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dbo861
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 4:33 pm

Given how cheap United was able to get these 73Gs, I wonder if WN would be interested in a top up order of 73Gs. For $20 million, owning a brand new aircraft might be a better option than a used airframe which will be more prone to maintenance issues and will have a longer service life. They've been scooping up every used 73G they can find, but they're competing with United who has also been adding used airframes to their fleet.
 
airzona11
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 4:36 pm

Quoting BlueSky1976 (Reply 21):
It is illegal in the US to sell any product at loss, as far as I remember the law prohibits it.

This is not quite the case. Look at everyones favorite Amazon.com. They bleed red ink on the products they sell. They make it back on the ecosystem and subscription lock in.

For Boeing / Airbus etc, the airframe is just part (a large part) of the cost/revenue, but there is so much money and profitability that comes from the services components. So I agree with you while, they made a profit, it was a small one (long term I hazard a guess it adds nice profitability for both Boeing and UA).

At the end of the day, Boeing (as well as Airbus) have massive economies of scale built into a product they have decades producing. Why is there any question about their ability to price match / beat a similar sized plane, that is brand new with no established footprint at United?
 
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TWA772LR
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 4:41 pm

Just spit balling here:
Could there even be collusion between Airbus and Boeing to keep BBD down? If so, could the WTO or even NAFTA stop it?
When wasn't America great?


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AirbusCanada
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 4:59 pm

Quoting polot (Reply 49):
Yes but the reason they are piling up is because of issues at PW...who is also supplying the engines for the C-series.

Thank you for agreeing with me.
NEO/MAX platforms are riskier in terms of production issues as as they are aiming to produce unprecedented 50+A/C per month in response to the massive backlog, putting huge stress on the supply chain.
Any glitch in the supply chain will pile up inventory like never seen before.
 
roseflyer
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 5:00 pm

Quoting AirbusCanada (Reply 46):

As for the comment "Will have poor reliability at Entry into Service" is that a known fact, or just pure speculation on your part?

It's not proven fact, but it will be virtually impossible for the CSeries to match the A320 & 737 dispatch reliabilities of around 99.7%. The 737 and A320 have exceptional reliability rivaled by pretty much no other planes in the world.

Quoting AirbusCanada (Reply 46):
Please have your facts straight. There is no reason to think Bombardier did not laid off a single employee from the the CSeries team. Exactly opposite is true.
Bombardier doubled down on their the Cseries commitment, and laidoff people from the all other department to save every single CSeries Job. Not a single employee was laid of from the Commercial aircraft Division. Largest amount of layoff came from the Rail division, followed by AeroSuperstructure and Services Division.

They are laying people off in aerospace. Having been through layoffs before, once they start the good people start looking for jobs and leaving even if they aren't the ones getting layoff notices. There probably is a brain drain going on at Bombardier.

About 1,100 of 22,200 Bombardier Aerospace employees in Canada are affected by the pending layoffs, about 80 percent in Montreal. In the United States, another 600 of 5,700 positions are affected.

The layoffs represent 6 percent of the workforce at Bombardier Aerospace, one of the company’s two main divisions. Bombardier is also one of the world’s largest producers of equipment for transit systems.


http://chicago.suntimes.com/news/7/7.../790530/bombardier-laying-off-1700
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WaywardMemphian
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 5:02 pm

Quoting polot (Reply 34):

Yeah, sorry for that
 
Amiga500
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 5:09 pm

Quoting roseflyer (Reply 54):
They are laying people off in aerospace. Having been through layoffs before, once they start the good people start looking for jobs and leaving even if they aren't the ones getting layoff notices.

Normally I'd agree.

But with BCA cutting down, Airbus doing much of nothing development wise and the T-X program over the hump, there ain't too many places that are looking many engineers. At least within aerospace in the UK anyway.


Although I agree, there is a brain drain going on - I know - I see it (in suppliers to BBD).
 
Gabrielz
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 5:19 pm

I would expect Bombardier to launch a NAFTA/WTO proceeding. UA is in a precarious position with the Federales at the moment, I wonder if they considered the PR/regulatory risks in this decision? And I wonder if Boeing considered how much other airlines are going to make them bleed for this decision as well (eg demand similar terms).

If the CS is a superior product and the market is real, it will continue to sell.

-G
 
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ADent
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 5:26 pm

There is no way Boeing lost money on those planes.

There are plenty of accounting tricks to show those were sold at cost or better.
 
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Polot
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 5:29 pm

Quoting Gabrielz (Reply 57):
I would expect Bombardier to launch a NAFTA/WTO proceeding. UA is in a precarious position with the Federales at the moment, I wonder if they considered the PR/regulatory risks in this decision? And I wonder if Boeing considered how much other airlines are going to make them bleed for this decision as well (eg demand similar terms).

Hmm, at first the [partially government funded] C Series does not fit into AC's fleet and then several weeks later they order it the same day that Quebec conveniently drops a lawsuit against AC...    Was that BBD/Quebec (who is throwing money at BBD/C Series) abusing their market position?

Bombardier is not going to launch a NAFTA/WTO proceeding. Also UA would be at no risk from the Feds, it would be Boeing. No PR/regulatory agency is going to punish an airline because they selected a cheaper plane...it would be the seller of the aircraft. Nobody here has shown any conclusive proof that Boeing has priced dumped or violated any laws/agreements.

