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Revelation
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Re: Rumor: CX to walk away from 777X order

Thu Apr 16, 2020 10:01 pm

mig17 wrote:
In the end, like you said, I am not even sure the market wants in huge numbers frame as large as the 77W in the future, even to replace it.

Which doesn't bode well for A35K either, it's claimed superiority doesn't matter if airlines simply don't want planes that big. Project Sunrise is kind of a hollow victory, no money is changing hands...
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LDRA
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Re: Rumor: CX to walk away from 777X order

Thu Apr 16, 2020 10:27 pm

Convert 777X on production line to freighter quick! Time is running out
 
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Slug71
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 12:28 am

Revelation wrote:
mig17 wrote:
In the end, like you said, I am not even sure the market wants in huge numbers frame as large as the 77W in the future, even to replace it.

Which doesn't bode well for A35K either, it's claimed superiority doesn't matter if airlines simply don't want planes that big. Project Sunrise is kind of a hollow victory, no money is changing hands...


I somewhat agree. But the A350 is cheaper and the 777 replacement cycle is for the most part a few years out yet.
But I doubt we'll see much new orders anytime soon. I wouldn't be surprised if there is even a few conversions to the -900.

Just when the wide body market was starting to rebound, I think we're back to another reset.
 
lutfi
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 12:41 am

[*]
jfk777 wrote:
Would it be so bad if Cathay switched to the 787-9 for some of the smaller European and North American cities ? The 777-9 could be too much airplane for these times, the 787-9 has proven to be the sweet spot right now. Just something for our Hong Kong friends to consider.


The A350-900 already does these routes for them. Adding 787 would be worse than 779, at least 779 is same crew as existing 777, 787 would need separate pilot pool.

More likely would be to copy SQ and take 787-10 as A330 replacement in the region
 
oldJoe
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 12:41 am

Revelation wrote:
mig17 wrote:
In the end, like you said, I am not even sure the market wants in huge numbers frame as large as the 77W in the future, even to replace it.

Which doesn't bode well for A35K either, it's claimed superiority doesn't matter if airlines simply don't want planes that big. Project Sunrise is kind of a hollow victory, no money is changing hands...


So does it mean the 777-9 for CX ist toast ?
 
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BoeingVista
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 2:20 am

Jetport wrote:
BoeingVista wrote:
TC957 wrote:
Maybe for the next couple of years or so, yes. Long term, I think it has a future. But with oil at current low prices, the need for more fuel efficient new expensive aircraft may not be as urgent as otherwise hence we will see more mainstream airlines keeping present fleets on extended lease deals.


For it to have a future air travel needs to get to a higher level than today, thats going to need people to have jobs and money, I cant see air travel returning to 2019 level for a decade.

Also Boeing commercial needs to survive and have the x hundred million to certify the aircraft.


A decade for air travel to return to 2019 levels, that is absurd. I think you may be depressed or suffering from some version of cabin fever?

After a 6 to 24 month breather, people who like to travel are going to return to travel as soon as it is safe to do so and globalization will resume. We will be well above 2019 passenger volumes by 2022 or 2023. If the 777-9 cant find a market, I would also assume the global A380 fleet will be retired entirely next year, which is just as unlikely.


I think that you need to change your meds if you think that air transport is going to bounce back to 2019 levels in 6-24 months.
BV
 
kevin5345179
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 2:44 am

BoeingVista wrote:
sxf24 wrote:
The Seattle Times article had many errors because Dominic Gates used ex-Boeing employees and bloggers as his sources. Here are facts that I know:
- The SLB with BOC Aviation was not for 10 years
- Any 77W lessor would love to extend leases right now and would probably cut rent to do so (this goes for all wide bodies)
- CX can’t unilaterally cancel orders. It has to negotiate with the OEMs.
- Current delays to the 77X are almost certainly excusable because they’re due to the pandemic.
- Customers will almost certainly support Boeing in a longer certification program and slower rate ramp.



Current delays to the 77X are almost certainly excusable because they’re due to the pandemic.

Depends if there's a force majeure clause and whats in it, if not Boeing has to perform the contract to time or face the penalties in the contract


if MAX development wasn't suspended due to covid, I think suspending 777X flight test was a choice by Boeing and I found it difficult to "prove" the clause
 
smartplane
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 3:12 am

oldJoe wrote:
Revelation wrote:
mig17 wrote:
In the end, like you said, I am not even sure the market wants in huge numbers frame as large as the 77W in the future, even to replace it.

Which doesn't bode well for A35K either, it's claimed superiority doesn't matter if airlines simply don't want planes that big. Project Sunrise is kind of a hollow victory, no money is changing hands...


So does it mean the 777-9 for CX ist toast ?

All the players in the commercial aircraft industry are playing a multi billion dollar game of Jenga, not for entertainment, but for survival. No-one, including OEM's, customers and financiers wants to move, and certainly not move first, for fear of the flow on effect.

Even an airline that wants to (or can) cancel an order, won't unless absolutely forced (conditional for Government support or maverick financiers). More likely, an agreement to review the order at a future date, and not to enforce cancellation or model hopping penalties. A cancellation in every other name, but technically......

Likewise, airlines claim to be storing aircraft when there is no intention to return them to service. Even if 'owned' there will be floating charges over them securing other funding. Permanently withdrawing aircraft used to secure a floating charge will trigger a review of the credit, including the possibility it's withdrawn, reduced and / or re-priced.

One lender withdrawing / reducing their funding, will likely trigger a financial covenant breach of other funding, so you can see how unilateral action of one can create a lemming like response, and why significant financial players with capacity are already increasing funding, by buying out troublesome 'fleas'.

Airlines with A350 and X orders, the former part way through delivery, costs customers many times more to cancel, as milestone payments and accrued retrospective credits are forfeit, as well as losing yet to accrue retrospective credits on undelivered aircraft. Credits are back end loaded, not straight line, so cancellations once deliveries have started are disproportionately expensive.
 
Strato2
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 3:23 am

777X vs A35K is a bad comparison. The 777X is bigger and if airlines think A35K is too big itself they can convert to/order the A359. Boeing doesn't have that option since the 777-8 is not really in the game at all.
 
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FrenchPotatoEye
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 3:34 am

Strato2 wrote:
777X vs A35K is a bad comparison. The 777X is bigger and if airlines think A35K is too big itself they can convert to/order the A359. Boeing doesn't have that option since the 777-8 is not really in the game at all.


787-9 and 787-10?

787-9 is almost identical to the a350900 sizes.
 
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flee
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 3:53 am

jfk777 wrote:
Would it be so bad if Cathay switched to the 787-9 for some of the smaller European and North American cities ? The 777-9 could be too much airplane for these times, the 787-9 has proven to be the sweet spot right now. Just something for our Hong Kong friends to consider.

787-9 is too close to the A359 that is already operating in the fleet. Besides, it is not big enough for a 4 class cabin.
 
reply1984
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 3:55 am

flee wrote:
jfk777 wrote:
Would it be so bad if Cathay switched to the 787-9 for some of the smaller European and North American cities ? The 777-9 could be too much airplane for these times, the 787-9 has proven to be the sweet spot right now. Just something for our Hong Kong friends to consider.

787-9 is too close to the A359 that is already operating in the fleet. Besides, it is not big enough for a 4 class cabin.


All of CX's A350s are in 3-cabin config. They are to upgrade their first class on their B779...
 
VSMUT
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 4:45 am

flee wrote:
jfk777 wrote:
Would it be so bad if Cathay switched to the 787-9 for some of the smaller European and North American cities ? The 777-9 could be too much airplane for these times, the 787-9 has proven to be the sweet spot right now. Just something for our Hong Kong friends to consider.

787-9 is too close to the A359 that is already operating in the fleet. Besides, it is not big enough for a 4 class cabin.


Lets get real for a moment. Several airlines do 4 classes on aircraft as small as the A330-300 and 787-9. The A350-1000 is not a small aircraft, airlines can definitely make those work with 4 classes too.
 
eurotrader85
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 4:56 am

Jetport wrote:
BoeingVista wrote:
TC957 wrote:
Maybe for the next couple of years or so, yes. Long term, I think it has a future. But with oil at current low prices, the need for more fuel efficient new expensive aircraft may not be as urgent as otherwise hence we will see more mainstream airlines keeping present fleets on extended lease deals.


For it to have a future air travel needs to get to a higher level than today, thats going to need people to have jobs and money, I cant see air travel returning to 2019 level for a decade.

Also Boeing commercial needs to survive and have the x hundred million to certify the aircraft.


