Cash cows at Airbus and Boeing

Eyes are on Boeing over the prospect of a 777X.

Chatter doesn’t cease about the prospect of an Airbus A330neo.

Boeing is in no hurry to proceed with the “7X” and an A330neo is unlikely any time soon, if at all.

Here’s why.

777X

There simply is no pressing need for Boeing to proceed immediately with this program. Aside from the fact Boeing hasn’t decided what the airplane will be, officials within the company are convinced they have time to wait. Airbus’ development of the A350 is running into delays, with EIS of the A350-900 now projected for the second half of 2014 (vs mid-year). People not associated with Boeing we talk to expect a further slip of 3-6 months.

The more the -900 slips, the more the -1000 slips, as does the threat to the 777-300ER–or goes the Boeing thinking. The design freeze of the -1000 remains in the distance, and Boeing believes it can afford to wait until design freeze occurs.

Whereas Jim Albaugh, former CEO of Boeing Commercial Airplanes, wanted to take the 7X to the Board of Directors by the end of this year, we now expect the Authority to Offer request to move back by a year or maybe slightly more.

This means the 777-300ER, which has become Boeing’s headlining cash cow, can continue cash at prodigious rates. (The 737NG is also a cash cow, but margins are smaller although on much higher volumes.)

The 777 program far exceeded Boeing’s expectations when launched. Today, sales have reached 1,231 (current backlog at July 31, 349). Following the recent 6% price hike, the 777-300ER now lists for $315m. Even if one assumes discounts of 40% and a true sales price of $189m, the cost of building the airplane is much less. We believe it to be comfortably in the $130m-$150m range. With Lean manufacturing techniques now fully implemented on the line, we believe the cost is likely at the low in of this estimate if not lower.

Why should Boeing mess with a winning formula like this if it doesn’t have to?

Production is moving to a record 8.3/mo and Boeing would like to take it higher if the supply chain can feed it. At a rate of 8.3/mo, this is 42 months of production absent new orders–which, of course, will come.

Boeing, of course, will never reveal its cost of building aircraft.

A330

Like the 777, sales of the A330 have far exceeded Airbus expectations. Sales have now hit 1,215 with a backlog through July of 318. Production is 10/mo.

Airbus currently has a list price of $231.1m for the A330-300, which is in the 777-200 category, and $208.6m for the A330-200, which is a notch smaller than the 777-200.

Airbus shows deep discounts on sales. Like Boeing, Airbus won’t actually say how much it sells the airplanes for–or what its costs are–but in May Airbus showed a comparison between the A330-300 and 787-9 to a group of international journalists and used a lease rate of $900,000 in cost comparisons.

At a lease rate factor of 1%, this rate suggests an aircraft sold for $90m. For a blue-chip airline like Lufthansa, the least rate factor is more in the area of 0.75%-0.82%. Rounding this to 0.80%, this would imply a sales price of about $108m.

Several years ago, we’re became aware of A330-200 sales prices in the $70m-$80m range and launch customer pricing for the A330-200F even lower than that. And these were not money-losing deals at the economics at the time.

Since then, Airbus has become more efficient in production, offset by inflation, but we believe margins have more than kept pace.

Airbus’ ability to sharply cut price on the A330 and still make money is how it expects to continue to compete with the 787. Willing to invest in Performance Improvement Packages (largely borne by the engine makers in any event) further enhances the value of the A330.

This is why investing in an A330neo is unlikely any time in the foreseeable future. Adding GEnx or Trent 1000 or Trent XWB engines to the airplane is far more complex than re-engining the A320. These engines are much heavier. Boeing uses iron blocks weighing more than 17,000 each in place of engines on the 787 while these are in open storage at Everett. The XWB engine is probably heavier still. Re-engining the A330 would require costly work to the engine mounts, the wings and center wing box. The stress factors might even require strengthening the fuselage center area. A center-line main gear might be required, further adding to the cost and engineering.

The A330-200 now has a range of some 7,000nm and the A330-300, with improvements announced at the Farnborough Air Show, will have a range of some 6,000nm. If airlines can acquire these airplanes for $90m or less, compared with prices being offered by Boeing for the 787 that are $30m or more higher, why mess with this winning formula?

Airbus expects to sell the A330 into the 2020 decade.

37 comments on “Cash cows at Airbus and Boeing

  1. Pingback: Cash cows at Airbus and Boeing | Boeing Commercial Airplanes | Scoop.it

  2. 777X: All those reasons, and how about this one: the engine OEMs are not ready with the new engine that the 777X needs? That could be another reason for not announcing a go-ahead at this time.

  3. I also think they are not in hurry to launch the 777-9 and 777-8. After all, the A350-1000XWB is targeted to enter into service only in 2017.