[Edited 2016-02-23 09:31:58]
 
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seahawk
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 5:35 pm

That deal will haunt Boeing. You can bet that the guys at Southwest and Ryanair have taken note of the deal and this deal is now the starting point for future negotiations.
 
UsAir737
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 5:38 pm

I could see DL hopping on the bandwagon and looking for a similar deal. As we all know DL loves cheap A/C at the end of their production cycle. Along with a 738 order, M88/ older 320 replacement anyone?
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dbo861
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 5:40 pm

Quoting seahawk (Reply 60):

That deal will haunt Boeing. You can bet that the guys at Southwest and Ryanair have taken note of the deal and this deal is now the starting point for future negotiations.

Not to keep the conversation away from the 737-7MAX, but I'm now curious, how many 737NG slots does Boeing have left to fill? How long will they build 737NGs along side the MAXes while the MAX is getting spun up?
 
UsAir737
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 5:42 pm

Quoting dbo861 (Reply 62):

As they did with classic to NG they will be flexible and build them alongside each other for as long as necessary. Last classic delivered in 2000
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roseflyer
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 5:45 pm

Quoting Gabrielz (Reply 57):
I would expect Bombardier to launch a NAFTA/WTO proceeding. UA is in a precarious position with the Federales at the moment, I wonder if they considered the PR/regulatory risks in this decision? And I wonder if Boeing considered how much other airlines are going to make them bleed for this decision as well (eg demand similar terms).

If the CS is a superior product and the market is real, it will continue to sell.

Are you serious? United won an order for 737s that they were competing against Bombardier for. Boeing won based on whatever decision criteria that United used. There's no reason for NAFTA. Boeing met what UA wanted and won the order. Boeing is going to continue to be aggressive to win orders. There's nothing wrong at all with this. I highly doubt there is some kickback going on between Boeing and United. One company is buying another company's product.
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JetBuddy
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 6:11 pm

Quoting roseflyer (Reply 64):
Are you serious? United won an order for 737s that they were competing against Bombardier for. Boeing won based on whatever decision criteria that United used. There's no reason for NAFTA. Boeing met what UA wanted and won the order. Boeing is going to continue to be aggressive to win orders. There's nothing wrong at all with this. I highly doubt there is some kickback going on between Boeing and United. One company is buying another company's product.

And Boeing is almost definately selling at a loss. 70% discount is insane, no matter which way you look at it. All to keep a competitor out. And at the same time, Boeing is laying off workers and blaming it on Airbus pricing. Well, that's simply not the truth. I strongly dislike Boeing's business tactics here, they're playing dirty.

[Edited 2016-02-23 10:14:54]
 
roseflyer
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 6:27 pm

Quoting JetBuddy (Reply 65):
And Boeing is almost definately selling at a loss. 70% discount is insane, no matter which way you look at it. All to keep a competitor out. And at the same time, Boeing is laying off workers and blaming it on Airbus pricing. Well, that's simply not the truth. I strongly dislike Boeing's business tactics here, they're playing dirty.

There is no way that an outsider can determine if they were selling at a loss or not. It is also virtually impossible for a news website like Leeham to understand how much the price was discounted and what the actual purchase price was. This is what WSJ said: The paper also reported that UAL might order some twin-aisle jets to “offset” the low prices of the latest 737-700 order. As last year came to a close, Boeing salesmen were hopeful to land another order for 10-13 777-300ERs to help bridge the production gap.

It sounds like Boeing sold one airplane at a bargain rate to secure orders for another. No one will know if this was for a loss and I don't think you can definitely say that. The purchase price is not know. When an airline makes an order, included in that price is the cost of entitlements like maintenance documents, training services, etc. An airline can waive those entitlements and use the money for other purposes. UA probably doesn't need any training, and the cost of configuration on the additional 737-700s is probably nothing since that cost was included in the previous order. UA also recently ordered 777s and could be using some of the entitlement costs from that order to get a better price on the 737-700s. Airplane sales contracts are complicated and have many terms.

One thing that is true is that Boeing and Airbus can play these types of games much easier than Bombardier can. Bombardier has essentially no current relationship with United and no money changing hands. Airbus and Boeing do have relationships where United is spending millions per year on a variety of services. United is constantly purchasing parts and services from Boeing and Airbus. Money can be moved around with all these contracts to make an order look impossibly cheap and that it would be a loss when in reality it isn't.

[Edited 2016-02-23 10:37:28]
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 6:27 pm

"1948 Tucker Sudan" - the big three automakers ganged up and crushed the little guy.
"2016 C Series" - the big two gang up and crush the little guy.
 
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coronado
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 6:33 pm

Quoting JetBuddy (Reply 65):
70% discount is insane, no matter which way you look at it.

Delta as far as I can calculate got an average 58% discount (i.e. paikd 42% of list price) on their 120 737-900ER and their 45 A321, paying between $42 and 44mm each. This is end of the line pricing.

I guess rather than focus on the discount can any one tell me why list prices are so stupidly high? To me list prices are insane. You might as well say that a Ford Fiesta should have a list price of USD40000.