A decade for air travel to return to 2019 levels, that is absurd. I think you may be depressed or suffering from some version of cabin fever?

After a 6 to 24 month breather, people who like to travel are going to return to travel as soon as it is safe to do so and globalization will resume. We will be well above 2019 passenger volumes by 2022 or 2023. If the 777-9 cant find a market, I would also assume the global A380 fleet will be retired entirely next year, which is just as unlikely.


While the time frame is debateable the point is correct. Globalisation will resume, and that will mean air travel. The simple macroeconomic part is that corporates who are taking a battering/go under, will/have slashed travel budgets as is always the case in such scenarios. Separately retail consumers will not have the income to spend on travel until their own personal balance sheets have repaired, but that will happen in time. Of course when that is will depend on how long this continues.

raylee67 wrote:

However, while leisure travel recovers, business travel, which is more profitable for the airlines and hotels, is going to suffer permanent reduction. In these 6 months, executives are going to find that 99% of their business continue more-or-less smoothly without any business travels. All those "I have to fly there to meet with XYZ to get this done" discussion in the office before turns out to be bs. The CFOs are going to ask why there are so much travels. Travel budget will get a major axe. Similarly, many companies who maintain office space for everyone will now delightfully find that they don't need office space for everyone to get things done. Personally, I know several international banks in London are already looking at permanently reducing office space. And it's not because of a one-time cost reduction to get thru the pandemic, but a true realization that they actually don't need to have everyone in the office to get things done. Imagine how much a firm can save if it can cut 50% space from their expensive office in Canary Wharf? The next thing they will look at is all those lucrative business class travels by all those VPs.



Every recession that occurs has the same story is trotted out. That “we don’t need this travel” that “we can work from distance”. But here’s the reality. You do need to meet people face to face. You do need to get on the ground, you do need to go to conferences et al. Others who do travel will beat you to business if you don’t. 99% of businesses, who required travel before, are not going smoothly without travel. Every executive I know, who is coping in the current economic climate, wants this to be over as soon as possible, so they can get things moving forward again, which includes travel. Myself included.

I remember BA putting an advert out over 20 years ago how they had invested a huge sum into VC for their clients in order to reduce need for air travel. Counterintuitive, of course a marketing ploy, but they knew the reality. You can invest in such things all day, but people still need to travel.

The simple equation that the world is always facing is a demand vs capacity issue. Infrastructure, although strangely catching up at the moment, will never keep up with growth of demand in normal time, which leaves rotating into larger aircraft to pick up the needed capacity. While 2020 won’t be where we thought it would be six months ago, and neither will 2021 or 2022, it will eventually get to the point of extra capacity needed than was needed in Jan 2020. Hence, why the below point is bang on, from a macro and micro perspective, deferrals are key, for CX especially, and others as well, as they try to adjust models to WHEN the extra capacity will be needed (granted not easy at the moment). CX also has to contemplate a third runway at HKG is coming as well, weakening mega WB need, as opposed to a BA at LHR say.

lightsaber wrote:
SEPilot wrote:
Of all the airlines in the world I would list CX as the one under the most pressure. Before the Coronavirus hit they were suffering more than any other from the side effects of the Hong Kong protests. And, being a Chinese carrier, they are also hit harder than most by the Coronavirus situation itself. So it would be surprising if they did NOT make some retrenching moves. The 77X represents a huge investment and an increase in capacity, and may well be a bridge too far at present. The Coronavirus situation will blow over, but nobody knows what ultimately will come out of the Hong Kong protests. I would suspect they would defer rather than cancel the orders at this point. The 77Ws will not stay in the fleet forever.

CX cannot afford new Aircraft. At today's oil pricing, there is little need. I agree with your summary.

Lightsaber
 
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flee
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 5:08 am

VSMUT wrote:
flee wrote:
jfk777 wrote:
Would it be so bad if Cathay switched to the 787-9 for some of the smaller European and North American cities ? The 777-9 could be too much airplane for these times, the 787-9 has proven to be the sweet spot right now. Just something for our Hong Kong friends to consider.

787-9 is too close to the A359 that is already operating in the fleet. Besides, it is not big enough for a 4 class cabin.

Lets get real for a moment. Several airlines do 4 classes on aircraft as small as the A330-300 and 787-9. The A350-1000 is not a small aircraft, airlines can definitely make those work with 4 classes too.

My comment was in relation to the 787-9 and in CX cabin configuration.

Yes, other airlines can do it but I was addressing the thread topic - and it is about CX.
 
astuteman
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 5:35 am

Revelation wrote:
mig17 wrote:
In the end, like you said, I am not even sure the market wants in huge numbers frame as large as the 77W in the future, even to replace it.

Which doesn't bode well for A35K either, it's claimed superiority doesn't matter if airlines simply don't want planes that big. Project Sunrise is kind of a hollow victory, no money is changing hands...


Possibly not.
The A35K IS lighter and cheaper to operate than the 777X of course, and has a smaller sibling allowing flexibility with the fleet, so there is some measure of differentiation.

But the real issue under discussion here I guess is that the A35K struggling is inconvenient for the A350 programme.
The 777X struggling puts the entire programme at risk.

Rgds
 
strfyr51
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 5:49 am

FluidFlow wrote:
The 777X is by any means not a good choice from Boeing and for airlines. I never knew why it was even developed, especially after the A380 and the 747-8. Boeing shiftet the market with the 787 to light efficient WBs. Airbus countered with the A350 while letting the A380 rightfully die. Now Boeing only had two options: Let the A350 take the upper end of the WB market and keep the lower end with the 787 or build something even bigger on top of the A350 and hope it will be needed.

The result was a heavy, huge aircraft with too much capability on 99% of routes flown. It is build to a market that is tiny and now with the current crisis even smaller. Boeing would have been more than ok with only the 787 in the WB departement and all the money invested into the 777X could have been used to further improve the 787, increase MTOW and Range, or stretch it once more for more capacity. This was no option with the 777X launched because it would have cannibalized even more 777X sales.

It might start with CX but other airlines will follow to deferr or outright cancel 777X orders. There is no more market for it. A few might be build for BA (slot congestion means big aircrafts work) and LH (as they fly every aircraft ever build it seems) and maybe Emirates will also take a few. Still why buy an expensive, heavy and overbuild aircraft if you can almost get two perfect 787s.

I just can not see the reasoning behind it.

the 777X is just a more capable 777W. Boeing still has time to optimize the airplane. So ? All of this "chicken Little" stuff in screaming "the sky is falling" is all show!
Nobody Knows yet!! any airlines will have to change their game plan and Not go for the "Long Bomb" routes, But they may not have to fly the Long Bomb routes with this airplane. Just because it Can? Does in no way mean? You have to deploy it like that. And? that goes for the A350-1000 as well since you said about ONE and NOT the other.. As that too might be JUST as big of a "Boondoggle"..,
 
VRHNM
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 5:49 am

jfk777 wrote:
Would it be so bad if Cathay switched to the 787-9 for some of the smaller European and North American cities ? The 777-9 could be too much airplane for these times, the 787-9 has proven to be the sweet spot right now. Just something for our Hong Kong friends to consider.


CX has been using the A359 for this role, albeit a bit larger than the 789. Many second frequencies (especially to Europe) are on the A359s to supplement the 77W services.
 
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BoeingVista
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 5:54 am

eurotrader85 wrote:
While the time frame is debateable the point is correct. Globalisation will resume, and that will mean air travel. The simple macroeconomic part is that corporates who are taking a battering/go under, will/have slashed travel budgets as is always the case in such scenarios. Separately retail consumers will not have the income to spend on travel until their own personal balance sheets have repaired, but that will happen in time. Of course when that is will depend on how long this continues.



Totally missing the point.

Yes, "globalisation" may return and most companies will eventually rebuild but its fanciful to say that they will return to the old business model that requires 2019 levels of business travel, they will do business remotely and via business tools rather than face to face, start ups will present businesses with many new options that don't require engaging with TSA, COVID screening, Quarantine etc. Business is dynamic it never stands still

We have a model for this, the GFC. How long did the Aviation bounce back take? 10 years [using employment as an analogue for aviation activity here seems valid]. Did every travel sector recover? No, travel agents were overtaken by new technology and startups.

Image
BV
 
FluidFlow
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 6:33 am

strfyr51 wrote:
FluidFlow wrote:
The 777X is by any means not a good choice from Boeing and for airlines. I never knew why it was even developed, especially after the A380 and the 747-8. Boeing shiftet the market with the 787 to light efficient WBs. Airbus countered with the A350 while letting the A380 rightfully die. Now Boeing only had two options: Let the A350 take the upper end of the WB market and keep the lower end with the 787 or build something even bigger on top of the A350 and hope it will be needed.

