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frmrCapCadet
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Boeing Bubble Ahead?

Mon Oct 24, 2016 3:12 pm

http://www.seattletimes.com/business/bo ... t-at-risk/

While none of us have been willing to go out on a limb and say there is a bubble of orders, it was not too far from the attention of many of us the that a bubble was possible. Dominic Gates reports that not only the 777 line, but also the two other lines are facing worrying times. My own interpretation is that while the world is not facing short term economic disaster the huge number of orders a few years ago was likely unrealistic. I do not follow Airbus as closely as I do Boeing, but I suspect things would be similar.

And note, months ago Dominic suggested that more layoffs were looming. He has good sources and does not overplay what he hears and reports.
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Amiga500
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Re: Boeing Bubble Ahead?

Mon Oct 24, 2016 3:46 pm

Yeah, I'd imagine it is not too far off the mark.

On the Airbus side, your probably looking at long term cuts to A330 production, obviously the already announced cuts to A380 production. Also expect the A350 ramp up to become less like Alpe d'Huez and more like the Champs Elysees!

A320 I expect will keep going strong, although it may not ramp to rate60 or whatever they are taking. 737 I believe will do OK for 2017, but may start to soften thereafter - Airbus would probably either (1) cut A321 margins to keep the line flowing or (2) build the A320.5 or A322 or the extended range A321.
 
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Dutchy
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Re: Boeing Bubble Ahead?

Mon Oct 24, 2016 3:50 pm

Interesting analysis. The 747 will be gone in a few years. The 777 struggling till they switch to the 77X. But even then, there aren't too much orders for that at the moment, but we have still a few years to go, so optimistic for a 72plus year / 6/month production. The 787 is quite interesting case. They seems to be hurting from the A330NEO. They need to get more orders in. 788 seems to be dead, the 789 is doing fine and the 78X also. The 737Max has a huge backlog, but that can be gone quite quickly if they really up the production too fast. So Boeing needs to do something here.
Solutions?
- More aggressive pricing.
- Cutting back production.

The same goes, to lesser extend I guess, for Airbus.
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Sooner787
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Re: Boeing Bubble Ahead?

Mon Oct 24, 2016 3:51 pm

Ironic that after reading that article, I see a Boeing Recruiting banner ad on my a.net page :)
 
lancelot07
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Re: Boeing Bubble Ahead?

Mon Oct 24, 2016 3:52 pm

The joys of a cyclical business ! But we should keep in mind that the 777 will come out new soon, so it is not a surprise the current old modell may not sell like a blockbuster.
 
Sooner787
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Re: Boeing Bubble Ahead?

Mon Oct 24, 2016 4:01 pm

I noticed oil hit $50 bbl late last week. if jet fuel prices start creeping back up again,
that's good news for the new MAX line as well as Airbus' NEO line.
 
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Polot
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Re: Boeing Bubble Ahead?

Mon Oct 24, 2016 4:03 pm

Amiga500 wrote:
A320 I expect will keep going strong, although it may not ramp to rate60 or whatever they are taking. 737 I believe will do OK for 2017, but may start to soften thereafter - Airbus would probably either (1) cut A321 margins to keep the line flowing or (2) build the A320.5 or A322 or the extended range A321.


I think the A320 line will be fine without having to cut A321 margins or building a new variant to keep the line moving. I just don't think all those A320neos orders will materialize under their current customers as some bit off more than they can chew (ditto the 737MAX).

Even if we assume only 4,000 Neo orders are safe (which is ridiculously low) that is still 5.5 years of production at 60/month ignoring the ceo backlog.
 
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keesje
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Re: Boeing Bubble Ahead?

Mon Oct 24, 2016 4:08 pm

I think that if Boeing takes a conservative, cautious approach on the MAX 10 and possible NSA/MoM, Airbus will keep raising NEO production until at least until 2020.
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Dutchy
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Re: Boeing Bubble Ahead?

Mon Oct 24, 2016 4:14 pm

Polot wrote:
Amiga500 wrote:
A320 I expect will keep going strong, although it may not ramp to rate60 or whatever they are taking. 737 I believe will do OK for 2017, but may start to soften thereafter - Airbus would probably either (1) cut A321 margins to keep the line flowing or (2) build the A320.5 or A322 or the extended range A321.


I think the A320 line will be fine without having to cut A321 margins or building a new variant to keep the line moving. I just don't think all those A320neos orders will materialize under their current customers as some bit off more than they can chew (ditto the 737MAX).

Even if we assume only 4,000 Neo orders are safe (which is ridiculously low) that is still 5.5 years of production at 60/month ignoring the ceo backlog.


Well it all depends what Boeing is going to do with the rumored Middle of the Marked plane. If launched then Airbus must react, perhaps then it is time to launch the A322 and A321ER. The A320.5 I am not sure about that one. If they could do it cheap then perhaps. But that is almost a new A320line they are talking about with much more development work then the Neo series.
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ahj2000
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Mon Oct 24, 2016 4:28 pm

ßi think that China might not take all this secondary long haul expansion so well. Don't the chinese secondary carriers have dozens of 787s on order? Would these be in jeopardy?

On the other hand, I'd expect some more 777X customers once there are more concrete operational statistics available.
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dtw2hyd
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Re: Boeing Bubble Ahead?

Mon Oct 24, 2016 4:30 pm

Narrow bodies are not the issue, they are the bread winners. Boeing need to sort out Wide Body/VLA mess. B737 alone (NG or MAX) cannot cover for all other slackers. Worst case scenario, B777X orders get cancelled because customers have overcapacity situation and Boeing gets shafted with $12 billion development bill.
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Re: Boeing Bubble Ahead?