Everybody talks about this order being worth $2bn at list prices. Nobody has paid list price, nor more than 55%-60% of list price on a 737NG for ever. List prices are the biggest bogus numbers in aviation.
The Original Coronado: First CV jet flights RG CV 990 July 1965; DL CV 880 July 1965; Spantax CV990 Feb 1973
 
AirbusCanada
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 6:47 pm

Quoting roseflyer (Reply 54):

About 1,100 of 22,200 Bombardier Aerospace employees in Canada are affected by the pending layoffs, about 80 percent in Montreal. In the United States, another 600 of 5,700 positions are affected.

The layoffs represent 6 percent of the workforce at Bombardier Aerospace, one of the company’s two main divisions. Bombardier is also one of the world’s largest producers of equipment for transit systems.

As i mention before, the commercial aircraft division, which is responsible for production and support for the CSeries is not loosing a single job. Here is the breakdown of layoffs by divisions.

Bombardier To Cut 7,000 Jobs (by KarelXWB Feb 17 2016 in Civil Aviation)



Quoting roseflyer (Reply 54):
They are laying people off in aerospace. Having been through layoffs before, once they start the good people start looking for jobs and leaving even if they aren't the ones getting layoff notices. There probably is a brain drain going on at Bombardier.

Bombardier is the top of the food chain if you are an French speaking Quebec based Aerospace Engineer, which is the background for majority of Bombardier's Engineering talent pool. There are very limited opportunity for this kind of talent outside Bombardier (CAE/PWC comes to mind). Your options are to to leave the industry, move to the U.S. Even if you are willing to relocate to the U.S., you will not get security Clarence to work for any of the major Defense contractors, unless you have a U.S citizenship. U.S airlines and Boeing will not sponsor your TN visa unless they have exhausted all their options for find a local candidate.


So you might be looking,but if you still have a job at Bombardier, you are not going anywhere.

[Edited 2016-02-23 10:53:00]
 
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TheRedBaron
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 6:53 pm

Quoting anfromme (Thread starter):
1) The CSeries. Boeing cut UA a very cheap deal (low to mid-$20m, i.e. ~70% off list price) for their recent 737-700 order in order to prevent Bombardier from getting UA's business. By the same logic, Boeing needs the 737-7 going forward if they don't want to leave the size category to Bombardier. The article also mentions that Boeing is hopeful of tying a 777-300ER follow-on order (at ~$120m apiece) to UA's 737-700 deal.

Ah!!! The next time someone hints Airbus gives away planes Ill have this wonderful Ammunition to counter the argument... holy COW low 20 million...!!!

Quoting anfromme (Thread starter):
The A319NEO has just as few orders as the 737-7. Publicly, Airbus has always said they're taking the CSeries seriously and competing very aggressively with it. To my knowledge, they didn't shift away from this strategy - and yet, sales of the A319NEO are what they are.

I think Airbus will not go to the deep end just to sell an aircraft, specially when you have a gigantic backlog.

Quoting Matt6461 (Reply 1):
IMO this isn't about the -7 being a smart decision on its own. It's about Boeing (and Airbus) using their balance sheets and market power to price a competitor out of their cozy duopoly. Too bad there's no international anti-trust enforcer.

100% Agree, this is dumping masquerading as a very good deal, by the duopoly.

Quoting BlueSky1976 (Reply 4):
70% off list price? Now, if this isn't an illegal dumping price, I don't know what is...

I have a nice Bridge in Brooklyn to sell to you.... If they think they can get away with this, they must be bonkers.

Quoting JetBuddy (Reply 9):
70% off list price is actually making me sick thinking about it. How are competitors going to be able to sell their products? Everyone knows the list price is just the list price, but 70% off is insane. 70% off is a guaranteed loss on Boeing's part, just to make sure a superior product doesn't get sold. I'm disliking Boeing as a company more and more.

The problem here is that they have opened a BIG BIG can of worms...

Quoting BlueSky1976 (Reply 21):
It is illegal in the US to sell any product at loss, as far as I remember the law prohibits it. Lawyers from either competing party involved would be all over this case if Boeing simply "dumped" these 737s on United below cost of manufacturing.

Boeing made very little profit on this sale, if any - that's for sure.

Creative accounting 101 (that is the name of this story)

Quoting roseflyer (Reply 31):
I seriously doubt that Boeing is dumping.

Read on please....

Quoting dbo861 (Reply 50):
Given how cheap United was able to get these 73Gs, I wonder if WN would be interested in a top up order of 73Gs. For $20 million, owning a brand new aircraft might be a better option than a used airframe which will be more prone to maintenance issues and will have a longer service life. They've been scooping up every used 73G they can find, but they're competing with United who has also been adding used airframes to their fleet.

DING DING DING !!!! We have a winner here!!!             They just opened a big can of worms because WN and other huge customer have a big leverage against new orders, WN could order 100 frames tomorrow at 23 million, and derail the whole 737 and MAX production plans, and if they don't make their demands meet I am sure BD and Airbus would make anything to secure such an order (yes even dumping). Boeing simply undervalued its product and gave the competition great ammunition for the future. This will surely bite them in the future (real close future BTW).

Quoting seahawk (Reply 60):
That deal will haunt Boeing. You can bet that the guys at Southwest and Ryanair have taken note of the deal and this deal is now the starting point for future negotiations.

        

Quoting roseflyer (Reply 64):
There's nothing wrong at all with this. I highly doubt there is some kickback going on between Boeing and United. One company is buying another company's product.

