Stitch, CM. Wells Fargo's assumptions seem to carry a lot of weight.
111 rheinwaldner : Dito. The 737 classic are the single largest factor why Boeing failed to extened their lead after their closest competitor (MD) was erased from the e
112 Post contains images Daysleeper : I don’t see why this is so complicated. The basic facts are Boeing has had to discount the MAX by 64% in order to sell it to WN – It’s largest,
113 Stitch : Boeing had just invested a not-insignificant amount of money to bring the 737-300 to market and this was a time when a "mega order" was for a couple
114 SEPilot : On the other hand it may indicate that one of the reasons WN has stayed loyal to Boeing is that Boeing always gives them the best price that they can
115 Stitch : If Boeing didn't feel they were going to make money off keeping WN as a customer, they wouldn't have done the deal, so whether WN got 7% or 70% off, i
116 ebbuk : It is crystal clear to Wrong wrong wrong. According to the highly respected members on this site, the list price is a meaningless arbitrary number fro
117 BMI727 : Well, to borrow your words: Boeing has turned down low ball deals before and there is no reason to suspect that this is any different. But there is a
118 EPA001 : That I can agree with. I believe only in the case of FR Boeing was not going to offer them the price per unit they wanted. Just because they supposed
119 Post contains images Stitch : I'd be more than happy to stand corrected if you would be so kind as to show me Boeing's P&L calculations on the deal over it's life (not just th
120 Post contains images lightsaber : I've never seen anything but compounded estimates... My Wells Fargo contacts do commercial real estate and not aircraft, so it might even vary across
121 homsar : By the time Boeing acquired McDonnell Douglas, the 737NG was already well underway, so the 737-400's weaknesses should have been irrelevant by that p
122 Roseflyer : I’d speculate that if Boeing had upsized the 737-Classic airframe to the weights and payloads of the A320 frame (which didn’t exist when the 737
123 ebbuk : Only that at 7% it is more of a profit. That is the one that i would want. If most aviation specialist expected a range of 50-60% and found it to be
124 Roseflyer : Those first two statements were in the initial start of the thread. Here are the quotes: It is my opinion that some may believe that “64% is such a
125 Post contains links and images mffoda : An interesting point came up on the Leeham website comments section... Quote: "May 21, 2012 at 1:07 pm | #24 Quote Regarding leehamnet comment to Top
126 Post contains images Stitch : Ah, but mffoda - the convention wisdom in this thread appears to be that cutting deep to win a new customer is fine, but cutting deep to win an existi
127 Post contains images PlanesNTrains : Or more, as pointed out in the AA deal. I'm still trying to figure out how offering a 70% discount is good but a 64% discount is bad? Who cares who y
128 Post contains images davs5032 : My point, which you've missed completely, was that both sides are guilty of favoritism..this much is clearly evidenced by the thread-starter's post,
129 XT6Wagon : Certainly an airline that has launched 3 models of the 737 so far should be well regarded, and is now launching a 4th and certainly will launch atlea
130 rheinwaldner : There is no evidence first for the whole claim and even less for the qualification "significant". Can you see that this statement applies to the NEO
131 Post contains images Stitch : I don't recall Wells Fargo offering up a copy of Boeing's sales contract with Southwest to validate their claims, yet everyone seems to agree that th
132 par13del : Except USA OEM's were always fighting an uphill battle against Airbus being successfull, maybe they could do more to preserve the USA market but the
133 SEPilot : The problem with building airliners is that the investment in design and certification is so high. Once a plane is designed and built, they just can'
134 fcogafa : Flightglobal quote Ryanair as saying today that... ========================== O'Leary will bide time over next aircraft order Ryanair chief Michael O'
135 Stitch : Or he has, and other issues are preventing him from pursuing an order now just as ISSUES OTHER THAN PRICE prevented him from securing an order for 20
136 Post contains links mffoda : First, let me remind you how this thread got started... Quote: According to Leeham http://leehamnews.wordpress.com/2012...base-price-34-7m-for-max/#c
137 VZLA787 : The discount doesn't matter, as the list price is a nominal figure and can be as high as the OEM wants (though giving them leverage in negotiations).
