ebbuk
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 5:22 pm

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
 
hatbutton
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 5:29 pm

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?
 
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ODwyerPW
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 5:32 pm

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.
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PlaneAdmirer
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 5:34 pm

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.
 
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Dreadnought
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 5:45 pm

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.
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CALTECH
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 5:51 pm

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.'
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Cipango
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 5:52 pm

Now we can get an idea of the discounts FR got on their 738's.
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Mortyman
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 5:57 pm

Norwegian most likely got atleast 50 % off on their order for 100 Max too.
 
qf002
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 6:04 pm

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...
 
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Stitch
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 6:13 pm

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]
 
redrooster3
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 6:15 pm

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.)
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DocLightning
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 6:21 pm

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.
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roseflyer
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 6:29 pm

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]
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fpetrutiu
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 6:29 pm

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.
 
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bikerthai
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 6:33 pm

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
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Stitch
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 6:43 pm

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.
 
UALWN
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 6:50 pm

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%.
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planespotting
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 6:59 pm

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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bikerthai
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 7:04 pm

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
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Stitch
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 7:05 pm

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%.
 
wolbo
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 7:06 pm

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.
 
United1
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 7:22 pm

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.
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ER757
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 7:22 pm

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  
 
UALWN
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Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 8:20 pm

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%.
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phxa340
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RE: Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 8:29 pm

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 ...
 
davs5032
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RE: Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 8:34 pm

Quoting odwyerpw (Reply 2):
Lots of 737Max hatred about today.

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 posters. That is, after all, the statements made so many times in recent weeks.

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. 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

It seems you have no respect for aviation corps that engage in such practices. But wait...

Quoting Dreadnought (Reply 4):
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.
Quoting CALTECH (Reply 5):
'Hong Kong's Cathay Pacific buys 6 Airbus A350 aircraft at big discount to $1.63B list price'
Quoting Roseflyer (Reply 12):
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.

So you must be REALLY disgusted by A's selling practices, since they've seemingly done this even more than B.

Quoting Stressedout (Reply 16):
It amuses me when some of our friends across the pond complain that too many contributors with the USA flag beside their usernames are "fanboys". There are plenty to go around on both sides of the pond.

This poster = "Exhibit A".
 
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DocLightning
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RE: Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 9:07 pm

Quoting Dreadnought (Reply 4):

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.

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 were already established. I think that now that A has about half of the market share that we will see them switch to a model that is more focused on profit than expansion.
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tdscanuck
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RE: Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 9:22 pm

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?

Because the list price is a completely meaningless number except as the starting point for negotiation. It bears almost no relevance to actual sales price.

Quoting ebbuk (Thread starter):
Didn't they pull this same stunt with the 787 and are now going to sell 1400 of them at below cost price?

The "below price" thing only applies to the early frames, nowhere near the ~850 (not 400) that are on the backlog.

Quoting ebbuk (Thread starter):
Leahy's decry of a price war initiated by Boeing is clearer to see.

And it's absolutely hilarious, coming from Leahy. That is a serious case of the pot calling the kettle black.

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.

This is nothing unique to aviation. For some reason, it's become a point of "price" for purchasers in many industries to get the largest discount *in percent terms*. The suppliers respond simply by jacking the list price so they can offer a "larger" discount while still getting the revenue they need. In a prior career we rolled out a new price book that was larger than the last year's by exactly the amount of the increased discount we offered on the new contract...customer gets a "bigger" discount, we get the same revenue, everyone's happy.

Stupid, yes, but suppliers need to do what the customers want, *especially* when it doesn't really cost them much.

Quoting Wolbo (Reply 20):
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.

"Deep" relative to what? List price has almost no relevance to actual production cost/sales price.

Tom.
 
ebbuk
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RE: Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 9:35 pm

Quoting fpetrutiu (Reply 13):
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.

To be factual, the facts were revealed not by Airbus but by Wells Fargo that Leeham reported. Very different.

Quoting bikerthai (Reply 14):
Remember, launch customer will face the consequences of any teething problems, so the discount is justified.

A discount is justified yes. But 64% discount? sounds like desperate for commission on numbers. Lord help A or B if they are hit with delays and have to shell out on already heavily discounted prices, as per le 787 fiasco.
But again nobody sees this as a problem because there are accounting rules that allow companies to push money around and make everything appear ok. No similarities to the global crisis of course.

Quoting Stitch (Reply 15):
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.

I never saw those contracts, it seems you did. Please share, I would love to peruse

Quoting planespotting (Reply 17):

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.

But why would Boeing need to go to 64% for the launch order then half price (allegedly) for other customers when its product is supposed to be better than the competition?