The result was a heavy, huge aircraft with too much capability on 99% of routes flown. It is build to a market that is tiny and now with the current crisis even smaller. Boeing would have been more than ok with only the 787 in the WB departement and all the money invested into the 777X could have been used to further improve the 787, increase MTOW and Range, or stretch it once more for more capacity. This was no option with the 777X launched because it would have cannibalized even more 777X sales.

It might start with CX but other airlines will follow to deferr or outright cancel 777X orders. There is no more market for it. A few might be build for BA (slot congestion means big aircrafts work) and LH (as they fly every aircraft ever build it seems) and maybe Emirates will also take a few. Still why buy an expensive, heavy and overbuild aircraft if you can almost get two perfect 787s.

I just can not see the reasoning behind it.

the 777X is just a more capable 777W. Boeing still has time to optimize the airplane. So ? All of this "chicken Little" stuff in screaming "the sky is falling" is all show!
Nobody Knows yet!! any airlines will have to change their game plan and Not go for the "Long Bomb" routes, But they may not have to fly the Long Bomb routes with this airplane. Just because it Can? Does in no way mean? You have to deploy it like that. And? that goes for the A350-1000 as well since you said about ONE and NOT the other.. As that too might be JUST as big of a "Boondoggle"..,


Oh the A35K is also too big, but you can also see this in the sales numbers. The only upside of the A35K is, that it has a very efficient little brother that sells well. The little brother of the 777-9, the 777-8, on the other side is even less useful.

And you say it yourself, the 777X is just a more capable 77W. Nothing more. So why get a more capable 77W when your 77Ws are more than enough and way cheaper to have then invest in something more capable just to waste some money?
 
eurotrader85
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 6:45 am

BoeingVista wrote:
eurotrader85 wrote:
While the time frame is debateable the point is correct. Globalisation will resume, and that will mean air travel. The simple macroeconomic part is that corporates who are taking a battering/go under, will/have slashed travel budgets as is always the case in such scenarios. Separately retail consumers will not have the income to spend on travel until their own personal balance sheets have repaired, but that will happen in time. Of course when that is will depend on how long this continues.



Totally missing the point.

Yes, "globalisation" may return and most companies will eventually rebuild but its fanciful to say that they will return to the old business model that requires 2019 levels of business travel, they will do business remotely and via business tools rather than face to face, start ups will present businesses with many new options that don't require engaging with TSA, COVID screening, Quarantine etc. Business is dynamic it never stands still

We have a model for this, the GFC. How long did the Aviation bounce back take? 10 years [using employment as an analogue for aviation activity here seems valid]. Did every travel sector recover? No, travel agents were overtaken by new technology and startups.

Image


I don't think the analogue stacks up well with evidence at all. By 2012 at most developed country major airports in the world, they were seeing passenger numbers in excess of where they were before the financial crisis of 2008. This of course doesn't even look at the growth of developing economies and the numbers at their airports. Granted the longer the lock down continues, the further it hurts the global economy and pushes out that recovery date (as does other macroeconomic events such as trade wars), where numbers will be greater than at Jan 2020 levels, but the idea that because of some virus and the temporary lock down measures in countries, which is having a knock on effect to the aviation industry, that whole masses of the global population will no longer ever fly because their eyes have suddenly been opened to video conferencing et al, which in any case they had before, is frankly fanciful imo. If anything, the evidence suggests the development in technology, efficiency gains, growth in globalisation and thus increased wealth actually created more demand for air travel over the long run.

The question CX is asking is where on that model of demand vs capacity does it cross over again from their expectations in Jan 2020. As people are debating on this feed, will they need extra capacity from VLAs OR will by then the third runway be ready at HKG and they can add capacity through extra frequency on smaller aircraft? Deferring 777X orders gives them more time to make that decision, and later negotiate converts if needs be, in what is in the middle of an unprecedented time for the industry.
 
reply1984
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 7:02 am

BoeingVista wrote:
eurotrader85 wrote:
While the time frame is debateable the point is correct. Globalisation will resume, and that will mean air travel. The simple macroeconomic part is that corporates who are taking a battering/go under, will/have slashed travel budgets as is always the case in such scenarios. Separately retail consumers will not have the income to spend on travel until their own personal balance sheets have repaired, but that will happen in time. Of course when that is will depend on how long this continues.



Totally missing the point.

Yes, "globalisation" may return and most companies will eventually rebuild but its fanciful to say that they will return to the old business model that requires 2019 levels of business travel, they will do business remotely and via business tools rather than face to face, start ups will present businesses with many new options that don't require engaging with TSA, COVID screening, Quarantine etc. Business is dynamic it never stands still

We have a model for this, the GFC. How long did the Aviation bounce back take? 10 years [using employment as an analogue for aviation activity here seems valid]. Did every travel sector recover? No, travel agents were overtaken by new technology and startups.

Image


This chart will be less misleading if price change of OIL is added. Before 2014, oil price remains above $100 level. Oil price started to plunge in the early 2014, and that is when staff in the air transportation industry picked up.
 
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BoeingVista
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 7:43 am

eurotrader85 wrote:
I don't think the analogue stacks up well with evidence at all.


The analogue may not work well enough to substantiate the thrust of my argument but I stand by prediction. Fact is we have no analogues or models to adequately forecast where we are or where we go from here.
BV
 
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zeke
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 10:21 am

I dont have any inside information to share on the speculation that started this thread. I would like to remind many posters on this thread that the aviation industry is in survival mode, plans that were in place 12 months ago are all invalid. Assumptions built into business cases are invalid. Cash reserves are being burned through. This is something all passenger airlines are experiencing.

No one knows when, how, and what rate the world economy and the aviation industry will recover.

Without having the actual wording of the 77X contracts in front of me, with this global pandemic, has resulted in a very public suspension of operation of this industry. In my experience this is a standard reason in aircraft purchase contracts to be terminated, and advance payments to be returned to the purchaser without interest.

From this AF 777 purchase contract the wording is

“ARTICLE 11. Termination for Certain Events.

11.1 Termination. This Agreement may be terminated at any time with regard to undelivered Aircraft and items and unperformed services by notice in writing by either party hereto if the other party:

11.1.1 Ceases doing business as a going concern, suspends all or substantially all its business operations, makes an assignment for the benefit of creditors, is insolvent, or admits in writing its inability to pay its debts”.

Many airlines have stopped 90+% of their operations, substantially normally means 30-35% in legal terms.

From https://www.sec.gov/Archives/edgar/data ... dex104.htm

Similar wording is in all aircraft purchase contracts I am familiar with, this pandemic is a significant threat to the engine and airframe manufacturers. If many airlines start terminating their contracts, the OEMs will not have the cash to pay out all of the advance purchase payments.

From the latest financial briefing from CX, the airline only own 21 of their 77W, owns 27 A350s, and 38 A330s.

https://www.cathaypacific.com/content/d ... nal_en.pdf
Human rights lawyers are "ambulance chasers of the very worst kind.'" - Sky News
 
jfk777
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 11:39 am

flee wrote:
jfk777 wrote:
Would it be so bad if Cathay switched to the 787-9 for some of the smaller European and North American cities ? The 777-9 could be too much airplane for these times, the 787-9 has proven to be the sweet spot right now. Just something for our Hong Kong friends to consider.

787-9 is too close to the A359 that is already operating in the fleet. Besides, it is not big enough for a 4 class cabin.


Even though it could be done, why would an airline have First Class on a 787-9. A 787-9 for Cathay would be for Manchester and Seattle not London Heathrow and JFK. Business Class is very decent and the need for First Class is very limited.
 
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 12:33 pm

FluidFlow wrote:
So why get a more capable 77W when your 77Ws are more than enough and way cheaper to have then invest in something more capable just to waste some money?

There's lots of ways that can unfold.

Why keep 77X/A350 orders you can't afford that you can dump via force majuere when you can just extend whatever you were flying before you ordered A35X (probably a 77E/77W/A330) a bit longer?

Isn't someone at EK and others considering calling Boeing and Airbus and telling put those orders (which I think were 2022 deliveries) on hold indefinitely and calling the lessors and asking for cheap extensions?

Why keep 77X/A350 orders when we should be seeing a meaningful number of relatively young 77W/787 coming on to the market as (unfortunately) some weaker players fold?
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 12:55 pm

smartplane wrote:
All the players in the commercial aircraft industry are playing a multi billion dollar game of Jenga, not for entertainment, but for survival. No-one, including OEM's, customers and financiers wants to move, and certainly not move first, for fear of the flow on effect.