Mon Oct 24, 2016 4:43 pm

I can't imagine many are surprised by this news...especially Boeing management (or Airbus Management for that matter). There is a glut of airplanes out there right now (especially WB's) and it shows in the resale values. The amount of airplanes ordered in the last decade was nothing short of overindulgence. Many airlines have way too much capacity within their system and they are ridding themselves of airplanes that are barely 10 years old in some cases. These same airlines are having to circle the globe to find places to send all of these airplanes that they have bought. The bubble is real and it is finally starting to rear it's ugly head and I think this is only the tip of the iceberg. Many of the Asian airlines are going looking at decreased revenue and profit losses that they are unaccustomed to. Same can be said for the ME3. Time will tell, but I think that the market for airplanes is going to be negative the next few years, and by that, I mean more cancellations than orders.
 
Amiga500
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Re: Boeing Bubble Ahead?

Mon Oct 24, 2016 5:45 pm

dtw2hyd wrote:
Narrow bodies are not the issue, they are the bread winners.


That is exactly why it is such a big issue for Boeing.

With their continued deferment of NSA over the past 10-15 years, they are leaving themselves incredibly vulnerable in the 2020-2025 time frame.


It takes around 8 years to design, build and certify a plane. Power point bullsh|tters will "game-change" and "force-multiply" otherwise, but it is what it is - even if your don't make the same old mistakes, you make a raft of new ones trying to do it different/better.

So, lets say the narrowbody market starts to soften up next year (2017) and both A&B get a load of big deferments and more than a few cancellations. Airbus decide "screw this, we aren't cutting the line, we're going to innovate... errr iterate to keep things going".
- They put a plug on the A320, taking around 12 months. That is an A320.5 in the market by 2018.
- At the same time, they decide they decide to make an enlarged derivative wing for the A321. That would make it to market by ~2020, if not sooner if they keep the same systems.
- Simultaneous to that, they stretch the A321. It would probably make market by around 2021/2022, again, probably could be done much sooner, but I'm being conservative.

Boeing brick themselves and launch NSA straightaway as a response. 2017+8 = 2025. That is between 3-7 years Airbus have pretty much technical dominance across the product line - putting them in a so much better position to trade profit margins for market share. Furthermore with the GTF going great guns on its promised fuel burn, and P&W taking about 2% PIPs by 2019, the 737 may not even have a trip cost advantage (by dint of its lighter airframe).



Narrow bodies are the issue. Everything else is almost a sideshow.
 
dtw2hyd
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Re: Boeing Bubble Ahead?

Mon Oct 24, 2016 6:25 pm

Well, B787's technical dominance didn't kill A330. Reliability wins over few percentage points of efficiency claimed in the brochure.

If(big one) Boeing doesn't screw up MAX program, it will do well. Medium haul NB again is a niche market, MAX7 will cover some of that market, no need to sink another $10 Billion on a clean slate design. Let Airbus have it.

Present day Boeing is not capable of a successful and profitable clean slate design, they should just focus on small scale improvements.

What is the incremental revenue of a B777X over a B77W? $9 Million after discounts. How Boeing is going to recoup $12 Billion cost with $9 Million additional revenue per plane?
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a380787
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Re: Boeing Bubble Ahead?

Mon Oct 24, 2016 6:27 pm

Boeing's NB issue is mostly regarding the 737 MAX 9's lack of competitiveness against A321neo, and the lack of response to the A321LR. The MAX 8+200 itself is doing fine, and can buy Boeing some time before they come up with a proper long-term solution to NSA.
 
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Re: Boeing Bubble Ahead?

Mon Oct 24, 2016 6:58 pm

I think it is hard to predict how many widebody sales there will be. Boeing has a lot of planes to sell if they want to increase 787 production and maintain 777 production. Only one thing is clear. They have to cut costs to give them the best shot at winning sales campaigns.

The narrowbody market is not in a bubble where there are rate risks. We can rehash the A321 vs 737-9/10 debate (cynical thanks to Keesje for starting that discussion) if we want but it is pointless A vs B rhetoric in my opinion since the article discusses the 737 being in a good position to increase rate, which implies it isn't in a bubble. Neither the A320 nor 737 faces a bubble. Boeing successfully closed the 737ng gap and has thousands of 737s on order. It is the 777 and 747 at most risk with some challenges depending on the outcome of future sales campaigns to determine the 787 production rate. If we want to talk A vs B we can discuss how great of a job Airbus sales did to keep the A330 order book decently full in the last few years at the expense of 787. Let's see if the A330 maintains strong sales or if the 787 picks up more orders. What will Emirates buy for example?
Last edited by Newbiepilot on Mon Oct 24, 2016 7:17 pm, edited 2 times in total.
 
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TWA772LR
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Re: Boeing Bubble Ahead?

Mon Oct 24, 2016 7:07 pm

dtw2hyd wrote:
Narrow bodies are not the issue, they are the bread winners. Boeing need to sort out Wide Body/VLA mess. B737 alone (NG or MAX) cannot cover for all other slackers. Worst case scenario, B777X orders get cancelled because customers have overcapacity situation and Boeing gets shafted with $12 billion development bill.

Perhaps they should've waited to announce the 777 to let the 77W line slow down? It seems like the 777 line is only making the W and LRF models, with the W still rolling out in droves. All of these relatively new aircraft must be having some affect on the bottom line of the 77X.