Either you are naive about this, or simply don't want to see that Boeing is giving away 737 at microscopic size profits or simply dumping to prevent BD to have a foot hold in the market.

Just to put it in perspective they are giving the 737-7 at the SSJ-100 DISCOUNTED price.

With this kind of sales BD will never survive...

TRB
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planemaker
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 7:03 pm

Quoting anfromme (Reply 41):
See above - despite all the trouble BBD and the CSeries programme have been going through, and in spite of the much-bemoaned lack of flexibility on cutting deals in the early days, BBD currently has more than six times the number of commitments and orders that the A319neo/737-7 have combined. Even counting firm orders only (which still exclude the recent AC order, among others), the CSeries outsold the A319neo/737-7 combined by a factor of just under 2.5.
And that's despite the fact that the A319NEO and 737-7 are members of the two most successful airliner programmes of all time, so they should be very easy sells.
But as we've seen with the A318 and 737-600, pricing and being a member of an extremely popular family doesn't always help.

Please be realistic about the comparison. Boeing and Airbus do not compete vs the CS100.. so it is pointless to lump CS100 sales versus the A319 & 73G. You obviously wouldn't lump the entire Ejet family versus the CSeries.

Second, take a look, a serious look, at the CSeries order book...
.

'
You can knock a whole bunch off that list, starting with Republic, that will never be delivered. Considering all the posts you have made on this thread, it is surprising that you wouldn't have been realistic about the CSeries sales/order status.


Quoting theredbaron (Reply 70):
They just opened a big can of worms because WN and other huge customer have a big leverage against new orders,

They didn't open a can of worms. Southwest would never order the CSeries.
Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
 
DfwRevolution
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 7:03 pm

Quoting JetBuddy (Reply 65):
70% discount is insane, no matter which way you look at it. All to keep a competitor out

Really? Because you just gave an excellent reason why a steep discount is rational.

Quoting JetBuddy (Reply 65):
I strongly dislike Boeing's business tactics here, they're playing dirty.

Spying on Bombardier would be playing dirty. Stealing data from Bombardier would be playing dirty. Lying to customers would be playing dirty.

Offering a better deal is not playing dirty.

Airbus is doing the same thing to Bombardier when its their client on the line (see: Republic).
I have a three post per topic limit. You're welcome to have the last word.
 
roseflyer
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 7:04 pm

Quoting theredbaron (Reply 70):
Either you are naive about this, or simply don't want to see that Boeing is giving away 737 at microscopic size profits or simply dumping to prevent BD to have a foot hold in the market.

Just to put it in perspective they are giving the 737-7 at the SSJ-100 DISCOUNTED price.

With this kind of sales BD will never survive...

I agree. I would not be surprised if Boeing wants to make it so that BD will not survive. What is wrong with a company trying to drive its competitor out of business? Bombardier did the same thing to Dornier 7 years ago.

Dumping implies that Boeing is losing money. I don't agree that we know that they are selling at losses. I seriously doubt that they are. I think that there is a good chance that Boeing can build a 737-700 for less than Bombardier can build a CS300. Boeing also has virtually no non-recurring costs on additional 737-700s whereas Bombardier has to introduce a new airplane to a new customer. If that is true, Boeing can cut its margin thin and still win the order while going lower on price than Bombardier can. Boeing accuses Airbus of doing this. Bombardier accuses Boeing of doing this. This is free market economics.

[Edited 2016-02-23 11:11:14]

[Edited 2016-02-23 11:11:57]
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william
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 7:07 pm

Quoting theredbaron (Reply 70):
Either you are naive about this, or simply don't want to see that Boeing is giving away 737 at microscopic size profits or simply dumping to prevent BD to have a foot hold in the market.Just to put it in perspective they are giving the 737-7 at the SSJ-100 DISCOUNTED price.With this kind of sales BD will never survive...

This is a Bombardier problem, not Boeing's or United's. Bombardier might want to do a better job selling their "better" product. I would state that if it was Embraer or Airbus instead of Boeing.
 
planemaker
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 7:22 pm

Quoting roseflyer (Reply 73):
What is wrong with a company trying to drive its competitor out of business? Bombardier did the same thing to Dornier 7 years ago.

Bombardier also did it to SAAB.

Quoting roseflyer (Reply 73):
Dumping implies that Boeing is losing money. I don't agree that we know that they are selling at losses. I seriously doubt that they are. I think that there is a good chance that Boeing can build a 737-700 for less than Bombardier can build a CS300. Boeing also has virtually no non-recurring costs on additional 737-700s whereas Bombardier has to introduce a new airplane to a new customer. If that is true, Boeing can cut its margin thin and still win the order while going lower on price than Bombardier can. Boeing accuses Airbus of doing this. Bombardier accuses Boeing of doing this. This is free market economics.

Boeing is indeed NOT losing money on the sale. As you indicate, Boeing (and CFM) can sell at the marginal cost of production.
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TheRedBaron
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 7:27 pm

Quoting william (Reply 74):
This is a Bombardier problem, not Boeing's or United's. Bombardier might want to do a better job selling their "better" product. I would state that if it was Embraer or Airbus instead of Boeing.

You have 300 BMW on your company and someone tells you the new Audis are better and have lots of advantages over your typical BMW fleet, but Audis are 20% more.....but BMW comes to you saying: guess what? we will sell you your current models at production price so they will be 30% cheaper than Audi.... and you buy ????