    If, and that’s a big IF, they think about the 777-9 (and -8) carefully, mature the concept first, establish large composite parts manufacturing capability in Charleston then perhaps it could take only four to five years to develop the aircraft. So, a launch in 2013 or early 2014 is very reasonable.

  4. 777X

    The 777-300ER will no doubt have good margins. No competition helps a lot! The major competitor seems to be flying on with 744’s. The 777-300ER is not directly competing with the A350-1000 yet, no 777 deliveries after 2016 yet, no A350-1000s before 2017. If you want a big efficient LH twin within 4 years, there’s little alternatives!

    However Boeing has to have a plan B, avoiding pulling a MAX on this (E.g. BA / AA / ANA / UA waiving with a 25+25 A350-1000 LOI and mercyful giving them 3 weeks to match it). Sitting back saying you have time, customers will wait, the other one is undefined/ only catching up, is asking for problems. Richard Aboulafia says it depends on how many Cathays there are out there..

    A330

    Current engines installed on the A330 inboard positions:

    Dry weights:
    Trent 700: 10,540lbs
    CF6-80E1: 9.000lbs

    Dry weight of GENX (B64) is 12,822 lbs, so significantly more.

    The wing / wing box modification would probably mean shaving off less from the (until recently) common A330/A340 wing. The A340-300 carries 2 CFM56s under each wing, each
    -5C4 weighing in at 8,796 lbs. The weights / moments of these on the significant heavier A340 IMO mean that fitting the GENX on that wing is probably doable. Looking at current A330 engine ground clearance, no problems it seems. Engine ground clearance on the A330 could be increased further by using the A330F’s nose gear..

    And thats another driver under the table sofar IMO. The A350-900F is still a concept with no planning. Likely for at least a decade the A350 passengers versions will have priority. Leaving the A330F (& MRTT) to soldier on. I wonder how many carriers will like ordering (“fuel guzzling , noisy”) Trent 700s and PW4000s in 2017, for the next 30 years of operation.. I’m keeping an eye on the aging, huge A300/DC10 fleets of Fedex. LD3s just don’t fit in a 767, 772 much heavier and Mobile is close by.

    • Any one has a good info concerning the Trent XWB weight ??

      Since TXWB may be an option, either for the A330 NEO and likely the A380 !
      It seem to be a very secret story from RR (And Airbus) without any com since Farnborough !
      I think Airbus is very closely following the perf’s of the engine, and still waiting to get the exact data s !
      It’s supposed RR is using the A350 Delays to incorporate new features to the engine to be at/ or better than initial Spec’s, but the timeline is narrowing !

      And I’m searching for positive signals of the engines at the A350 FAL, but today, nope !
      The TXWB is supposed to be fitted under the A350 Wing at the end of October …
      We are beginning September now, nothing fully certified, and nothing dispatched now to Toulouse … hum ??
      Some reassuring com’s are strongly needed from Derby or Toulouse !

  5. “ sales of the A330 have far exceeded Airbus expectations. Sales have now hit 1,215 with a backlog through July of 318”.

    That makes the A330 the only successful Airbus twin-aisle program to date. A330 sales now exceed the combined total (1191 airplanes) of all of its out-of-production predecessors:
    • (250) A300’s
    • (255) A310’s
    • (311) A300-600’s
    • (28) A340-200’s
    • (218) A340-300
    • (32) A340-500
    • (97) A340-600

    • Your are comparing sales of specific models, not of Airbus programs. There are only 2 programs in fact, the A300 and the A330/A340. So the A300 program comes in at over 800 units, which is not too bad a result for the period the program was running in. Obviously there are some models within the A330/A340 program which were successful and some which weren’t. Ultra long range and quads clearly don’t have big markets.

    • 0% marketshare.
      The A300/310 was Airbus entry into the airliner market.
      Then you miss that A340 and A330 are contemporaries and nearly identical twins.
      The 4holer variant was Airbus entry into the longhaul market.
      The twin variant was Airbus entry into the midrange market and a pedigree that
      provided significant growth potential that has been and still is utilised for increasing
      performance.
      50++% market share.
      Toward that objective all Airbus models were/are successfull.

  6. Uwe :
    0% marketshare.
    The A300/310 was Airbus entry into the airliner market.
    Then you miss that A340 and A330 are contemporaries and nearly identical twins.
    The 4holer variant was Airbus entry into the longhaul market.
    The twin variant was Airbus entry into the midrange market and a pedigree that
    provided significant growth potential that has been and still is utilised for increasing
    performance.
    50++% market share.
    Toward that objective all Airbus models were/are successfull.

    I would not say that all of this statement is not correct. After all, Airbus does have great engineers and thinkers that had produced great products. On the other hand, calling a product as successful because of the market share that it had\has in the market does not necessarily mean that it is a successful program per se. Here is an example: If China decides to sell Ryan Air 200 hundreds of is C919 at the outrageous price of 5 millions each, and does the same for other big low cost carriers. Let’s say that by doing so it gets to a 30 market share in the narrow bodies market. Can we call it a successful program because it sold 2000 units, when the government of China invested (lets say 15 billions to produce the whole amount and it only got back 5 billions)? I would say that a program can be truly successful if it made the company more money that it invested to produce it and sell that particular product to the market.