Quoting PHXA340 (Reply 24):
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 ...

I was wondering when someone would bring up the iPhone as an allergy. Only difference there is Apple doesn't discount to the cell carriers, their primary customer. Boeing and Airbus do to theirs. We all had an inkling that it would be 50 to 60% for launch customers and had seen 38% somewhere else. But 64%? Clearly Boeing were spooked, and seem to be continually rattled. One usually is when fighting on such price discounts esp 50% discount to non launch customers. Maybe their 1000 commitments ain't that strong hence the aggressive price? Odd odd odd.

oh BTW I'm not hating on the MAX, in fact if it manages even 8% improvement on the NG, it would be impressive for a frame that is as old as I am. It just a deeper discount than I would have expected for a supposedly superior plane.

Quoting davs5032 (Reply 25):
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. 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

It seems you have no respect for aviation corps that engage in such practices. But wait...

Quoting Dreadnought (Reply 4):
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.
Quoting CALTECH (Reply 5):
'Hong Kong's Cathay Pacific buys 6 Airbus A350 aircraft at big discount to $1.63B list price'
Quoting Roseflyer (Reply 12):
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.

So you must be REALLY disgusted by A's selling practices, since they've seemingly done this even more than B.

I remain aghast for reasons I have given beyond 60% sounds desperate for commission or headlines or both.
Not sure I'd be disgusted, or even "REALLY disgusted" at the selling practices of either A or B.
 
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RE: Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 9:43 pm

Quoting DocLightning (Reply 26):
Boeing has not needed to focus as much on expansion since they were already established

Absolutely agree.

Quoting tdscanuck (Reply 27):
Quoting ebbuk (Thread starter):
Leahy's decry of a price war initiated by Boeing is clearer to see.

And it's absolutely hilarious, coming from Leahy. That is a serious case of the pot calling the kettle black.

Well why would Boeing need to fight on price, if they already have 1000 commitments? Why are Boeing playing Airbus's game. What are they worried about?
 
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RE: Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 9:57 pm

Quoting ebbuk (Reply 29):
Well why would Boeing need to fight on price, if they already have 1000 commitments? Why are Boeing playing Airbus's game. What are they worried about?

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 throughout commerce.

Corporations spending hundreds of millions, or even billions, of dollars on assets is different from going to your local store and buying items at the price listed on the shelf. In this case, the price on the shelf is an absolutely meaningless number that probably exists only due to some technicality rather than any actually useful purpose.

Instead, look at it this way:

Airline X goes to the manufacturers and says "we need 100 planes that can meet these specifications, quote us a price." The manufacturers then quote a price, and the deals are negotiated.

"Worry" as you put it doesn't enter into the equation (other than worry that a competitor can put together a better overall package, including a combination of price, aircraft performance, delivery dates, and aftermarket support).

My question is, why are you worried about what Boeing is supposedly worried about?
The plural of Airbus is Airbuses. Airbii is not a word, and doesn't even make sense.
 
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RE: Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 10:08 pm

Quoting homsar (Reply 30):
"Worry" as you put it doesn't enter into the equation (other than worry that a competitor can put together a better overall package, including a combination of price, aircraft performance, delivery dates, and aftermarket support).

My question is, why are you worried about what Boeing is supposedly worried about?

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 price is about as useful as used toilet paper but as even Aviation specialists have noted, the size of this discount is unparalleled in the industry.
 
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RE: Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 10:12 pm

Quoting ebbuk (Reply 28):
I was wondering when someone would bring up the iPhone as an allergy.

I think Benadryl will help with that but Doc Lightning is probably a little better qualified than I on this topic  
 
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RE: Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 10:16 pm

Quoting ER757 (Reply 32):

Quoting ebbuk (Reply 28):
I was wondering when someone would bring up the iPhone as an allergy.

I think Benadryl will help with that but Doc Lightning is probably a little better qualified than I on this topic  

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 thinks  
 
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RE: Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 10:20 pm

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?
Quoting ebbuk (Thread starter):
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?
Quoting ebbuk (Reply 28):
A discount is justified yes. But 64% discount? sounds like desperate for commission on numbers.

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 fold the discount will be worth it, they already lost AA so..........
Airbus certainely thought it was a prize to get US Airways - now largest Airbus operator - and UA and NW(now DL) and folks thought it was a loss for Boeing, so if a steep discounts keeps the competitor off your turf go for.
It is difficult to do but imagine how the situation would be if US majors who have Airbus nb a/c had instead stayed with Boeing.
 
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RE: Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 10:22 pm

Quoting ebbuk (Reply 33):
Of course i meant analogy.