Alao, is the 78J meant to have TPAC range? If so, that would also hamper the market for the 777 on the low end.
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a380787
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Re: Boeing Bubble Ahead?

Mon Oct 24, 2016 7:12 pm

TWA772LR wrote:
Alao, is the 78J meant to have TPAC range? If so, that would also hamper the market for the 777 on the low end.


787-10 should have the shorter side of TPAC range .... think along the lines of the 333 or maybe a few percent less. Things like SFO-PVG would be a breeze for it.
 
dtw2hyd
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Re: Boeing Bubble Ahead?

Mon Oct 24, 2016 7:40 pm

Without many other WB twins B77W sold 800 copies. A332 was the only other close competition.

Now there are B787-9,B787-10, A332, A333NEO,A333R, A350-900 and A350-1000, at least 6 other twin engine WBs serving different segments.
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Planesmart
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Re: Boeing Bubble Ahead?

Mon Oct 24, 2016 7:43 pm

Dutchy wrote:
Interesting analysis. The 747 will be gone in a few years. The 777 struggling till they switch to the 77X. But even then, there aren't too much orders for that at the moment, but we have still a few years to go, so optimistic for a 72plus year / 6/month production. The 787 is quite interesting case. They seems to be hurting from the A330NEO. They need to get more orders in. 788 seems to be dead, the 789 is doing fine and the 78X also. The 737Max has a huge backlog, but that can be gone quite quickly if they really up the production too fast. So Boeing needs to do something here.
Solutions?
- More aggressive pricing.
- Cutting back production.

The same goes, to lesser extend I guess, for Airbus.


With this downturn, Airbus finds itself in a better place than Boeing, but not necessarily a good place.

The next five years are going to be characterised by deferring deliveries, cancellations, model hops and a lower rate of new orders.

Airbus have a range of models, new, except the A380, at the right point of the bell curve, and with the full model range, they have done a great job of cost management, without screwing suppliers (so far). In every model group going forward, they have the high ground when it comes to cost and margins.

Boeing have a mature model range, at which point you normally compete on price and delivery. However, the combination of poorly controlled outsourcing, poor cost management, record levels of deferred costs, possibility of record write-offs, permitting a power shift within the company from sales and engineering to finance, and well priced competitor products, and you have the perfect storm.

Poorly drafted contracts are enabling 787 launch customers to convert orders and options to 789 and 10 models, and even already heavily discounted outgoing 777 models. Launch discounts will dominate 777X deliveries for close to a decade, a model which in hindsight is either three years too late, or five years too early.

Airbus won't be gloating. They both have work to do on models, costs and finance. B has created customer expectations in respect to launch discounts which is unsustainable for the entire industry. Stronger A & B means even less opportunity for other manufacturers.

This comes when the customer base is polarising, with the likes of IAG (still easily another 1-2 acquisitions before 2020 unless they add AF), a queue of airlines asking EK for QF-style partnerships (which will inevitably extend to parts, software and even aircraft acquisition), ME3 to ME2, EU3 to EU2, US3 to US2, some LCC's becoming brands rather than airlines, and one or maybe two LCC's becoming near global.
 
Newbiepilot
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Re: Boeing Bubble Ahead?

Mon Oct 24, 2016 11:29 pm

Planesmart, I don't really understand your logic for why Airbus is in a better place than Boeing. The companies have very similar sized backlogs based on value. Airbus holds 60/40ish mix in narrowbodies and Boeing has similar 60/40ish mix in widebodies.

I don't understand where you think Boeing has a mature model range. The A350 and 787 are pretty close in maturity. The A330neo and 777x will also be upgraded models from the 1990s.

Airlines switching from 787-8s to 787-9s and 10s is likely encouraged by Boeing. The larger airplanes carry higher profit margins. Why is that a poorly drafted contract?

Regarding your comments on suppliers, Airbus is having more trouble than Boeing right now in execution whereas Boeing has some financial pressures. Airbus is having significant ramp up problems with the A350 where due to various supplier issues are overspending and likely behind in deliveries. The A320neo is many engines behind and again deliveries planes late. Boeing has just dug itself out of the 787 hole and has a lot of deferred cost to deal with due to production problems. Airbus right now is taking financial hits for the current problems. The max is still months away from delivery.

I don't think that either A or B is in a better spot. Both have their challenges ahead of them if widebody orders sink. Boeing is in trouble with the 777 production gap. I think that is the biggest concern raised in the article. Airbus solidified the A330 transition by quickly executing the NEO program, but questions remain regarding how many airlines will buy it, especially the smaller A338.

The sad thing for Boeing and Airbus is that they have competed so aggressively that neither are delivering airplanes across the board that are both profitable and on time, which is hurting the bottom lines for both companies.
 
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Re: Boeing Bubble Ahead?

Tue Oct 25, 2016 1:09 am

Newbiepilot wrote:
Planesmart, I don't really understand your logic for why Airbus is in a better place than Boeing. The companies have very similar sized backlogs based on value. Airbus holds 60/40ish mix in narrowbodies and Boeing has similar 60/40ish mix in widebodies.

I don't understand where you think Boeing has a mature model range. The A350 and 787 are pretty close in maturity. The A330neo and 777x will also be upgraded models from the 1990s.

Airlines switching from 787-8s to 787-9s and 10s is likely encouraged by Boeing. The larger airplanes carry higher profit margins. Why is that a poorly drafted contract?