Even an airline that wants to (or can) cancel an order, won't unless absolutely forced (conditional for Government support or maverick financiers). More likely, an agreement to review the order at a future date, and not to enforce cancellation or model hopping penalties. A cancellation in every other name, but technically......

Likewise, airlines claim to be storing aircraft when there is no intention to return them to service. Even if 'owned' there will be floating charges over them securing other funding. Permanently withdrawing aircraft used to secure a floating charge will trigger a review of the credit, including the possibility it's withdrawn, reduced and / or re-priced.

One lender withdrawing / reducing their funding, will likely trigger a financial covenant breach of other funding, so you can see how unilateral action of one can create a lemming like response, and why significant financial players with capacity are already increasing funding, by buying out troublesome 'fleas'.

Airlines with A350 and X orders, the former part way through delivery, costs customers many times more to cancel, as milestone payments and accrued retrospective credits are forfeit, as well as losing yet to accrue retrospective credits on undelivered aircraft. Credits are back end loaded, not straight line, so cancellations once deliveries have started are disproportionately expensive.

Interesting post.

I wonder if LH's and BA's recently announced fleet changes fall in to the "airplanes claim to be stored but not coming back" category?

I wonder if cash is so dear that some airlines will prefer to lose large down payments rather than go forward with purchases they cannot finance.
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 12:58 pm

zkojq wrote:
sxf24 wrote:
Here are facts that I know:
- The SLB with BOC Aviation was not for 10 years


Well how long was it for then?

sxf24 wrote:
- CX can’t unilaterally cancel orders. It has to negotiate with the OEMs.


Is the pretext for this thread not that CX is in these negotiations right now?


The SLB is not for 10 years ;)

Negotiations require two parties and Boeing may listen to requests, but is unlikely to engage in any discussions about canceling widebodies unless the customer is already in default.

JayinKitsap wrote:
Well back to CX and the 779, the links below add more information to the 'rumor' cited by the OP. I am sure that CX is renegotiating leases and working to stop all further deliveries until further notice. CX is probably due a lot of $ for the 779 delays, but to get that cash will probably require delivery of frames they now do not want. Cancelling as a force majeure case probably kills all of the contract, I doubt it would require compensation by one and a tear up of its duties by the other. A likely scenario will be an indefinite deferral of the orders, with say an 18 month lead time similar to exercised options.

https://onemileatatime.com/cathay-pacific-boeing-777x/

https://www.heraldnet.com/business/boei ... roduction/


Force majeure clauses pertain to excuseable and unexcuseable delays, not cancellation. Most purchase agreements do not have cancellation rights.

kevin5345179 wrote:
BoeingVista wrote:
sxf24 wrote:
The Seattle Times article had many errors because Dominic Gates used ex-Boeing employees and bloggers as his sources. Here are facts that I know:
- The SLB with BOC Aviation was not for 10 years
- Any 77W lessor would love to extend leases right now and would probably cut rent to do so (this goes for all wide bodies)
- CX can’t unilaterally cancel orders. It has to negotiate with the OEMs.
- Current delays to the 77X are almost certainly excusable because they’re due to the pandemic.
- Customers will almost certainly support Boeing in a longer certification program and slower rate ramp.



Current delays to the 77X are almost certainly excusable because they’re due to the pandemic.

Depends if there's a force majeure clause and whats in it, if not Boeing has to perform the contract to time or face the penalties in the contract


if MAX development wasn't suspended due to covid, I think suspending 777X flight test was a choice by Boeing and I found it difficult to "prove" the clause


I think MAX development is mostly paperwork and engineering done remotely at this stage, while 777X is flight testing. It is hard to practice social distancing while flight testing.
 
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 12:58 pm

zeke wrote:
I dont have any inside information to share on the speculation that started this thread. I would like to remind many posters on this thread that the aviation industry is in survival mode, plans that were in place 12 months ago are all invalid. Assumptions built into business cases are invalid. Cash reserves are being burned through. This is something all passenger airlines are experiencing.

No one knows when, how, and what rate the world economy and the aviation industry will recover.

Without having the actual wording of the 77X contracts in front of me, with this global pandemic, has resulted in a very public suspension of operation of this industry. In my experience this is a standard reason in aircraft purchase contracts to be terminated, and advance payments to be returned to the purchaser without interest.

From this AF 777 purchase contract the wording is

“ARTICLE 11. Termination for Certain Events.

11.1 Termination. This Agreement may be terminated at any time with regard to undelivered Aircraft and items and unperformed services by notice in writing by either party hereto if the other party:

11.1.1 Ceases doing business as a going concern, suspends all or substantially all its business operations, makes an assignment for the benefit of creditors, is insolvent, or admits in writing its inability to pay its debts”.

Many airlines have stopped 90+% of their operations, substantially normally means 30-35% in legal terms.

From https://www.sec.gov/Archives/edgar/data ... dex104.htm

Similar wording is in all aircraft purchase contracts I am familiar with, this pandemic is a significant threat to the engine and airframe manufacturers. If many airlines start terminating their contracts, the OEMs will not have the cash to pay out all of the advance purchase payments.

From the latest financial briefing from CX, the airline only own 21 of their 77W, owns 27 A350s, and 38 A330s.

https://www.cathaypacific.com/content/d ... nal_en.pdf


If you’re not a lawyer, you shouldn’t pretend to interpret contracts. Clauses must be read as a whole, not with words or phrases isolated. Plus, the standard for “substantial” is not 30-35%.

Besides, if we read it your way, it’d apply to Boeing too and they could cancel. Under any cancellation scenario, Boeing keeps the PDPs as they fund work performed and parts purchased in advance of delivery. I don’t think any airline wants to go down that path, which is why mutually agreeable resolutions will be reached.
 
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 1:27 pm

Revelation wrote:
FluidFlow wrote:
So why get a more capable 77W when your 77Ws are more than enough and way cheaper to have then invest in something more capable just to waste some money?

There's lots of ways that can unfold.

Why keep 77X/A350 orders you can't afford that you can dump via force majuere when you can just extend whatever you were flying before you ordered A35X (probably a 77E/77W/A330) a bit longer?

Isn't someone at EK and others considering calling Boeing and Airbus and telling put those orders (which I think were 2022 deliveries) on hold indefinitely and calling the lessors and asking for cheap extensions?

Why keep 77X/A350 orders when we should be seeing a meaningful number of relatively young 77W/787 coming on to the market as (unfortunately) some weaker players fold?


I don't know if you're being facetious or if you've come to accept a few points I've made in other threads. ;)

Part of the reason to splash out bucks for a new aircraft type is operating savings - most prominently, fuel burn. The U.S. price for Jet A yesterday was $0.68/gallon (specifically, Argus daily simple-average jet-fuel price for Chicago, Houston, Los Angeles, and New York). On January 21 it was $1.79. I won't predict how long it will stay in the range of $0.68 but, if you use a discount rate much above zero, Net Present Value calcs severely discount savings greater than ~10 years out. The 13% savings of a Neo vs. Ceo, or MAX vs. NG, don't look so great given the differentials in acquisition costs. With cheap fuel today, lack of cash to buy new, a surplus of your own aircraft, likely a tide of aircraft from terminated leases or liquidated carriers, and tremendous uncertainty in demand levels, it's got to be hard to sell new planes for near-term delivery. Defer, defer, defer, and see what the demand curve looks like in 2022+.

https://www.airlines.org/argus-us-jet-fuel-index/
 
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 1:29 pm

sxf24 wrote:
Besides, if we read it your way, it’d apply to Boeing too and they could cancel. Under any cancellation scenario, Boeing keeps the PDPs as they fund work performed and parts purchased in advance of delivery. I don’t think any airline wants to go down that path, which is why mutually agreeable resolutions will be reached.

Why would Boeing benefit from cancellation? They could keep prepayments but would end up with funding the rest of the build then having an airplane to sell into a market that is beyond depressed.

Can you provide rough approximations of what percent of purchase price the various progress payments are? I'm trying to get a feel for at what point an airline can afford to walk away from a purchase and when they cannot.

It seems from what I've read a typical contract has minimal prepayments till about 18-24 months before production, so should not cause too much financial pain to walk away before those kick in. Of course it would impact business relationships, but it seems in some cases the short term cash flow matters more than the long term business relationship.

I looked at the contract Zeke just posted but the Advance Payment details are edited out.
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 1:32 pm

sxf24 wrote:
zeke wrote:
I dont have any inside information to share on the speculation that started this thread. I would like to remind many posters on this thread that the aviation industry is in survival mode, plans that were in place 12 months ago are all invalid. Assumptions built into business cases are invalid. Cash reserves are being burned through. This is something all passenger airlines are experiencing.