I hear Benadryl works for those, too.  
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RE: Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 10:55 pm

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 price he couldn't do that.
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RE: Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 11:05 pm

Quoting SEPilot (Reply 36):
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 price he couldn't do that.

Actually what is the %age discount for the Ryanair planes? Does it compare to Southwest's whopping 64%?
 
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RE: Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 11:28 pm

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 is having to sell the plane on discounts and not on merit. But if that was the case, they would never have launched the MAX, instead just cutting 737NG prices.

And I believe Leeham.net was the source saying that AA paid $35 million for their A320-200neos, which is a 62% discount from list. So if the A320-200neo is such hot-s**t, why is Airbus discounting it so much?  

For large orders from major customers, 60% appears to be the new 50%.

Quoting ebbuk (Reply 37):
Actually what is the %age discount for the Ryanair planes? Does it compare to Southwest's whopping 64%?

The projected discount was 56%.

[Edited 2012-05-18 17:02:33]
 
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RE: Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 11:36 pm

Quoting Roseflyer (Reply 12):
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.


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, but blew it out of the water!
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RE: Boeing 64% Discount To WN For MAX. Wow!

Fri May 18, 2012 11:39 pm

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% of the market, and price sensibly?

Boeing giving massive discounts to earn a major deal, Airbus following with equal discounts to earn a different shock win is great for the airlines but hopelsss for the manufacturers if they wish to make a decent return from a complex and highly risky activity...
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RE: Boeing 64% Discount To WN For MAX. Wow!

Sat May 19, 2012 12:04 am

Quoting Stitch (Reply 38):
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 is having to sell the plane on discounts and not on merit. But if that was the case, they would never have launched the MAX, instead just cutting 737NG prices.

And I believe Leeham.net was the source saying that AA paid $35 million for their A320-200neos, which is a 62% discount from list. So if the A320-200neo is such hot-s**t, why is Airbus discounting it so much?  

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 for such a thing. JL at Airbus literally told them to re-engine or lose customers and when American went Airbus, Boeing rushed out the Max. If i recall the history on that one correctly?

Leeham did report on AA's prices for their narrowbodies

http://leehamnews.wordpress.com/2011...the-737re-and-a320neo-wells-fargo/

62% discount to snatch a Boeing customer from its own doorstep? That IS a hot s**t deal. Worth the discount. So perhaps Boeing feared that WN would go the same way and rushed in with the big price drop deal to keep them sweet?

Still, Airbus may not have to see that low low (less than 64%) deal go through. AA is in such smelly poo at the mo.
 
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RE: Boeing 64% Discount To WN For MAX. Wow!

Sat May 19, 2012 12:13 am

Quoting ebbuk (Reply 41):
62% discount to snatch a Boeing customer from its own doorstep? That IS a hot s**t deal. Worth the discount. So perhaps Boeing feared that WN would go the same way and rushed in with the big price drop deal to keep them sweet?

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 a blockbuster deal on the NEO too.

And people keep bringing up AA , I think price was a very important factor but another reason was availability ... neither Boeing nor Airbus had enough slots for them.

But clearly a 60+ year old design simply can't hold its own anymore and Boeing has to give them away for a loss  
 
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RE: Boeing 64% Discount To WN For MAX. Wow!

Sat May 19, 2012 12:18 am

Quoting ebbuk (Reply 28):
But why would Boeing need to go to 64% for the launch order then half price (allegedly) for other customers when its product is supposed to be better than the competition?

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 the (almost) totally arbitrary list price. What matters is how what one airline actually pays for a Boeing compared to what one airline actually pays for an equivalent Airbus. The only numbers you should compare are sales prices.

Quoting ebbuk (Reply 29):
Well why would Boeing need to fight on price, if they already have 1000 commitments?

You always have to fight on price; performance is too close to being on par.

Quoting ebbuk (Reply 29):
Why are Boeing playing Airbus's game.

Because it's the same game.

Quoting ebbuk (Reply 29):
What are they worried about?

Losing sales to Airbus.

Quoting ebbuk (Reply 31):
I hate to say it but perhaps the MAX is having trouble getting to the minimums of its promised spec perhaps?

I think it's a little early to know that; they haven't even frozen the configuration.

Tom.
 
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RE: Boeing 64% Discount To WN For MAX. Wow!

Sat May 19, 2012 1:07 am

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 slower depreciation rate and thus cut the lease costs a bit.

Quoting ebbuk (Thread starter):
"We are hearing United Airlines also came down to price. We expect this Boeing win to be announced before at at Farnborough."

UA is being brutal on pricing/financing/other. Why else would they have spent SIX MONTHS bidding Boeing versus Airbus.