Regarding your comments on suppliers, Airbus is having more trouble than Boeing right now in execution whereas Boeing has some financial pressures. Airbus is having significant ramp up problems with the A350 where due to various supplier issues are overspending and likely behind in deliveries. The A320neo is many engines behind and again deliveries planes late. Boeing has just dug itself out of the 787 hole and has a lot of deferred cost to deal with due to production problems. Airbus right now is taking financial hits for the current problems. The max is still months away from delivery.

I don't think that either A or B is in a better spot. Both have their challenges ahead of them if widebody orders sink. Boeing is in trouble with the 777 production gap. I think that is the biggest concern raised in the article. Airbus solidified the A330 transition by quickly executing the NEO program, but questions remain regarding how many airlines will buy it, especially the smaller A338.

The sad thing for Boeing and Airbus is that they have competed so aggressively that neither are delivering airplanes across the board that are both profitable and on time, which is hurting the bottom lines for both companies.


The only real difference between Boeing and Airbus in possible future wide body troubles, is the deferred cost at Boeing and there especially for the 787. Airbus can lower production rates easier, plain from the financial side. At Boeing lowered production rates will trigger forward loss calls.
This does not apply to the narrow body side with its currently higher profitability. If the bubble burst there, production rates will be cut, but both will happily live on earning money on this lower production rate. The cost to move to the neo on Airbus side and to the MAX at Boeing are negligible compared to the sales volume and revenues.
 
dc10lover
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Re: Boeing Bubble Ahead?

Tue Oct 25, 2016 3:31 am

You can say the hot buying spree has cooled off. I would not call it a bubble.
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BestWestern
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Re: Boeing Bubble Ahead?

Tue Oct 25, 2016 4:47 am

If the Chinese government stops subsidies on international routes, that will really hurt long haul sales. Without subsidies, the vast majority of these routes are not sustainable, as BA found out in Chengdu and Lufthansa in Guangzhou.

I struggle to understand why the Chinese government is subsidising long haul holidays for locals to spend their grey money overseas on Prada and expensive apartments.
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Boeing778X
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Re: Boeing Bubble Ahead?

Tue Oct 25, 2016 7:15 am

Boeing certainly has strategic gaps in their lineup that should be addressed. Between the 737-8 and 787-9 (737-9 and 787-8) you have uncompetitive models, while current 777 demand seems to be decreasing ahead of the 777X.

Demand for the 737 MAX 8, 787-9 and 787-10 will stay where they are, and once solid numbers come in for the 777-9, so will that too. The 777-300ER will probably sell a bit more as well. I'm curious to see if Boeing will do paired 77W/779 orders with new and existing customers.

The 737-7 is a weak seller, and so is the A319neo. New types like the CS300 will probably continue to gain popularity, but if/when the CS500 is launched, that's pretty much it for the sub-150 seat market for A/B.

Airbus has a terrific "MoM" model in the A321 (if you want to call it that), though a rewing and further stretch will, IMHO, yield even better results, and it is here where Boeing is weak. The 737-9 does not appeal to the market and a -10 will most likely flop. As to be expected, the 787-8 is starting to see a lack of interest as customers migrate to the larger models.

The 747-8 is probably done, leaving the 777-9 as the flagship product of Boeing. The 777-8 will sell a bit more, but will otherwise make a good base for a freighter down the road.

While Airbus has a few lineup issues of there own, they have it far better otherwise.
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astuteman
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Re: Boeing Bubble Ahead?

Tue Oct 25, 2016 7:17 am

Newbiepilot wrote:
Planesmart, I don't really understand your logic for why Airbus is in a better place than Boeing. The companies have very similar sized backlogs based on value. Airbus holds 60/40ish mix in narrowbodies and Boeing has similar 60/40ish mix in widebodies.

I don't understand where you think Boeing has a mature model range. The A350 and 787 are pretty close in maturity. The A330neo and 777x will also be upgraded models from the 1990s.

Airlines switching from 787-8s to 787-9s and 10s is likely encouraged by Boeing. The larger airplanes carry higher profit margins. Why is that a poorly drafted contract?

Regarding your comments on suppliers, Airbus is having more trouble than Boeing right now in execution whereas Boeing has some financial pressures. Airbus is having significant ramp up problems with the A350 where due to various supplier issues are overspending and likely behind in deliveries. The A320neo is many engines behind and again deliveries planes late. Boeing has just dug itself out of the 787 hole and has a lot of deferred cost to deal with due to production problems. Airbus right now is taking financial hits for the current problems. The max is still months away from delivery.

I don't think that either A or B is in a better spot. Both have their challenges ahead of them if widebody orders sink. Boeing is in trouble with the 777 production gap. I think that is the biggest concern raised in the article. Airbus solidified the A330 transition by quickly executing the NEO program, but questions remain regarding how many airlines will buy it, especially the smaller A338.

The sad thing for Boeing and Airbus is that they have competed so aggressively that neither are delivering airplanes across the board that are both profitable and on time, which is hurting the bottom lines for both companies.


The article linked in the OP appears to think the same as Planesmart.
Why might they think that?
some statistics...

BACKLOGS ...

Narrowbodys...

A320 backlog - 5 500. Current production rate - c. 500 per annum. Backlog/rate = 11
737 backlog - 4 350. Current production rate - c. 500 per annum. Backlog/Rate = 8.7

Widebodys...