No one knows when, how, and what rate the world economy and the aviation industry will recover.

Without having the actual wording of the 77X contracts in front of me, with this global pandemic, has resulted in a very public suspension of operation of this industry. In my experience this is a standard reason in aircraft purchase contracts to be terminated, and advance payments to be returned to the purchaser without interest.

From this AF 777 purchase contract the wording is

“ARTICLE 11. Termination for Certain Events.

11.1 Termination. This Agreement may be terminated at any time with regard to undelivered Aircraft and items and unperformed services by notice in writing by either party hereto if the other party:

11.1.1 Ceases doing business as a going concern, suspends all or substantially all its business operations, makes an assignment for the benefit of creditors, is insolvent, or admits in writing its inability to pay its debts”.

Many airlines have stopped 90+% of their operations, substantially normally means 30-35% in legal terms.

From https://www.sec.gov/Archives/edgar/data ... dex104.htm

Similar wording is in all aircraft purchase contracts I am familiar with, this pandemic is a significant threat to the engine and airframe manufacturers. If many airlines start terminating their contracts, the OEMs will not have the cash to pay out all of the advance purchase payments.

From the latest financial briefing from CX, the airline only own 21 of their 77W, owns 27 A350s, and 38 A330s.

https://www.cathaypacific.com/content/d ... nal_en.pdf


If you’re not a lawyer, you shouldn’t pretend to interpret contracts. Clauses must be read as a whole, not with words or phrases isolated. Plus, the standard for “substantial” is not 30-35%.

Besides, if we read it your way, it’d apply to Boeing too and they could cancel. Under any cancellation scenario, Boeing keeps the PDPs as they fund work performed and parts purchased in advance of delivery. I don’t think any airline wants to go down that path, which is why mutually agreeable resolutions will be reached.

What nonsense is this? You choose to throw a personal attack at the only poster who brought substance to the discussion by calling them pretentious whilst you offer no fact or corroboration for your claim... Can you bring forth a whole aircraft purchase agreement where clauses can be read as a whole? If you dispute Zeke's assertion that 30-35% is substantial, what is substantial? This kind of posting must stop..
 
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 1:51 pm

MIflyer12 wrote:
I don't know if you're being facetious or if you've come to accept a few points I've made in other threads. ;)

Part of the reason to splash out bucks for a new aircraft type is operating savings - most prominently, fuel burn. The U.S. price for Jet A yesterday was $0.68/gallon (specifically, Argus daily simple-average jet-fuel price for Chicago, Houston, Los Angeles, and New York). On January 21 it was $1.79. I won't predict how long it will stay in the range of $0.68 but, if you use a discount rate much above zero, Net Present Value calcs severely discount savings greater than ~10 years out. The 13% savings of a Neo vs. Ceo, or MAX vs. NG, don't look so great given the differentials in acquisition costs. With cheap fuel today, lack of cash to buy new, a surplus of your own aircraft, likely a tide of aircraft from terminated leases or liquidated carriers, and tremendous uncertainty in demand levels, it's got to be hard to sell new planes for near-term delivery. Defer, defer, defer, and see what the demand curve looks like in 2022+.

https://www.airlines.org/argus-us-jet-fuel-index/

I don't think the opinions are all that different. I think most people see big impact to airliner production rate and order backlog. I think most people see this impacting larger aircraft more than smaller ones. I think the opinions differ on what models get impacted and to what degree.

As per my last post I'm trying to get a better handle on how easy or hard it is for airlines to walk away from orders. It's hard to tell if (for instance) an airline is in so deep on an order that they cannot get out and will need to conserve cash in other ways (layoffs, selling assets, etc).

I think fuel is an important consideration but I also think maintenance costs for aging aircraft are another. Boeing of course have shipped no MAX for over a year. Airbus was behind in A320 deliveries. Does this mean many narrow bodies are up against hours/cycles limits and are needing expensive heavy maintenance and/or engine rebuilds? Right now ~90% of the world fleet is grounded so it's not hard to find aircraft to perform whatever flying we need but that won't last forever.

Will airlines really go big on the used market rather than take new A350/777? There's not much precedent for this. It takes time and money to bring in another airline's used aircraft, fix any outstanding problems, and retrofit your own cabin. We've seen this happen to some degree on the low end of the narrow body market with WN taking in 737-700 and (UA? AA?) taking in A319 but not so much on the wide body side. DL has famously taken in MD-90 and 717 but it seems MD-90 are not going last as long as they were hoping so maybe they are having some regrets. The only mass inductions of used aircraft we've seen in recent times are with freighters with all the different 767s that have ended up flying for Amazon and with FX doing a mass rebuild of 757s.
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 1:58 pm

eurotrader85 wrote:
Jetport wrote:
BoeingVista wrote:

For it to have a future air travel needs to get to a higher level than today, thats going to need people to have jobs and money, I cant see air travel returning to 2019 level for a decade.

Also Boeing commercial needs to survive and have the x hundred million to certify the aircraft.


A decade for air travel to return to 2019 levels, that is absurd. I think you may be depressed or suffering from some version of cabin fever?

After a 6 to 24 month breather, people who like to travel are going to return to travel as soon as it is safe to do so and globalization will resume. We will be well above 2019 passenger volumes by 2022 or 2023. If the 777-9 cant find a market, I would also assume the global A380 fleet will be retired entirely next year, which is just as unlikely.


While the time frame is debateable the point is correct. Globalisation will resume, and that will mean air travel. The simple macroeconomic part is that corporates who are taking a battering/go under, will/have slashed travel budgets as is always the case in such scenarios. Separately retail consumers will not have the income to spend on travel until their own personal balance sheets have repaired, but that will happen in time. Of course when that is will depend on how long this continues.

raylee67 wrote:

However, while leisure travel recovers, business travel, which is more profitable for the airlines and hotels, is going to suffer permanent reduction. In these 6 months, executives are going to find that 99% of their business continue more-or-less smoothly without any business travels. All those "I have to fly there to meet with XYZ to get this done" discussion in the office before turns out to be bs. The CFOs are going to ask why there are so much travels. Travel budget will get a major axe. Similarly, many companies who maintain office space for everyone will now delightfully find that they don't need office space for everyone to get things done. Personally, I know several international banks in London are already looking at permanently reducing office space. And it's not because of a one-time cost reduction to get thru the pandemic, but a true realization that they actually don't need to have everyone in the office to get things done. Imagine how much a firm can save if it can cut 50% space from their expensive office in Canary Wharf? The next thing they will look at is all those lucrative business class travels by all those VPs.



Every recession that occurs has the same story is trotted out. That “we don’t need this travel” that “we can work from distance”. But here’s the reality. You do need to meet people face to face. You do need to get on the ground, you do need to go to conferences et al. Others who do travel will beat you to business if you don’t. 99% of businesses, who required travel before, are not going smoothly without travel. Every executive I know, who is coping in the current economic climate, wants this to be over as soon as possible, so they can get things moving forward again, which includes travel. Myself included.

I remember BA putting an advert out over 20 years ago how they had invested a huge sum into VC for their clients in order to reduce need for air travel. Counterintuitive, of course a marketing ploy, but they knew the reality. You can invest in such things all day, but people still need to travel.

The simple equation that the world is always facing is a demand vs capacity issue. Infrastructure, although strangely catching up at the moment, will never keep up with growth of demand in normal time, which leaves rotating into larger aircraft to pick up the needed capacity. While 2020 won’t be where we thought it would be six months ago, and neither will 2021 or 2022, it will eventually get to the point of extra capacity needed than was needed in Jan 2020. Hence, why the below point is bang on, from a macro and micro perspective, deferrals are key, for CX especially, and others as well, as they try to adjust models to WHEN the extra capacity will be needed (granted not easy at the moment). CX also has to contemplate a third runway at HKG is coming as well, weakening mega WB need, as opposed to a BA at LHR say.

lightsaber wrote:
SEPilot wrote:
Of all the airlines in the world I would list CX as the one under the most pressure. Before the Coronavirus hit they were suffering more than any other from the side effects of the Hong Kong protests. And, being a Chinese carrier, they are also hit harder than most by the Coronavirus situation itself. So it would be surprising if they did NOT make some retrenching moves. The 77X represents a huge investment and an increase in capacity, and may well be a bridge too far at present. The Coronavirus situation will blow over, but nobody knows what ultimately will come out of the Hong Kong protests. I would suspect they would defer rather than cancel the orders at this point. The 77Ws will not stay in the fleet forever.