How that is AUDI´s problem, they have better product and has a value, if you don't want to pay it, because someone gives you a killer deal on a lesser product, how is their mistake-problem?

TRB
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N1120A
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 7:34 pm

Quoting BlueSky1976 (Reply 4):
70% off list price? Now, if this isn't an illegal dumping price, I don't know what is...

There is nothing illegal about it.

Quoting JetBuddy (Reply 9):
70% off list price is actually making me sick thinking about it. How are competitors going to be able to sell their products? Everyone knows the list price is just the list price, but 70% off is insane. 70% off is a guaranteed loss on Boeing's part, just to make sure a superior product doesn't get sold. I'm disliking Boeing as a company more and more.


Did you dislike Airbus for the original Frontier deal? JetBlue? EasyJet? Republic?

Quoting BlueSky1976 (Reply 21):
It is illegal in the US to sell any product at loss, as far as I remember the law prohibits it.

Companies sell products at a loss every, single day. There is nothing illegal about it - particularly for a US company to sell to a US consumer.

Quoting dbo861 (Reply 50):

Given how cheap United was able to get these 73Gs, I wonder if WN would be interested in a top up order of 73Gs.

WN has plenty of orders for 73Gs, if it wants to take them. Most of their 738s are actually order conversions. WN has made it clear that their interest is to add 73Gs from the used market and 738s from the line, and then to fill out their sub-150 seater fleet from the MAX 7.
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Matt6461
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 7:34 pm

Quoting scbriml (Reply 30):
Yes, but as long as Boeing has done nothing illegal, then it's just business.

There is basically no law here, thus no illegality. The American Bar Association long ago recommended that NAFTA create a common antitrust enforcument body. That has not happened.

Quoting polot (Reply 34):
If Boeing ever acquired the C Series (which is nil) you can say goodbye to any chance of there being a CS500 or CS700. They have the established 737 for that market, it would be the 717 all over again. Why would WN be interested in a C series- you know what the 737 MAX offers? Wide commonality with their existing ~700 strong 737 fleet.

If the CS500/700 were better than the MAX-8 then Boeing would have a big edge over Airbus and would see improved margins versus selling MAX-8's. Whether, in the long run, the improved margins (including recompense for switching from 737 to CSeries) would exceed development/acquisition costs is a different matter. I advocated no strong position on that determination, only its possibility as an endgame of Boeing's strategy.

Quoting Flighty (Reply 45):
literally dump on the market
Quoting Flighty (Reply 45):
that's toxic

Careful with your "literally's." A few Boeing planes have literally toxically dumped from the lavatory.

Quoting Flighty (Reply 45):
If BBD is killed, Boeing may be sorry when the IP licensed, C Series Mark II comes out in 2017, made in China, priced at $7 million. Boeing is big, but its pockets are shallow compared to the Chinese government.

Good point, another move against which to shield in the chess match.

Quoting Amiga500 (Reply 48):
Ah, I see the light on the sell at loss. The B787/A380 debacles are enough to prove that in the real world OEMs can and do sell at a loss.

Not really. Look Antitrust law is extremely complex but, in the United States at least, the legality of a practice comes down to whether it's a "reasonable retraint of trade." Courts have - correctly IMO - interpreted "restraint of trade" to include price dumping.

Courts generally do not find price dumping where a particular set of unprofitable sales is part of a larger business plan motivated by maximizing profit on the virtues of the product itself. Here, Airbus and Boeing have a predictable industrial ramp up and development curve across which their early frames will sell for a loss. Across the whole block of expected sales, the revenue-maximizing sales price dictates a certain price at which those early losses subsidize skill/knowledge accrual that makes later sales profitable, and maximizes total profit (you might hear in this rationale an echo of the program accounting rationale...).

Courts are more likely to find price dumping where particular sales cannot be justified as profit-maximizing except by reference to their impact on a competitor's viability as a business.

That could be the case here. Perhaps not with the individual sales to UA - those might have been marginally profitable. But moreso with production of the MAX -7, arguably, and that is/was the main topic of this thread. If Boeing has to shill out ~$1bn to develop and certify the MAX-7, but expects to sell only a few frames at barely any profit, then I don't see how this is a profit-maximizing business decision except by reference to Bombardier's viability. On that quick and dirty analysis of the rationale for antitrust law in the U.S., I would hold that Boeing is engaging in an unreasonable restraint of trade. Of course that means nothing practically because there is no law here and proving the foregoing analysis would be difficult.

[Legal Disclaimer - Nothing in the foregoing constitutes legal advice. All statements are prospective, speculative, and not intended as factual representations of illegality or deceptive practices by the Boeing Company or any of its officers or directors.]

[Edited 2016-02-23 11:41:08]
 
roseflyer
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 7:36 pm

Quoting theredbaron (Reply 76):

You have 300 BMW on your company and someone tells you the new Audis are better and have lots of advantages over your typical BMW fleet, but Audis are 20% more.....but BMW comes to you saying: guess what? we will sell you your current models at production price so they will be 30% cheaper than Audi.... and you buy ????

How that is AUDI´s problem, they have better product and has a value, if you don't want to pay it, because someone gives you a killer deal on a lesser product, how is their mistake-problem?