A330 backlog - 335. Current production rate - c. 60 per annum. Backlog/Rate = 5.7
A350 backlog - 770. Current production rate - c. 40 per annum. Backlog/rate = 19.25

Widebody backlog - 1 105. Current production rate - c. 100 per annum. Backlog/rate = 11

787 backlog - 695. Current production rate - c. 140 per annum. Backlog/rate = 5
777 backlog - 455. Current production rate - c. 100 per annum. Backlog/rate = 4.5

Widebody backlog - 1 150. current production rate - c. 240 per annum. Backlog/rate = 4.8

I'm certainly not partisan enough to suggest that Boeing are "in trouble".
I've no doubt that it's underpinnings are sound.
But in terms of the thread subject, i.e. a "bubble", then it's clear that Boeing have more of a challenge on production rates than Airbus, especially in the widebodys

In Narrowbodys, Airbus has 55% of the backlog, Boeing 45%. The production rates are very close.
Neither of these rates is at any risk whatsoever.
Aspirations of annual rates of 650 - 700 per annum may be at more risk.
Airbus clearly currently have more leeway than Boeing

In widebodys, the backlogs are pretty much split 50%/50%
But Boeing's current rate is 2.4 times that of Airbus
Both Boeing models have the lowest backlog to production rate ratio.

ORDER INTAKE

Orders for widebodys look a lot thinner than for narrowbodys, compared to delivery rates.
Despite the Kingfisher cancellation of c. 100 A320's,
A320 net orders still sit at 320 - a book-to-bill of 85%
737 net orders sit at 330 - a book-to-bill of 90%

Total narrowbody orders sit at 650 net, even after all the cancellations - a book-to-bill of 87%

Airbus widebody orders sit a 63, net of the kingfisher cancellation - a book-to-bill of 95%
Boeing widebody orders sit at 77, including the recent much needed QR order - a book-to-bill of only 30%

Total widebody orders sit at 140 net, including QR, a book-to-bill of only 40%

It's easy to recognise that the Airbus widebody position is slightly misleading, as the A350 is still ramping up.
But it is equally easy to see from the numbers that the 777 is not in a great place in terms of maintaining rate, with little or no intake to offset the current high rate.
The 787 is in a better place, but still not great. It's clear to see why no rate rise will happen, and why the pressure looks more down than up.
the A330 is in a slightly better place still, but no rate move either direction looks likely.
The A350 is clearly best placed in terms of rate movement, with a huge backlog, and orders exceeding deliveries so far this year.

From the current delivery rates, I can only see Airbus output increasing, and Boeing output decreasing.
Boeing do come from a much higher widebody output, but that is the whole point of the "bubble" discussion, isn't it?

Rgds
 
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seahawk
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Re: Boeing Bubble Ahead?

Tue Oct 25, 2016 7:36 am

There is an order bubble, but I see no difference between Boeing and Airbus when it comes to that.

When this bubble bursts, both single aisle offerings will do fine imho.

In the widebody segment, the 777W, 747 and A380 are dead any way. The A350 is healthy but the production increase might be slower than planed, 787 production will not increase - maybe go down to 10, A330 production is low at 6 frames per month, it might go down to 4-5. 777X ramp-up will be slower.

All in all I see not much difference between the 2.
 
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keesje
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Re: Boeing Bubble Ahead?

Tue Oct 25, 2016 8:02 am

The MAX has 650 undisclosed orders that can be reduced without much noise and 550 with lessors that tend to be flexible. Lionair is in the books for 200 737-9 while taking -8s and United is weighing their 100 737-9's. I wouldn't call this a bubble, I wouldn't call it rock solid & in the pocket either.

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KarelXWB
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Re: Boeing Bubble Ahead?

Tue Oct 25, 2016 8:06 am

astuteman wrote:

From the current delivery rates, I can only see Airbus output increasing, and Boeing output decreasing.

Rgds


That seems to be the case indeed.

Airbus to overtake Boeing on aircraft output rates by 2020

Airbus poised to overtake Boeing in wide-body sector

In a duopoly, Airbus and Boeing tend to overtake each other from time to time. Airbus out-delivered Boeing between 2003-2011, for example.
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Amiga500
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Re: Boeing Bubble Ahead?

Tue Oct 25, 2016 9:12 am

dtw2hyd wrote:
Well, B787's technical dominance didn't kill A330. Reliability wins over few percentage points of efficiency claimed in the brochure.


Because Airbus can build it ~30mill cheaper and price accordingly so the technical dominance is nulled. If fuel prices were to spike, then the 787 would become very much more attractive.

dtw2hyd wrote:
If(big one) Boeing doesn't screw up MAX program, it will do well.


It will do OK. Its a 1.5 model lineup (-7 and -8). But its now in the beginnings of a slow and ugly death spiral in comparison to the A320/321. The market is moving up and the 737-9 frame is too big for its bones.

I've said it before, but I'll say again, IMO Boeing had to replace the 737 when they did the NG. Folks will argue, with some justification, that the resulting profitability means the NG is a success. However, I'd say that short-termism has locked Boeing into a real problem. Any NSA done now will be the same as B787 vs. A330, only 10 times worse. The even bigger risk is waiting 10 years, A320.5, A321 and A322 dominate the market, Boeing are forced to do a new NSA just before propfans become viable. Rock and hard place.
 
astuteman
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Re: Boeing Bubble Ahead?

Tue Oct 25, 2016 10:44 am

KarelXWB wrote:
astuteman wrote:

From the current delivery rates, I can only see Airbus output increasing, and Boeing output decreasing.

Rgds


That seems to be the case indeed.