138 lightsaber : I do not believe WN wanted to switch types. I also see no need for them to order today. Boeing will have an easier time selling the 737MAX with WN on
139 Post contains images Stitch : And this is why nobody pays list. A 2011 delivery 737-800 is worth about $43 million - that's 47% cheaper than the 2011 list price. Even Aston Martin
140 rheinwaldner : Your point was that Airbus in one case has discounted significantly more than Boeing to WN. So your point has changed. I have no problem to accept it
141 mffoda : The proof or evidence if you like... Is provided by Wells Fargo in both of the above mentioned articles. Not by me... I just brought the two pieces t
142 mham001 : He said AA apparently got a deeper discount from Airbus than SW received from Boeing. There is nothing hypocritical or misleading about that statemen
143 Post contains images Stitch : Yes, in one case. And in two cases, they were effectively the same as Boeing's discount to WN. I have information on over 100 Airbus and Boeing order
144 Roseflyer : I don't think you'll ever get your proof. I am not sure if it is because it doesn't happen or because prices are not disclosed in a way that can be p
145 lightsaber : As you note, with good facts, I see nothing in this order to raise alarm bells. Boeing needed a customer well known for buying *used* airframes to he
146 SEPilot : Boeing is a business whose primary concern is making money. So is Airbus. Both of them are in it for the long term, and hence are very concerned with
147 cmf : That is not how it works in the real world. If your product isn't good enough then it will not sell. The market doesn't care about if you can't start
148 SEPilot : Quite true, and I perhaps didn't state my point well. It is that once the plane is designed and in production, the resources to redo it are likely no
149 ebbuk : 64% was/is a monster figure of a discount as I saw it for a launch customer. up to 60% had been the norm pre MAX days Why talk about wide bodies when
150 Post contains links lightsaber : I would have to count. Frames I saw WN bought used: N270WN N271LV N550WN-N551WN N771WN-N772WN (being sold, but it was bought used) N664WN N798WN-N799
151 Stitch : I did not say it was "meaningless" (that was another poster), however the list price of a commercial airplane is like the MSRP of a car - it's where
152 757gb : I rarely enter these threads, for the most part I simply enjoy reading them, and I admit that the A vs. B battles are hugely entertaining at times. I
153 odwyerpw : I share your sentiments.. Though I rarely enjoy the A vs. B battles, because they generally smack of nationalistic pride and unbridled patriotism. Th
154 PlanesNTrains : I understand the point, but unless someone stops the chain, this forum is going to continue it's partisan spiral. Is that worth defending? (That's rh
155 ebbuk : @Stitch reply 151. I would have expected what you've explained to be so for any purchase A or B selling to American, Deccan, Lion Air or Southwest. At
156 Post contains images rheinwaldner : Thanks for the profound answers (I mean it) and your patience with the "Airbus fanboys" who artifically lengthen this discussion. I understand the "ne
157 par13del : I can easily see where the A versus B battle starts. Which club is this, based on the majority of threads on this site, Airbus supporters have always
158 Post contains images SEPilot : Because they had been excellent and loyal customers and deserved the best price Boeing could give them?
159 Post contains images cmf : Glad I had not missed something So they always look for the best option instead of being stuck in doing the same over and over. A sign of good manage
160 trex8 : Anybody who thinks that in an industry where profit margins for the vast majority of airlines are in low single digit % that suppliers will not compet
161 Stitch : And here is where interpretation rears it's ugly head. I saw it not as aghast at Boeing giving a 64% discount, but at any OEM giving a 64% discount.
162 tdscanuck : What exactly makes it noteworthy? As has been established by facts, not in dispute by either "side", both A & B have in the past given bigger dis
163 Cerecl : Wow, this thread is still going. We really need some exciting order news to drag people away from this pointless debate about the significance of 4% m
164 Post contains images EPA001 : Wen do. When is the next big Airshow?
165 Post contains links ebbuk : Is that why I headed the thread with Boeing 64% Discount? I know Airbus give discounts and that Boeing do too. Clearly demonstrated with Stelios and
166 PlanesNTrains : This has stirred up the pot. This thread was started one-sided. He was simply offering a broader perspective, not calling AIrbus out or "finger-point
167 Stitch : And in 2002, that was pretty big. Then again, the industry was in a bit of a slump at the time and airlines were retiring a number of older frames, w
168 rheinwaldner : I am fine with that explanation. A year ago there was no established and accepted fact that Boeing discounts as much. This does maybe not apply to yo
169 Post contains images lightsaber : WN doesn't buy as many used 737s as before, but that is just cost/benefit. I think it is the frustration Boeing is having to discount at a level they
170 ebbuk : Yes sir You talk of frustration, I am aghast. And round we go again...
171 Stitch : Back in December 2011, Southwest's Chief Operating Officer, Michael Van de Ven, noted that Southwest was planning to spend an average of $1.2 billion
172 CM : By my reckoning, this seems less certain now than it did a couple weeks ago. Since the last public 3rd party analysis I am aware of, the MAX has adde
173 PlanesNTrains : I didn't realize I was supposed to criticize one equally with the other? As for any fanboy comment, if you are going to lump yourself in with others
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