Audi's problem would be that their product is too expensive.

It doesn't matter how good the CSeries is. If the purchase price is too high, Bombardier won't sell it. They need to find a way to make it competitive in purchase price. We've heard a lot from Boeing recently about how they need to save costs so that they can compete on price. Saying that Boeing or Airbus is dumping isn't going to cover up the fact that Bombardier lost the sale. I seriously doubt that either Boeing or Airbus would sell an airplane at a loss. Even if the purchase price is extremely low, there are other ways to make up the money so that overall they are earning money.
If you have never designed an airplane part before, let the real designers do the work!
 
N1120A
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 7:39 pm

Quoting planemaker (Reply 75):
Boeing is indeed NOT losing money on the sale. As you indicate, Boeing (and CFM) can sell at the marginal cost of production.

Exactly, and that marginal cost of production is amortized over the most popular air frame/engine combination ever seen. Boeing is almost certainly, selling at cost or just barely above cost, in hopes of assuring much larger deals.
Mangeons les French fries, mais surtout pratiquons avec fierte le French kiss
 
dbo861
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 7:49 pm

Quoting N1120A (Reply 77):
Quoting dbo861 (Reply 50):

Given how cheap United was able to get these 73Gs, I wonder if WN would be interested in a top up order of 73Gs.

WN has plenty of orders for 73Gs, if it wants to take them. Most of their 738s are actually order conversions. WN has made it clear that their interest is to add 73Gs from the used market and 738s from the line, and then to fill out their sub-150 seater fleet from the MAX 7.

Until now, that's mostly correct.

WN recently converted all remaining 73G orders to 738s. But if they're still in the market for second hand 73Gs, if the price is right, why not take some brand new aircraft? How much cheaper would a 10 year old 73G be than a $20 million brand new airframe, especially if you factor in the cost to refurbish the jet to WN's specifications and additional maintenance costs of an older airframe? Until now, they were only looking for used 73Gs, but who's to say that won't change if the price is right. As Boeing's best 737 customer, I'm sure they have enough leverage to go to Boeing and demand the same price United got.
 
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seabosdca
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 7:56 pm

Quoting polot (Reply 43):
The low fuel prices really hurt BBD's position, that was the C-series prime selling point.

         This is really the heart of what's happening. The low fuel environment brings the 737-700 just close enough to the CS300 in terms of operating economics to make a fire sale on 737-700s tenable for the airline customer. It also puts stars in the green eyeshades' eyes about the somewhat more efficient MAX 7; the Boeing analysis are now thinking "hey, we can sell this at a slight profit and still undercut the CS300 in total ownership cost." Even a small tick upward in fuel prices will change those results, though. If I were Boeing, I'd build the MAX 7 for Southwest and in case fuel stays low, but I'd prioritize maintaining pricing power on the MAX 8 before being super-aggressive on selling MAX 7s.

As many people have pointed out the equation is different on an outgoing product like the 737-700.

Quoting Matt6461 (Reply 78):
There is basically no law here, thus no illegality.

   Antitrust enforcement is a tiny fraction of what it used to be. It's now focused rather narrowly on consumer pricing, which makes enforcement unlikely where the result of unfair competition is that someone gets a bargain basement price.

[Edited 2016-02-23 11:56:59]
 
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scbriml
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 7:57 pm

Quoting roseflyer (Reply 73):
Dumping implies that Boeing is losing money. I don't agree that we know that they are selling at losses. I seriously doubt that they are.

I seriously doubt these 737s were sold at a loss. Especially, as seem to be the case, their sale is also tied to a further 77W order. It's just part of a bigger deal.

Quoting planemaker (Reply 71):
Second, take a look, a serious look, at the CSeries order book...

It is quite sobering. People often claim Airbus's customer list somehow 'lacks quality' - it looks like the Rolls Royce of customer lists compared to that!

Quoting planemaker (Reply 71):
They didn't open a can of worms. Southwest would never order the CSeries.

He's referring to the fact that WN or other large customers will come knocking on Boeing's door asking for 737s at United's price. Why pay more for a MAX when you can get a -700 for that price?
Time flies like an arrow. Fruit flies like a banana!
There are 10 types of people in the World - those that understand binary and those that don't.
 
United1
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 8:03 pm

Quoting scbriml (Reply 83):
He's referring to the fact that WN or other large customers will come knocking on Boeing's door asking for 737s at United's price. Why pay more for a MAX when you can get a -700 for that price?

Think that's a manageable risk however as there are only so many more 737NG slots available before everything switches to MAX.
I know the voices in my head aren't real but sometimes their ideas are just awesome!!!
 
planemaker
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 8:11 pm

Quoting scbriml (Reply 83):
It is quite sobering. People often claim Airbus's customer list somehow 'lacks quality' - it looks like the Rolls Royce of customer lists compared to that!

Indeed. I don't know why the number of CSeries orders was pointed out as being superior compared to A & B a number of times on this thread.

Quoting scbriml (Reply 83):
He's referring to the fact that WN or other large customers will come knocking on Boeing's door asking for 737s at United's price. Why pay more for a MAX when you can get a -700 for that price?

Every airline will always ask for the lowest price. Whether they get it or not depends on a variety of factors... including using any available leverage. In WN's case, the threat of buying the CSeries is not real. Same with WS.
Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
 
Planesmart
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 8:14 pm

Cheaper at present for both to discount against BBD.