Airbus to overtake Boeing on aircraft output rates by 2020

Airbus poised to overtake Boeing in wide-body sector

In a duopoly, Airbus and Boeing tend to overtake each other from time to time. Airbus out-delivered Boeing between 2003-2011, for example.


Must admit I'm not massively bothered about who has what lead.

For the record though, my own perception is that we're seeing a drift towards parity between the big 2, particularly in the widebodys.

In the 2018 - 2020 timeframe, I think we could quite easily see 60-70 A330's and 100-120 A350's matching 60-70 777's and 100-120 787's.

I feel pretty confident that Airbus will have the narrowbody lead in that timeframe, though.

So unlike Leeham, although I can see Airbus with an overall lead towards the end of the decade, I think it is more likely to be narrowbody driven rather than widebody.

Rgds
 
Newbiepilot
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Re: Boeing Bubble Ahead?

Tue Oct 25, 2016 10:47 am

Astuteman, you said that you think the article is agreeing with planesmart. It certainly never said that Airbus is in a better position than Boeing. In fact it doesn't talk about Airbus either way (except one reference to the upcoming Emirates order). I don't see how you think an article not saying anything about Airbus backs that point up.

Regarding the rate discussions. I think you are correct when talking about the 777 and 787 production rates. Can the 787 rate go up? That might be questionable. Will the 777 go down? Again fair question.

But what about Airbus? The current A350 production rate is still in ramp up phase. I have seen various numbers for what Airbus intends to increase the rate to such as 10, 12, 13 or 15 planes per month. Would you agree that at 12 or more planes per month, the A350 is in the exact same bubble as the 787? With similar backlog sizes, I would think so although the 787 backlog is shrinking quickly at 12 a month.

I don't see a narrowbody bubble right now on either side. I think production rates need to climb fast to keep out new entrants.

I do think that if the current order pace continues for 3-5 years we will see production rate cuts.

If you want to compare Airbus, here is an article from Leeham to use as a starting point.

https://leehamnews.com/2015/02/03/airbu ... ough-2020/
 
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KarelXWB
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Re: Boeing Bubble Ahead?

Tue Oct 25, 2016 10:51 am

Newbiepilot wrote:
But what about Airbus? The current A350 production rate is still in ramp up phase. I have seen various numbers for what Airbus intends to increase the rate to such as 10, 12, 13 or 15 planes per month. Would you agree that at 12 or more planes per month, the A350 is in the exact same bubble as the 787? With similar backlog sizes, I would think so although the 787 backlog is shrinking quickly at 12 a month.


The official target is 10 per month / 110 per year. There are no plans to go any higher.
What we leave behind is not as important as how we've lived.
 
astuteman
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Re: Boeing Bubble Ahead?

Tue Oct 25, 2016 11:40 am

Newbiepilot wrote:
Astuteman, you said that you think the article is agreeing with planesmart. It certainly never said that Airbus is in a better position than Boeing. In fact it doesn't talk about Airbus either way (except one reference to the upcoming Emirates order). I don't see how you think an article not saying anything about Airbus backs that point up.

Regarding the rate discussions. I think you are correct when talking about the 777 and 787 production rates. Can the 787 rate go up? That might be questionable. Will the 777 go down? Again fair question.

But what about Airbus? The current A350 production rate is still in ramp up phase. I have seen various numbers for what Airbus intends to increase the rate to such as 10, 12, 13 or 15 planes per month. Would you agree that at 12 or more planes per month, the A350 is in the exact same bubble as the 787? With similar backlog sizes, I would think so although the 787 backlog is shrinking quickly at 12 a month.

I don't see a narrowbody bubble right now on either side. I think production rates need to climb fast to keep out new entrants.

I do think that if the current order pace continues for 3-5 years we will see production rate cuts.

If you want to compare Airbus, here is an article from Leeham to use as a starting point.

https://leehamnews.com/2015/02/03/airbu ... ough-2020/


The linked article NOT mentioning Airbus makes EXACTLY that point, wouldn't you think?

As for the 787 question, you answered it yourself, really.
Stand aside new orders, in 12 month's time the 787 backlog will be 580 and the A350's will be 720.
The real point is, that to get to the sustainable rate of 100-120 that I suggested above, the A350 rate will need to rise quite sharply, whilst the 787's is likely to fall slightly, and certainly won't go to 170 per year, as was originally projected.

Please note that I did suggest that the long term rates for the 787 and A350 were likely to be similar.
So there's no intention on my part to discriminate against Boeing in the long term.

It is beyond question that a production bubble in widebodys only exists on one side of the Atlantic at this present time, IMO

Rgds
 
Newbiepilot
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Re: Boeing Bubble Ahead?

Tue Oct 25, 2016 11:56 am

Astuteman, I assume you are familiar with Dominic Gates from the Seattle Times. He often writes about Boeing without discussing Airbus. He is a well informed reporter, but it is a logical fallacy to assume that since he doesn't talk about Airbus, that they are in a better position. You are correct that the A350 rates now are not in a bubble, but Airbus has many of the same risks as Boeing if they intend to surpass Boeing widebody production in a few years.
 
Amiga500
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Re: Boeing Bubble Ahead?

Tue Oct 25, 2016 1:18 pm

Newbiepilot wrote:
If you want to compare Airbus, here is an article from Leeham to use as a starting point.

https://leehamnews.com/2015/02/03/airbu ... ough-2020/


Are those assumptions still valid? At least one of them isn't - the A380 rate has dropped.

Furthermore, I don't see an A330 neo ramp beyond 7 /month any time soon.