CX cannot afford new Aircraft. At today's oil pricing, there is little need. I agree with your summary.

Lightsaber


You may be right, but I think a more reasonable statement might go EG:

"Globalisation will resume, but from a severely reduced baseline" ...

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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 2:35 pm

Revelation wrote:
sxf24 wrote:
Besides, if we read it your way, it’d apply to Boeing too and they could cancel. Under any cancellation scenario, Boeing keeps the PDPs as they fund work performed and parts purchased in advance of delivery. I don’t think any airline wants to go down that path, which is why mutually agreeable resolutions will be reached.

Why would Boeing benefit from cancellation? They could keep prepayments but would end up with funding the rest of the build then having an airplane to sell into a market that is beyond depressed.

Can you provide rough approximations of what percent of purchase price the various progress payments are? I'm trying to get a feel for at what point an airline can afford to walk away from a purchase and when they cannot.

It seems from what I've read a typical contract has minimal prepayments till about 18-24 months before production, so should not cause too much financial pain to walk away before those kick in. Of course it would impact business relationships, but it seems in some cases the short term cash flow matters more than the long term business relationship.

I looked at the contract Zeke just posted but the Advance Payment details are edited out.


Boeing advance payments are typically 25-30% of catalog price, though subject to negotiation. Boeing could be motivated to cancel if they didn’t think the airline would accept the delivery.

majano wrote:
sxf24 wrote:
zeke wrote:
I dont have any inside information to share on the speculation that started this thread. I would like to remind many posters on this thread that the aviation industry is in survival mode, plans that were in place 12 months ago are all invalid. Assumptions built into business cases are invalid. Cash reserves are being burned through. This is something all passenger airlines are experiencing.

No one knows when, how, and what rate the world economy and the aviation industry will recover.

Without having the actual wording of the 77X contracts in front of me, with this global pandemic, has resulted in a very public suspension of operation of this industry. In my experience this is a standard reason in aircraft purchase contracts to be terminated, and advance payments to be returned to the purchaser without interest.

From this AF 777 purchase contract the wording is

“ARTICLE 11. Termination for Certain Events.

11.1 Termination. This Agreement may be terminated at any time with regard to undelivered Aircraft and items and unperformed services by notice in writing by either party hereto if the other party:

11.1.1 Ceases doing business as a going concern, suspends all or substantially all its business operations, makes an assignment for the benefit of creditors, is insolvent, or admits in writing its inability to pay its debts”.

Many airlines have stopped 90+% of their operations, substantially normally means 30-35% in legal terms.

From https://www.sec.gov/Archives/edgar/data ... dex104.htm

Similar wording is in all aircraft purchase contracts I am familiar with, this pandemic is a significant threat to the engine and airframe manufacturers. If many airlines start terminating their contracts, the OEMs will not have the cash to pay out all of the advance purchase payments.

From the latest financial briefing from CX, the airline only own 21 of their 77W, owns 27 A350s, and 38 A330s.

https://www.cathaypacific.com/content/d ... nal_en.pdf


If you’re not a lawyer, you shouldn’t pretend to interpret contracts. Clauses must be read as a whole, not with words or phrases isolated. Plus, the standard for “substantial” is not 30-35%.

Besides, if we read it your way, it’d apply to Boeing too and they could cancel. Under any cancellation scenario, Boeing keeps the PDPs as they fund work performed and parts purchased in advance of delivery. I don’t think any airline wants to go down that path, which is why mutually agreeable resolutions will be reached.

What nonsense is this? You choose to throw a personal attack at the only poster who brought substance to the discussion by calling them pretentious whilst you offer no fact or corroboration for your claim... Can you bring forth a whole aircraft purchase agreement where clauses can be read as a whole? If you dispute Zeke's assertion that 30-35% is substantial, what is substantial? This kind of posting must stop..


Oh, dear. The sensitivity is not justified.

Read clause 11.1.1, as posted by zeke, in its entirety. You don’t get to pick a few words, apply an arbitrary definition of substantial, and decide you know what it means. Although I’m not sure what legal jurisdiction covers these agreements, it would be difficult under New York law, which is what most aviation contracts are written under, to justify that the temporary schedule reductions meet the standards of clause 11.1.1 useless they are accompanied by staff terminations (not furloughs) and aircraft returns.
 
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 2:41 pm

sxf24 wrote:

If you’re not a lawyer, you shouldn’t pretend to interpret contracts. Clauses must be read as a whole, not with words or phrases isolated. Plus, the standard for “substantial” is not 30-35%.


In numerous contracts I have read, that is what substantial is defined as, I know the IRS has a lower standard for substantial business activity at 25%.

The point I was making is airlines being forced to cancel their schedule by 90+% due to this pandemic which is out of their control is substantial in anyone’s book.

sxf24 wrote:
Besides, if we read it your way, it’d apply to Boeing too and they could cancel.


Boeing couldn’t cancel to shut the factory down for health reasons of the factory workers, employment disputes, factory fire etc, these would be excusable delays. However due to the combined effects of the MAX issues, tanker issues, and pandemic issue causing other customers to cancel, yes Boeing could cancel the whole or part of the program, and I think the 777-8 is already there.

sxf24 wrote:
Under any cancellation scenario, Boeing keeps the PDPs as they fund work performed and parts purchased in advance of delivery. I don’t think any airline wants to go down that path, which is why mutually agreeable resolutions will be reached.


The term used in the contact I referred to was termination, not cancellation. Under the termination clause it states “ If this Agreement is terminated with regard to any Aircraft by Buyer under this Article, Boeing will repay to Buyer, without interest, any advance payments received by Boeing from Buyer with respect to such Aircraft.” which is the exact opposite of what you said.
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 3:01 pm

Revelation wrote:
FluidFlow wrote:
So why get a more capable 77W when your 77Ws are more than enough and way cheaper to have then invest in something more capable just to waste some money?

There's lots of ways that can unfold.

Why keep 77X/A350 orders you can't afford that you can dump via force majuere when you can just extend whatever you were flying before you ordered A35X (probably a 77E/77W/A330) a bit longer?

Isn't someone at EK and others considering calling Boeing and Airbus and telling put those orders (which I think were 2022 deliveries) on hold indefinitely and calling the lessors and asking for cheap extensions?

Why keep 77X/A350 orders when we should be seeing a meaningful number of relatively young 77W/787 coming on to the market as (unfortunately) some weaker players fold?


I see it similar, I think all WB and NB orders are under review and the carriers will go forward with the option that saves the most money over time. It might be cheaper to outright cancel certain orders, keep aircrafts flying longer and only replace what really needs replacement.

Chances are there will be relatively young second hand aircraft on the market so airlines will have options and they will choose what will cost the least and most probably shrink if it is cheaper. The OEM that can offer the most attractive deferals (and not go bust in the process) will keep the most orders, but lines will be slow.

The real risk for A&B is to keep lines going at rates that are at least not losing money until airlines can pick up airplanes again and also find airlines to pick up the produced frames during this time.

I just see the 77X at a special risk due to a very small customer base, and the fact that it did not even had an EIS. How high has the production rate for it has to be to be able to sell it at profit? 1-2 per month is probably way to low as it is a very new development. Also the longer it drags on the higher is the chance, that either Boeing or Airbus will launch a new engine on the 787/A350 and finish the 777X befor it ever made a profit. The A350 will be ok with production rate of 4-6 to not lose money. The A330neo showed it can make a net 0 or even a small profit with 2-3 per month. The 787 should also be ok with 4-6 per month, tho it will put pressure on Boeing to rethink the deferred production cost balance and how to clean the balance sheet. The 777X on the other hand, if it starts out with production rate of 1-2 per month for the first 3-4 years the line might never reacht break even untill it is too late.
 
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zeke
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 3:07 pm

sxf24 wrote:
Boeing advance payments are typically 25-30% of catalog price, though subject to negotiation. Boeing could be motivated to cancel if they didn’t think the airline would accept the delivery.


No way in the world, purchase price of the entire aircraft is normally more like 40% of the list price. And even out of that a lot of the money goes to other large suppliers like engines, APU, avionics, landing gear.

sxf24 wrote:
Although I’m not sure what legal jurisdiction covers these agreements,


It’s written in the contract “ 15.4 GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY THE LAW OF THE STATE OF WASHINGTON, U.S.A., EXCLUSIVE OF WASHINGTON’S CONFLICTS OF LAWS RULES.”