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.

Yep. Funny how the nominal sales price is only about 10% less than what would expect for an order of say 25...

Quoting Stitch (Reply 9):
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).

This level of discounting explains some of Bombardier's issues selling... But you are correct, this is no longer a 2 horse race. The rules are being written again.

Quoting Stitch (Reply 19):
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.

$11mill tow two engines, winglets, a tail cone and some weight removal... A wee bit steep. How much of that was to be negotiated away?

Quoting tdscanuck (Reply 43):
The only numbers you should compare are sales prices.

Agreed.

Quoting tdscanuck (Reply 43):
You always have to fight on price; performance is too close to being on par.

   We'll see more airlines switch vendors as the performance should be that close.

This is a substantial discount, but WN played for keeps. I see Boeing making money on the MAX and this deal helps solidify the 2nd hand market for future MAX deliveries. I believe it also will make the 737-7MAX a tough sell with WN going to the larger frame. It makes the 737-7MAX resale case tougher than when WN was a buyer.

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RE: Boeing 64% Discount To WN For MAX. Wow!

Sat May 19, 2012 1:16 am

Quoting lightsaber (Reply 44):
$11mill tow two engines, winglets, a tail cone and some weight removal... A wee bit steep. How much of that was to be negotiated away?

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 MAX less than what they are paying for the non-MAX they are currently taking (if they got them at a, say, 55% discount).
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RE: Boeing 64% Discount To WN For MAX. Wow!

Sat May 19, 2012 1:33 am

Quoting Stitch (Reply 9):
the production cost of a 737-8 should be lower than the production cost of the 737-800's WN is taking today.

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 reduce parts counts. More automation compatible design, modern tooling methods, etc all will help shave some serious money out of producing any new sections of the frame.
 
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RE: Boeing 64% Discount To WN For MAX. Wow!

Sat May 19, 2012 1:58 am

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 out such details that could jeopardize millions in future business. Otherwise, how would they know?
 
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RE: Boeing 64% Discount To WN For MAX. Wow!

Sat May 19, 2012 2:47 am

Quoting ebbuk (Reply 41):
So perhaps Boeing feared that WN would go the same way and rushed in with the big price drop deal to keep them sweet?

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 from your suppliers for our configuration. As such, we expect a significant price concession, as well, since your margins are going to be fine on the deal."
 
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RE: Boeing 64% Discount To WN For MAX. Wow!

Sat May 19, 2012 3:23 am

Quoting fpetrutiu (Reply 47):
Exactly how is Wells Fargo involved in this?

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?

Quoting fpetrutiu (Reply 47):
If so, it is umbelievably unprofessional to leak out such details that could jeopardize millions in future business.

Why unprofessional? Wells Fargo is one of *the* primary buyers of loans on older aircraft. Research like this is required and if you read the article, from public information or 'rules of thumb' that Wells Fargo has put into reports before.

By making public this information, Wells Fargo will be able to raise billions to buy the leases of older 737MAXs. Recall that GECAS doesn't hold paper very long. They sell off those leases. For aircraft 8+ years old, there would be a sharp drop if Wells Fargo didn't participate.

Read the article, Wells Fargo is being hit by a drop in A320oeo and 737NG residual values and lease rates.
From the OP link: " This means dropping the price on the current generation to help. (Separately, this also means drops in lease rates and residual values.)"

So investors in 737NG/A320oeo leases want to know why they should invest in 737MAX/A320NEO leases if the current aircraft are losing value. Wells is providing an analysis on why they should invest in Wells Fargo and thus prop up the 737MAX resale value.

It is simply the anticipation of a generational change with HIGH aircraft production rates with new competition.

Quoting Stitch (Reply 48):
I think WN told Boeing "we plan to buy 500 of these things, so you should be able to get significant price concessions from your suppliers for our configuration. As such, we expect a significant price concession, as well, since your margins are going to be fine on the deal."

   I also wouldn't bet against WN not knowing more about the AA Airbus deal than anyone would like. WN also buys a large number of used 737s. Boeing had to offer them a deal to not sit on the sidelines as 737NGs become available at a discount, which they will a year or two post NEO/MAX EIS.

WN would have had a number that said 'not worth buying new above $XX million per airframe.'

Quoting UALWN (Reply 45):
it's very possible that WN will pay for the MAX less than what they are paying for the non-MAX they are currently taking (if they got them at a, say, 55% discount).

I've heard slightly lower numbers (not much, mind you) for WN's 738 purchase.

This is just an artifact of the MAX/NEO/C-series/C919/MS21 five way competition. The market will settle out.

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