I also don't see the A350 going beyond 10 any time soon either.
 
olle
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Re: Boeing Bubble Ahead?

Tue Oct 25, 2016 1:24 pm

Anyway for Airbus 6-7 A330Neo, 10 A350 and 1 A380 per month will be much higher output of WB frames then they ever seen before.
 
olle
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Re: Boeing Bubble Ahead?

Tue Oct 25, 2016 1:25 pm

My impression is also that Boeing has been much more stressed to raise production to raise cash flow, not because the customers really are pushing for it.
 
dtw2hyd
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Re: Boeing Bubble Ahead?

Tue Oct 25, 2016 2:10 pm

Way too much emphasis on production rate. Production rate doesn't matter if program is profitable or at least breaks even.

R&D cost and write-offs are necessary evil to remain competitive, but too many programs in RED, company will sink. Boeing lacks profitable programs to mitigate B777X and NSA cost. SEC investigation on B748/B787 and next year WTO ruling may impact WA incentives to B777X.
All posts are just opinions.
 
Planesmart
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Re: Boeing Bubble Ahead?

Tue Oct 25, 2016 9:13 pm

Newbiepilot wrote:
The companies have very similar sized backlogs based on value. Airbus holds 60/40ish mix in narrowbodies and Boeing has similar 60/40ish mix in widebodies.

I don't understand where you think Boeing has a mature model range. The A350 and 787 are pretty close in maturity. The A330neo and 777x will also be upgraded models from the 1990s.

Airlines switching from 787-8s to 787-9s and 10s is likely encouraged by Boeing. The larger airplanes carry higher profit margins. Why is that a poorly drafted contract?

Regarding your comments on suppliers, Airbus is having more trouble than Boeing right now in execution whereas Boeing has some financial pressures. Airbus is having significant ramp up problems with the A350 where due to various supplier issues are overspending and likely behind in deliveries. The A320neo is many engines behind and again deliveries planes late. Boeing has just dug itself out of the 787 hole and has a lot of deferred cost to deal with due to production problems. Airbus right now is taking financial hits for the current problems. The max is still months away from delivery.

I don't think that either A or B is in a better spot. Both have their challenges ahead of them if widebody orders sink. Boeing is in trouble with the 777 production gap. I think that is the biggest concern raised in the article. Airbus solidified the A330 transition by quickly executing the NEO program, but questions remain regarding how many airlines will buy it, especially the smaller A338.


I'm not referring to, or comparing backlogs, other than in respect to potential new product launches.

Boeing has negotiated market-leading launch discounts, uncapped in respect to time and model, which will 'haunt' them for years. Nearly a 100% of the first decade of 777X deliveries will incorporate launch discounts, on top of the final 5-6 years of outgoing 777 production sold at cost or less. If the A380 is a VLA template, how many additional 777X sales, other than confirmed options at launch prices will Boeing sell?

I would have thought the 787 and A350 are half a model generation apart, in favour of the A350. But the A350 enjoys both a higher margin and lower price.

I would have thought the A330NEO and 777X are half a model generation apart, this time in favour of the 777X. But the A330 was developed for petty cash, is in a strong market sector, and for it's first decade at least, will earn more per air frame sold than the 777X will for Boeing. And Airbus has I'm sure, many more iterations planned for the A330 which are being withheld for now to assist A350 sales, and for other strategic reasons.

Switching launch discounts from 788 to 789 or 10 I'm sure makes the loss smaller. Switching 788 launch discounts to already heavily discounted outgoing 777 models, makes for more losses.

Both A & B have struggled with supplier issues, mostly volume and quality related.

A320NEO engine issues are well known, and have caused massive delivery delays. Some compensation will flow to Airbus and customers. A positive, is if all that is printed is to be believed, in terms of fuel economy, PW is already multiple PiPs ahead of launch guarantees.

Where A & B differ, is in the model path forward versus where they are now, and more importantly, the cost, ability and willingness to address gaps.

Failure of the 787 and 777X (and 748 if it lasts that long) to contribute positively for probably the first two decades of their respective production, and in the same time horizon for Boeing to replace the 737 and chase the emerging 330 market, is the 'perfect storm', because neither Engineering or Marketing can even agree on the way forward, at a time when Finance is looking for 100% rock solid assurances in respect to performance, manufacturing costs, unit prices, margins and sales volumes.

That's where Airbus has the upper hand. You can spend money and fill product gaps. But if the decision makers can't make decisions.....................
 
Planesmart
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Re: Boeing Bubble Ahead?

Tue Oct 25, 2016 9:36 pm

dtw2hyd wrote:
Way too much emphasis on production rate. Production rate doesn't matter if program is profitable or at least breaks even.

R&D cost and write-offs are necessary evil to remain competitive, but too many programs in RED, company will sink. Boeing lacks profitable programs to mitigate B777X and NSA cost. SEC investigation on B748/B787 and next year WTO ruling may impact WA incentives to B777X.


You have summed up the issues well.

Production rates buy time. The difference between A & B, is going forward, Airbus has potentially more options and opportunities with it's current family of products.

In contrast, Boeing has three programs generating red, and one experiencing falling margins (but against higher volumes, with their main competitor achieving higher and increasing margins).

Until Engineering and Marketing agree the way forward and priorities, and meet Finance's product launch and financial lifecycle thresholds, it's this inability to reach an internal agreement that will burst the Boeing bubble.
 
StTim
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Re: Boeing Bubble Ahead?