It is clear “Cathay Pacific expects 'substantial loss' this year” from https://www.bbc.com/news/business-51813478
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blooc350
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 3:42 pm

CX will probably delay the 77X. They WONT walk away from it. This plane is to be their new Flagship aircraft with their next generation on board products.
 
sxf24
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 4:39 pm

zeke wrote:
sxf24 wrote:

If you’re not a lawyer, you shouldn’t pretend to interpret contracts. Clauses must be read as a whole, not with words or phrases isolated. Plus, the standard for “substantial” is not 30-35%.


In numerous contracts I have read, that is what substantial is defined as, I know the IRS has a lower standard for substantial business activity at 25%.

The point I was making is airlines being forced to cancel their schedule by 90+% due to this pandemic which is out of their control is substantial in anyone’s book.

sxf24 wrote:
Besides, if we read it your way, it’d apply to Boeing too and they could cancel.


Boeing couldn’t cancel to shut the factory down for health reasons of the factory workers, employment disputes, factory fire etc, these would be excusable delays. However due to the combined effects of the MAX issues, tanker issues, and pandemic issue causing other customers to cancel, yes Boeing could cancel the whole or part of the program, and I think the 777-8 is already there.

sxf24 wrote:
Under any cancellation scenario, Boeing keeps the PDPs as they fund work performed and parts purchased in advance of delivery. I don’t think any airline wants to go down that path, which is why mutually agreeable resolutions will be reached.


The term used in the contact I referred to was termination, not cancellation. Under the termination clause it states “ If this Agreement is terminated with regard to any Aircraft by Buyer under this Article, Boeing will repay to Buyer, without interest, any advance payments received by Boeing from Buyer with respect to such Aircraft.” which is the exact opposite of what you said.


I would agree that airlines have been required to take action due to circumstances outside of their control. What I strenuously disagree with is the presumption that this allows any airline to cancel or terminate contracts. I would also reiterate that not all contracts are the same. I have direct first-hand knowledge of other OEM purchase agreements, though not for CX, that do not contain such clauses.

zeke wrote:
sxf24 wrote:
Boeing advance payments are typically 25-30% of catalog price, though subject to negotiation. Boeing could be motivated to cancel if they didn’t think the airline would accept the delivery.


No way in the world, purchase price of the entire aircraft is normally more like 40% of the list price. And even out of that a lot of the money goes to other large suppliers like engines, APU, avionics, landing gear.

sxf24 wrote:
Although I’m not sure what legal jurisdiction covers these agreements,


It’s written in the contract “ 15.4 GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY THE LAW OF THE STATE OF WASHINGTON, U.S.A., EXCLUSIVE OF WASHINGTON’S CONFLICTS OF LAWS RULES.”

It is clear “Cathay Pacific expects 'substantial loss' this year” from https://www.bbc.com/news/business-51813478


Again, I have direct first-hand knowledge of what Boeing’s standard PDP payments are. There are airlines that pay 25-30% of catalog price and there are airlines that don’t.

A substantial financial loss is not grounds for contract termination.
 
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 4:57 pm

FluidFlow wrote:
I just see the 77X at a special risk due to a very small customer base, and the fact that it did not even had an EIS. How high has the production rate for it has to be to be able to sell it at profit? 1-2 per month is probably way to low as it is a very new development. Also the longer it drags on the higher is the chance, that either Boeing or Airbus will launch a new engine on the 787/A350 and finish the 777X befor it ever made a profit. The A350 will be ok with production rate of 4-6 to not lose money. The A330neo showed it can make a net 0 or even a small profit with 2-3 per month. The 787 should also be ok with 4-6 per month, tho it will put pressure on Boeing to rethink the deferred production cost balance and how to clean the balance sheet. The 777X on the other hand, if it starts out with production rate of 1-2 per month for the first 3-4 years the line might never reacht break even untill it is too late.

I agree 77x is vulnerable for the reasons you give, and the fact that is soon to be the biggest airplane available and these are always the most vulnerable to a down turn.

I also feel Boeing and GE are going to have to re-evaluate their expectations with regard to the program time line and with regard to making money on the program.

I'm not sure I'd go as far as saying the program is at risk of cancellation at this point in time. Boeing and GE have already done most of the spending to bring it to market. The wing factory has been built, the tooling to build the GE9X has been built, the first test planes have been built and the first has flown, etc.

I understand the sunk cost fallacy but I doubt we've hit the "throwing good money after bad" point. In fact the sunk cost fallacy says most of the research and development money has already been spent so should be ignored. Then we are left with the idea that eventually there will be a recovery and their customers are the blue chip carriers and will eventually take their 777x orders. I agree the time line is pushed out a lot, but eventually the product will be needed.

We all know the next realistic new engine that could change the game is the UltraFan, but one needs to question how likely it is that RR is going to be willing and able to put it on to the market in the mid term future. They have had a bad time fiscally and reputationally due to the T1000 problems. They already have 100% of the A350 business. Putting UltraFan on 787 is pretty certain to provoke a response from GE on price and/or performance so it's hard to see that strategy changing their fortunes much if at all.

As was pointed out in these threads, RR is quite heavy on power by the hour contracts, and with 90% of the worlds fleet on the ground the hours are not increasing much at all. I doubt they will be very adventurous any time soon.
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kevin5345179
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 6:07 pm

sxf24 wrote:
zkojq wrote:
sxf24 wrote:
Here are facts that I know:
- The SLB with BOC Aviation was not for 10 years


Well how long was it for then?

sxf24 wrote:
- CX can’t unilaterally cancel orders. It has to negotiate with the OEMs.


Is the pretext for this thread not that CX is in these negotiations right now?


The SLB is not for 10 years ;)

Negotiations require two parties and Boeing may listen to requests, but is unlikely to engage in any discussions about canceling widebodies unless the customer is already in default.

JayinKitsap wrote:
Well back to CX and the 779, the links below add more information to the 'rumor' cited by the OP. I am sure that CX is renegotiating leases and working to stop all further deliveries until further notice. CX is probably due a lot of $ for the 779 delays, but to get that cash will probably require delivery of frames they now do not want. Cancelling as a force majeure case probably kills all of the contract, I doubt it would require compensation by one and a tear up of its duties by the other. A likely scenario will be an indefinite deferral of the orders, with say an 18 month lead time similar to exercised options.

https://onemileatatime.com/cathay-pacific-boeing-777x/

https://www.heraldnet.com/business/boei ... roduction/


Force majeure clauses pertain to excuseable and unexcuseable delays, not cancellation. Most purchase agreements do not have cancellation rights.

kevin5345179 wrote:
BoeingVista wrote:


Current delays to the 77X are almost certainly excusable because they’re due to the pandemic.

Depends if there's a force majeure clause and whats in it, if not Boeing has to perform the contract to time or face the penalties in the contract


if MAX development wasn't suspended due to covid, I think suspending 777X flight test was a choice by Boeing and I found it difficult to "prove" the clause


I think MAX development is mostly paperwork and engineering done remotely at this stage, while 777X is flight testing. It is hard to practice social distancing while flight testing.


If factory is restarting and workers are getting N95, I don't see that as an excuse. In addition, we still have planes flying cargo around the world.
 
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 6:42 pm

kevin5345179 wrote:
If factory is restarting and workers are getting N95, I don't see that as an excuse.

N95 means 95% effective at blocking foreign particles, 5% not effective.

I think Boeing is taking a huge risk of being sued if any of its workers get seriously ill or die.

This could all end in tears.

I think this is another example of a large corporation taking risks and thinking they can deal with the possible blowback later.

That didn't end well with the MAX, and it may not end well here.
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par13del
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 7:28 pm

One thing we sometimes overlook with business travel, in a lot of companies it is viewed as a perk, usually there are no shortage of takers.
Now for the real road warriors, this is a much appreciated break, but despite the new / large flat screen TV and higher bandwidth on the internet, there are many who
once travel is deemed safe will make the jump because they traditional like / require / demand face to face interaction.

As the rebound will start slowly, it will look like the glory days of old when the masses could not afford to travel.
 
airzona11
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 7:40 pm

Will CX go smaller? They were just going denser in their 777s in Y. Business demand is what pays the bills, do they could run a premium heavy config and go smaller. It would be a continued transformation of their business model.

par13del wrote:
One thing we sometimes overlook with business travel, in a lot of companies it is viewed as a perk, usually there are no shortage of takers.
Now for the real road warriors, this is a much appreciated break, but despite the new / large flat screen TV and higher bandwidth on the internet, there are many who
once travel is deemed safe will make the jump because they traditional like / require / demand face to face interaction.

As the rebound will start slowly, it will look like the glory days of old when the masses could not afford to travel.


