JonesNL wrote:iamlucky13 wrote:JonesNL wrote:737 program will make money, less of it but it will end in a net positive. 787 will be tight as with all numbers staying the same they would need to deliver another 900 to finish the deferred production cost. Maybe a future NEO will make it possible. But the main problem I see is that the NMA (which they can fund without much problem) will cannibalize the 787 program if it will be a twin aisle. The NMA would perform much better in sub 5000nm stages and thus limiting the market of the 787. Boeing really has tough strategical decisions to make this decade...
Compared to what I noted in my response to morrisond, 900 seems like a respectable ballpark estimate for the present situation ($17.8 million per aircraft), where the program will struggle at low rates and reduced margins for a few years before demand recovers and margins improve again.
Just to put that in context, if an NMA were to enter service and begin stealing 787 sales around 2030, then the average rate needed to stay ahead of that is 8 per month.
Boeing's interim market outlook this past summer proposed an average demand of 25 widebodies per month over that time frame, not including freighters. With the 787 and A350 expected to split the majority of that market, it looks to me like the market can turn out worse than forecast and the 787 still be able to finally account for those expenses.
That's not the important consideration though. What Boeing most wants to determine is whether the NMA would earn enough additional sales versus offering the 787 alone in order to be the more profitable strategy even after accounting for the lower number of 787 sales that would result.
The NMA would start stealing sales the moment it is introduced in the market, not from its EIS. 25 a month, based on previous market share split this means 10 for Airbus and 15 for Boeing. Pre COVID the production rate was 14x787 and 5x777. Even with an reduced output of 8x787 and 2x777 it will only have space for 5xNMA per month, which is not much. From an business case perspective I think cranking out 12x787 and 3x777x makes much more sense. So, do nothing or make the NMA a single aisle...
Yes and no on the stealing sales, but mostly no in the near term.
First of all, keep in mind that 25 is the average. If we just assume a simple linear growth from the current rates, then achieving that average means going from 15 per month to 35 per month in 2030. Actually, let me update the number I gave previously to include widebody freighters, because those actually are relevant for the widebody market as a whole.
- 2019 Global Widebody Production Rate: 35.5 per month
- Boeing CMO 10-year Production Forecast Average: 29.5 per month
- Current Global Production Rate Target: 15 per month
- Estimated 2030 Production Rate: 44 per month
Compared to the depressed current rates, that seems like explosive growth, but compared to 2019, it is only a 2% annual growth rate in widebody deliveries, and they are smaller aircraft on average than in 2019. Although 2019 saw a widebody glut, starting out in an under-production situation compared to where the market is expected to head ultimately clears that glut and leaves room for some eventual growth.
Secondly, ordering an NMA in 2023 doesn't let an airline meet passenger demand before roughly 2030. Conservative airlines will accept that - holding back on 787 orders in favor of waiting for the cheaper NMA, knowing they will miss out on a few years of revenue growth, but minimizing their risk. Aggressive airlines will order the aircraft available to meet anticipated growth. One or the other will prove to have been the preferable course of action depending how strong the market growth really is.
Additionally, I agree with others that Boeing would likely be willing to trim the 787 family to the -9 and -10 versions if and when an NMA eats too much into the 787-8 market.
So, to get back to the tangent of whether Boeing can finish paying back the 787 deferred production costs even after an NMA launch, I think yes. They need perhaps 8 or so 787's per month average to finish before the NMA arrives, but they expect (assuming 40% of the widebody market through 2030) to average around 12 x 787's per month. The -9 and -10 will continue selling even if at a slower pace after the NMA arrives, hopefully taking the program to an ultimately profitable position.
Keep in mind though, the lower rates now may push the timeline to see that profit out far enough that Boeing could still take a write down on the 787, because the market growth is not certain enough for the accounting requirements.