Tue Oct 25, 2016 9:58 pm

The other thing that worries me slightly for Boeing is the what looks like excessive squeeze on suppliers on costs and then to look to take the lucrative end of spares Plus the squeezing of airlines for additional advance payments.

Helping suppliers acheive a lower cost as opposed to squeezing them outright is a long term position. Just squeezing them on current sales and the aftermarket revenue looks to me to be short sighted.

Squeezing out early payments from airlines can work once to improve the cash position, but will then likely unwind giving an equal negative effect on cash flow. They also must have given some sort of incentive for the airlines to do this. That is harmful long term.

Airbus may be doing some of the same - but I haven't seen evidence of it in the published figures or news reports.
 
Newbiepilot
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Re: Boeing Bubble Ahead?

Wed Oct 26, 2016 3:54 am

Planesmart, you seem to have intimate knowledge of airplane pricing and profit margin. Where did you get this knowledge if you don't mind me asking? You seem to know more than the Boeing and Airbus marketing teams admit to and I haven't seen many aviation consultants making as bold of claims as you are.

Can you please define what 100% of 777x planes in the first decade will have launch discounts? What does that even mean? Almost Every airplane is discounted from the list price. What is the meaning of the term launch discount if you say it encompasses a decade of production? The traditional term usually refers to the first few customers who accept airplanes that are known to need many service bulletin upgrades and also accept a plane that has more loosely defined performance figures. If you say such discounts extend for a decade then that implies that they will continue well beyond the launch customer period. Are you just talking about discounts?

Can you also clarify how the A350 has both a higher margin and lower price than the 787? I seriously doubt that anybody except Qatar paid less for an A359 than what Boeing is charging for a 787-9 but I admit that I don't really know if that is true. How do you know? I can believe A350s having higher margins, but if we do apples to apples comparisons I don't see the A350 having lower prices.

Where did you find sales prices to indicate that Airbus is earning more on A330s than Boeing will on the 777x? That would again be surprising to me.

Regarding your comment about 777s being sold for less than cost, I think I am beginning to understand that you might be generalizing without knowing any details. You would certainly know if Boeing sold an airplane for below cost. They would issue a forward loss to cover it at this point in the production run. Bombardier issued a forward loss to cover the Delta CSeries order since that actually was below cost.
 
astuteman
Posts: 7146
Joined: Mon Jan 24, 2005 7:50 pm

Re: Boeing Bubble Ahead?

Wed Oct 26, 2016 6:37 am

Newbiepilot wrote:
Astuteman, I assume you are familiar with Dominic Gates from the Seattle Times. He often writes about Boeing without discussing Airbus. He is a well informed reporter, but it is a logical fallacy to assume that since he doesn't talk about Airbus, that they are in a better position. You are correct that the A350 rates now are not in a bubble, but Airbus has many of the same risks as Boeing if they intend to surpass Boeing widebody production in a few years.


No. They don't.
You have clearly never had to experience the pain of a significant reduction in throughput.
It's not funny, and it is this that the OP article is really referring to.

To get to the same level of risk as Boeing have, Airbus would need to up their widebody output next month suddenly from 10 per month to 22 per month - never going to happen

As I said above, that steady state which is parity, or as some claim, slight advantage to Airbus, will only be reached by Boeing being forced to reduce rates and/or abandon planned rate increases. They are going to have to change their plans, and change them downwards in every case - from 240 per year to 160-170 per year in the next 2-3 years my view.

Airbus need change nothing. They can continue with their planned rate increases, rising from 100 per year to the same 160-170 per year in the next 2-3 years.
Those are nothing like the same situation and have nothing like the same implications.

dtw2hyd wrote:
Way too much emphasis on production rate. Production rate doesn't matter if program is profitable or at least breaks even.

R&D cost and write-offs are necessary evil to remain competitive, but too many programs in RED, company will sink. Boeing lacks profitable programs to mitigate B777X and NSA cost. SEC investigation on B748/B787 and next year WTO ruling may impact WA incentives to B777X.


Yes and no.
As you point out, high production rates are only really of any use when they can be leveraged to generate strong profit.
So emphasizing high production rates in that sense doesn't give us much.

But see above.
when your production system is geared up to 240 units per year, and was preparing to go higher in some cases, the need to throttle back causes some very uncomfortable ripples down the supply process.
And absolutely does have a negative impact on profitability.

Rgds
 
StTim
Posts: 3715
Joined: Thu Aug 08, 2013 7:39 am

Re: Boeing Bubble Ahead?

Wed Oct 26, 2016 7:00 am

It does matter to profitability. You have facilities capable of producing 240 units per year and these have a cost of say $48million a year (depreciation and running cost). That is a facility cost of $2million per unit. Say in extremis that the rate is cut to 120 units per year. The facility costs do not change (simplified I know as there may be less running costs) so the facility cost per unit now becomes $4million. So a rate cut reduces profitability and a rate increase (with no increase in facility costs) increases profitability.
 
astuteman
Posts: 7146
Joined: Mon Jan 24, 2005 7:50 pm

Re: Boeing Bubble Ahead?

Wed Oct 26, 2016 7:08 am

StTim wrote:
It does matter to profitability. You have facilities capable of producing 240 units per year and these have a cost of say $48million a year (depreciation and running cost). That is a facility cost of $2million per unit. Say in extremis that the rate is cut to 120 units per year. The facility costs do not change (simplified I know as there may be less running costs) so the facility cost per unit now becomes $4million. So a rate cut reduces profitability and a rate increase (with no increase in facility costs) increases profitability.


Indeed. As I said in the last line of my last post :)

Rgds

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