It might be viewed as a perk, but companies do it because it is pivotal to carrying out business. Business travel will come back and like you said, it is going to be more expensive. The reduced airline schedule is going to make flying more expensive, thus deterring voluntary/vacation travel. On the flip side, you'll have hotels that need rooms filled. Going to be a regional focus, going to be interesting to see.
 
Exeiowa
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Re: Rumor: CX to walk away from 777X order

Fri Apr 17, 2020 7:49 pm

In previous times is was done out of cost cutting this time it was done because no one could travel. If you didn't travel you would have been considered "cheap" when no one can travel the dynamics are different. I will say that I saw business travel as a perk, but I would only be travelling 3-6 times a year. If I was constantly travelling I would view it as chore. We have only needed repair visits for the most critical problems a lot can be done by people remoting into our equipment. Our budget has been slashed for equipment purchase for the next year, so we don't need sales visits,
 
klkla
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Re: Rumor: CX to walk away from 777X order

Sat Apr 18, 2020 1:39 am

zeke wrote:
“ARTICLE 11. Termination for Certain Events.

11.1 Termination. This Agreement may be terminated at any time with regard to undelivered Aircraft and items and unperformed services by notice in writing by either party hereto if the other party:

11.1.1 Ceases doing business as a going concern, suspends all or substantially all its business operations, makes an assignment for the benefit of creditors, is insolvent, or admits in writing its inability to pay its debts”.


I don't see where that says anything about having to return advance payments, however. I am under the impression that if an airline outright cancels an order under these circumstances that money is gone. That's why it would probably be better to just defer the order.
 
smartplane
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Re: Rumor: CX to walk away from 777X order

Sat Apr 18, 2020 2:20 am

sxf24 wrote:
Boeing advance payments are typically 25-30% of catalog price, though subject to negotiation. Boeing could be motivated to cancel if they didn’t think the airline would accept the delivery.

Depends on the customer and build stage of each aircraft.

Milestone payments are often deferred, or more protracted for new aircraft under development, as the build rate is so low, and starts at zero, especially for launch customers.

Take a theoretical 20 aircraft order, in say two tranches of 10.

On a new model, depending on the urgency with which the aircraft are required, and OEM's willingness to guarantee performance (or compensate for under performance), it's likely tranche 1 will go unconditional while tranche 2 will remain conditional until early deliveries of production aircraft are received / assessed by the customer (or the OEM, with real data, will guarantee higher levels of performance).

When the 20 aircraft order is conditional, the deposit will be at most 1%, fully refundable.

When tranche 1 goes unconditional, the deposit will increase to a maximum of 5%, and still refundable, but not 100% if taken as cash. This is the last time all 10 aircraft will be invoiced at the same time.

All subsequent payments are due on reaching milestones, with each aircraft billed separately.

When the OEM is ready to order long lead items (not always engines, as these may be negotiated and paid for separately by customers, with their own unique set of milestone payments), the first non-refundable payment falls due. The deposit on the specific aircraft is also no longer refundable.

Further milestones are roll out minus xx days, rollout, engines ready to ship or delivered (rollout and engines may not be in order), engine installed / run, acceptance / delivery, and finally withheld payment.

The way OEM's incentivise airlines to take their full order, is by offering retrospective credits, which are back end loaded. The downside of this, is that cancelling when no aircraft have been delivered is very inexpensive for customers, compared to when 25% or more have been delivered. Of course airlines want the credits to be at least even or front end loaded (the latter will never happen).

Take a hypothetical 20 aircraft order, where the OEM negotiates a 40% retrospective credit, with say the first 5 units attracting 1%, units 6-15 2% and 16-20 3%, though it can be much more pronounced where the OEM has low confidence of order completion. When aircraft 1 is delivered and paid for, the airline receives a 1% credit, which will be more than offset by the final withholding payment. When aircraft 2 is delivered and paid for, the airlines receives a 2% credit on aircraft number 2, and a further 1% on aircraft number 1, and so on.

OEM credits have a dollar value. More than 100% for purchasing a new aircraft model, 100% for purchasing existing OEM aircraft, products and services, 80-90% for OEM distributed products and services, 50-75% for cash, and somewhere in between if traded between customers (though depends how they are to be used).

For a new model under development, everything is negotiable. Even though some frames have already been completed and others are under construction for launch customers, it's likely milestone payments have been deferred and / or discounted, reflecting they are far from ready for delivery.

EK will have likely used credits from 777's delivered (though some may be shared with lessors) and 737's for FZ for X deposits.

Long story short. New model order, at this stage of development, behind schedule versus, part delivered order with accrued credits. Cancelling the latter = big cost to customers. Cancelling the former = less cost compared to cancelling the latter.

Airbus won't want to be too accommodating, as this will be at their expense, and to Boeing's benefit. Smart Airbus negotiators will negotiate delivery delays and model swapping (1000 to 900), subject to the customer taking no other WB deliveries in the same time period.
Last edited by smartplane on Sat Apr 18, 2020 2:40 am, edited 1 time in total.
 
sxf24
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Re: Rumor: CX to walk away from 777X order

Sat Apr 18, 2020 2:44 am

smartplane wrote:
sxf24 wrote:
Boeing advance payments are typically 25-30% of catalog price, though subject to negotiation. Boeing could be motivated to cancel if they didn’t think the airline would accept the delivery.

Depends on the customer and build stage of each aircraft.

Milestone payments are often deferred, or more protracted for new aircraft under development, as the build rate is so low, and starts at zero, especially for launch customers.

Take a theoretical 20 aircraft order, in say two tranches of 10.

On a new model, depending on the urgency with which the aircraft are required, and OEM's willingness to guarantee performance (or compensate for under performance), it's likely tranche 1 will go unconditional while tranche 2 will remain conditional until early deliveries of production aircraft are received / assessed by the customer (or the OEM, with real data, will guarantee higher levels of performance).

When the 20 aircraft order is conditional, the deposit will be at most 1%, fully refundable.

When tranche 1 goes unconditional, the deposit will increase to a maximum of 5%, and still refundable, but not 100% if taken as cash. This is the last time all 10 aircraft will be invoiced at the same time.

All subsequent payments are due on reaching milestones, with each aircraft billed separately.

When the OEM is ready to order long lead items (not always engines, as these may be negotiated and paid for separately by customers, with their own unique set of milestone payments), the first non-refundable payment falls due. The deposit on the specific aircraft is also no longer refundable.

Further milestones are roll out minus xx days, rollout, engines ready to ship or delivered (rollout and engines may not be in order), engine installed / run, acceptance / delivery, and finally withheld payment.

The way OEM's incentivise airlines to take their full order, is by offering retrospective credits, which are back end loaded. The downside of this, is that cancelling when no aircraft have been delivered is very inexpensive for customers, compared to when 25% or more have been delivered. Of course airlines want the credits to be at least even or front end loaded (the latter will never happen).

Take a hypothetical 20 aircraft order, where the OEM negotiates a 40% retrospective credit, with say the first 5 units attracting 1%, units 6-15 2% and 16-20 3%, though it can be much more pronounced where the OEM has low confidence of order completion. When aircraft 1 is delivered and paid for, the airline receives a 1% credit, which will be more than offset by the final withholding payment. When aircraft 2 is delivered and paid for, the airlines receives a 2% credit on aircraft number 2, and a further 1% on aircraft number 1, and so on.

OEM credits have a dollar value. More than 100% for purchasing a new aircraft model, 100% for purchasing existing OEM aircraft, products and services, 80-90% for OEM distributed products and services, 50-75% for cash, and somewhere in between if traded between customers (though depends how they are to be used).

For a new model under development, everything is negotiable. Even though some frames have already been completed and others are under construction for launch customers, it's likely milestone payments have been deferred and / or discounted, reflecting they are far from ready for delivery.

EK will have likely used credits from 777's delivered (though some may be shared with lessors) and 737's for FZ for X deposits.

Long story short. New model order, at this stage of development, behind schedule versus, part delivered order with accrued credits. Cancelling the latter = big cost to customers. Cancelling the former = less cost compared to cancelling the latter.

Airbus won't want to be too accommodating, as this will be at their expense, and to Boeing's benefit. Smart Airbus negotiators will negotiate delivery delays and model swapping (1000 to 900), subject to the customer taking no other WB deliveries in the same time period.


I’ve worked on Boeing Purchase Agreements and have yet to see payments structured as described.
 
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Re: Rumor: CX to walk away from 777X order

Sat Apr 18, 2020 8:46 am

Please keep this thread on topic which are the rumours around CX and the 777X order in the current situation. Thanks.

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