However, there will come a point, where if you can't break them, you buy them.

Both A & B will be watching each other intently to see who makes the first move, and then it could be a bidding war.
 
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BlueSky1976
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 8:17 pm

Quoting planemaker (Reply 71):
You can knock a whole bunch off that list, starting with Republic, that will never be delivered.

Yeah. Right.
Always ready to bring your CSeries hatred, aren't you?


                 
The queen of the skies is dead.
 
jayunited
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 8:18 pm

With so many people quick to say what Boeing has done was wrong I want to post a piece of an article followed by a question.

The 737-700 is the smallest and cheapest plane on Boeing’s price list. The 118-seater carries a list price of $80.6 million. But reports indicate that the company sold the first 40 planes to United for a contract price in the low to mid $20 million range. Bombardier, which recently wrote off $3.2 billion in development costs for its CSeries planes, simply cannot undersell Boeing, which long ago recouped all its costs on the 737-700 and can afford to support heavy discounts on the aircraft. Especially for United, one of Boeing’s best customers for decades. The Wall Street Journal noted that Boeing commercial division CEO Ray Conner recalls the effect on the company that resulted from failing to undercut Airbus when that fledgling company sold its first planes to United in 1993. Airbus did not appear to be a serious threat to Boeing at that time, just as Bombardier does not now. Boeing is determined not to fall asleep on the tarmac again.

Read more: Latest Boeing Sale to United Blocks Competitors (NYSE: BA) - 24/7 Wall St. http://247wallst.com/aerospace-defen...ore-than-the-planes/#ixzz411S3Jiry
Follow us: @247wallst on Twitter | 247wallst on Facebook


According to this article Bombardier wrote off $3.2 Billion in cost associated with developing the CSeries as a result they could not afford or support heavy discounts for their aircraft. My question is how exactly is that Boeing's fault the Bombardier can't afford to do business? I wonder if Bombardier had kept cost under control if they did not have to write off $3.2 billion dollars would they be in a better position to to negotiate and counter offer Airbus or Boeing may offer airlines that might be interested in CSeries?

I think a lot people were expecting UA to add the CSeries to its fleet and for a while it seemed like Bombardier may have had this one until Boeing showed up with their own offer one that Bombardier could not match. After reading this thread and multiple articles it does not seem like Boeing has done anything wrong and so far no one has provided concrete proof that Boeing is "dumping" 737's at huge losses. I could be wrong here and this is just my opinion but it seems like Bombardier could not afford to offer deep discounts on their CSeries and that is not Boeing fault or problem.
But on the flip side this deal could easily come back and bite Boeing because after UA finalizes the deal with Boeing what stops them from going to Bombardier and ordering 20 or 30 CSeries? UA may not have a need for the aircraft today but there is always tomorrow this isn't the end of the line for the CSeries just because they lost the UA order it just mean Bombardier will have a tougher road ahead but at least now they know what they are up against when it comes to Boeing and Airbus. So if they want this program to be successful then Bombardier is going to have to be just as aggressive if it wants to place its aircraft in the UA, AA, DL, or WN fleet.
 
planemaker
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 8:31 pm

Quoting Planesmart (Reply 86):
Both A & B will be watching each other intently to see who makes the first move, and then it could be a bidding war.

BBD had already approached Airbus to invest and they declined.

Quoting BlueSky1976 (Reply 87):
Yeah. Right.

I am always ready to listen to reason. So if you can prove otherwise that Republic, Odyssey, Iraqi Airways, IFC, etc are going to take delivery, go at it. Otherwise, your post was pointless.
Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
 
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Finn350
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 8:43 pm

Regarding predatory pricing, it appears that the US antitrust legislation sets quite a high bar for it to be applied.

Quote:
Predatory pricing practices may result in antitrust claims of monopolization or attempts to monopolize. Businesses with dominant or substantial market shares are more vulnerable to antitrust claims. However, because the antitrust laws are ultimately intended to benefit consumers, and discounting results in at least short-term net benefit to consumers, the U.S. Supreme Court has set high hurdles to antitrust claims based on a predatory pricing theory. The Court requires plaintiffs to show a likelihood that the pricing practices will affect not only rivals but also competition in the market as a whole, in order to establish that there is a substantial probability of success of the attempt to monopolize. If there is a likelihood that market entrants will prevent the predator from recouping its investment through supra competitive pricing, then there is no probability of success and the antitrust claim would fail. In addition, the Court established that for prices to be predatory, they must be below the seller's cost.

Source: http://en.wikipedia.org/wiki/Predatory_pricing

[Edited 2016-02-23 12:43:52]
 
airzona11
Posts: 1755
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 8:45 pm

Quoting theredbaron (Reply 70):
I have a nice Bridge in Brooklyn to sell to you.... If they think they can get away with this, they must be bonkers.
Quoting theredbaron (Reply 70):
Just to put it in perspective they are giving the 737-7 at the SSJ-100 DISCOUNTED price.

Speaking of being naive.

Boeing has been mass producing this model of airplane (let alone the other billions in aerospace products) for decades. Their cost of production is incredibly lower, regardless of what countries accounting laws you use.

Plus the existing pilot pool, flight attendants, maintenance, familiarity, training, spares.

If the 737, CSeries and SSJ all were launched at the same time, MAYBE, it might seem crazy the pricing. But reality and the facts are stacked against that belief.

With the scale UA operates 737s, the only true advantage the CSeries has over the 737 is fuel consumption. The price of oil makes that advantage marginal.

Again if none of the above were true, they would have bought the C Series.

---Back to news---

Congrats to Boeing and UA on this order.
 
AirbusCanada
Posts: 647
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 8:50 pm

Quoting planemaker (Reply 89):
I am always ready to listen to reason. So if you can prove otherwise that Republic, Odyssey, Iraqi Airways, IFC, etc are going to take delivery, go at it. Otherwise, your post was pointless.

Other than IFC(due to sanctions), Do you have any factual reasons as to why any of the airline mentioned above would not take delivery.
 
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william
Posts: 3328
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 8:55 pm

Quoting theredbaron (Reply 76):
You have 300 BMW on your company and someone tells you the new Audis are better and have lots of advantages over your typical BMW fleet, but Audis are 20% more.....but BMW comes to you saying: guess what? we will sell you your current models at production price so they will be 30% cheaper than Audi.... and you buy ????

How that is AUDI´s problem, they have better product and has a value, if you don't want to pay it, because someone gives you a killer deal on a lesser product, how is their mistake-problem?

Audi will have to get creative in their marketing, Audi cannot control what their competition does, only their sales pitch and product. If Bombadier's product is head and shoulders better the comp, it will sell, may not be next month or next quarter. But when Lufstansa and AC put these aircraft into service, and companies see actual real world numbers, then it will sell.

Again, if the CS is such hot product, since we speculating here, imagine if Northrop or Lockheed bought BBD........hehehe.
 
planemaker
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 9:38 pm

Quoting AirbusCanada (Reply 92):
Other than IFC(due to sanctions), Do you have any factual reasons as to why any of the airline mentioned above would not take delivery.

It should be self evident to anyone that has been following the CSeries and knows the history of the orders. Moreover, several publications have reported on the risk of CSeries orders being cancelled. You honestly believe that Republic is going to take delivery? Or that an airline that is crowd funding is going to take delivery? Or Porter, or Iraqi, or etc....
Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
 
WaywardMemphian
Posts: 1497
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 9:53 pm

Quoting planemaker (Reply 89):

BBD had already approached Airbus to invest and they declined.

At that time... as with the AC deal, things change.
 
EnviroTO
Posts: 723
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 10:22 pm

Two observations:

1. It would be hard to offer crazy discounts to lessors since they would steal orders from the higher unit cost customers.

2. It would be hard to stop Bombardier from buying 737-7s off airlines considered strategic, and reselling them almost at the same cost as part of a CSeries for 737-7 swap deal. Depending on the market price Bombardier thinks they could get for the aircraft plus their CSeries discounts the airline might even get cash back. These cheap new NG737s could be resold to smaller airlines, perhaps along with Q400s and CRJs as part of a second deal. This is something Boeing has done before to make a deal happen when it looked like it wouldn't.
 
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Devilfish
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 10:36 pm

Quoting EnviroTO (Reply 96):
It would be hard to stop Bombardier from buying 737-7s off airlines considered strategic, and reselling them almost at the same cost as part of a CSeries for 737-7 swap deal.

That would require BBD having the money to buy those in the first place...a commodity they're not exactly awash with at the moment. And it might be even harder to convince others to lend it to them on that premise.
"Everyone is entitled to my opinion." - Garfield
 
wrongwayup
Posts: 441
Joined: Thu Jan 07, 2016 6:23 pm

RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 10:44 pm

Quoting EnviroTO (Reply 96):
1. It would be hard to offer crazy discounts to lessors since they would steal orders from the higher unit cost customers.

At the same time, having an extra set of salespeople pushing your product doesn't hurt. OEMs take the good with the bad when dealing with lessors.

Quoting EnviroTO (Reply 96):
2. It would be hard to stop Bombardier from buying 737-7s off airlines considered strategic, and reselling them almost at the same cost as part of a CSeries for 737-7 swap deal. Depending on the market price Bombardier thinks they could get for the aircraft plus their CSeries discounts the airline might even get cash back. These cheap new NG737s could be resold to smaller airlines, perhaps along with Q400s and CRJs as part of a second deal. This is something Boeing has done before to make a deal happen when it looked like it wouldn't.

Possible of course but highly unlikely. Trade-ins happen in the business but generally in small numbers and with older aircraft. OEMs are barely set up to handle their own used product much less those of another OEM. More likely scenario would be partnering with a lessor, as the airline would get a better trade-in deal and the trade-in doesn't hit the OEM books (or sales team...). As with your point #1, OEMs take the good with the bad when dealing with lessors!
 
deutronium
Posts: 86
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RE: Leeham: Boeing Changes 737-7 Strategy

Tue Feb 23, 2016 11:10 pm

Between the two giants, it appears Boeing is doing all the heavy lifting here to kill off the CS (If that really is possible). I'm not sure about any of the above speculation of Boeing's real intention being to actually take the CS for themselves though. If that were true they would have to at least consider the possibility of Airbus having a change of heart and beating them to it. Anyway, I doubt and hope that's not the real motive and I bet Embraer wouldn't want to see either Boeing or Airbus armed with the CS.

[Edited 2016-02-23 15:17:50]

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