  7. Reply to Toyuths #9;

    The following comparisons between A’s and B’s wide body orders, not deliveries, are based on B & A websites and Wikipedia. A’s web site does not provide readily accurate info on order numbers and dates and delivery numbers and dates, while B’s does, so some of my A figures are estimates.

    If we start in 4/66, when B launched the 747 thru today, B has 4067 wide body orders, including the 747, 767, 777 & 787, while A has 3213, including A300/310, A330, A340, A350 & 380. B’s total does not include the L Tristar, the DC-10, or the MD-11.

    If we start in 1/88, about the time A launched the A340, B has:

    747 694
    767 840 – including 4 tankers
    777 1379
    787 859 – not clear if this includes Qantas’ 35 plane cancellation.

    Total 3772 – Again, this does not include DC-10s and MD-11s.

    A has:

    A300/310 572 – A has 816 from early ’70s, my # us est from ’88.
    A330/340/350 2140 – according to A’s web site.
    A380 257 – A’s web site.

    Total 2969

    If we start counting orders from the beginning of the “current era;” ie. from 2000 when A launched the A380 with 50 firm orders, B has:

    747 221 – not that far from the A380 during the same period.
    767 236
    777 941
    787 859

    Total 2257

    A has orders for:

    A300 66 – Didn’t count 310 ‘cause production ended in 1998, and gave A benefit of the doubt that these orders were placed in 2000 or later.
    A330 850 – estimate
    A340 197 – Includes 97 x A436, 38 x 345, balance A43s. Again gave A the benefit of the doubt that these orders were placed 2000 or later.
    A350 548
    A380 257

    Total 1918

    • “Then, immediately before Farnborough, Albaugh was abruptly replaced. Even though air show invites with Albaugh’s name on it had already been sent out, some observers reacted to Albaugh’s exit as a natural retirement. For these folks, presumably Abraham Lincoln also died naturally watching a play.”

      I don’t understand why this is not discussed further, here or elsewhere. Most people don’t seem to read much into this. It’s rather strange because its importance is not less than Mullally’s own retirement from Boeing, which actually had the same origin.

    • As ever Mr. Aboulafia is a concise observer with an eye to detail who “gets it” slightly wrong.
      ( a bit blinded by ideology? )
      The difference is not a gradient in (financial) discipline but a different time horizont.
      The forces that choke Boeing think in subyear scope.

    • It is the down side of being a publicly traded stock, if big investors demand more dividends and less spending what is the board to do? Long gone are the days when investors were thinking in decades ahead, now most want fast money, no matter if this means a weaker company in the long run, why should they care?

      I guess the culture on Boeings board fit the greedy shortsighted Wall Street more than some managers ideas how to evolve in the market.

      The most stable corporations have shown to be family owned and not publicly traded, no shortsighted greed will get any influence if the owner family is more of the old style capitalists. These are sad times we live in, I hate this new capitalism, I wouldnt even call it capitalism anymore.

      With all this easy credit that governments keep throwing around I cant see the culture change, shortsighted investors are a nightmare in the long run, I hope Boeing will survive, its a great company with a long history in aviation.

  8. Reply to Uwe, # 24: “The difference is not a gradient in (financial) discipline but a different time horizont.’

    Aboulafia said:

    “And Airbus, with much less discipline from equities markets to keep them from pursuing misbegotten concepts, launched the A380 and A340-500/600. If they had Boeing’s financial discipline, Airbus wouldn’t have been able to make these self-inflicted wounds.”

    I take it from your terse reply that you agree that the A380 & 345/6 were “self inflicted wounds.” These planes failed because A misconceived the mkts. They built the A380 even though there was substantial evidence that it would not sell well, and 340s with four engines even though the 777 and their own A330 made it very clear that over the entire lives of these planes, big twins would very quickly (1995 at the latest) be the waive of the future. Pls explain to me why A’s time horizon thinking in these cases was so good? A built these plans because they refused to be disciplined by obvious mkt demand, or the absence of it.

    PS It is proving surprisingly hard (even at the Dartmouth Bookstore) to find a copy of Larry Niven’s Draco Tavern, but I should have one in a couple of days. Thx for the tip.

    • You are trying to make me jump on the wrong foot here ;-)

      IMHO In the big picture of things the 345/6 were neccesary and they were less expensive than forex the 748*. Airbus would have had difficulty in selling a large ETOPS $longtime twin before Boeing had a product.needing that kind of certification. ( A repeat of the A300/767 situation, we had this discussion before ) The 777 engine arrangement ( RR having an engine ready but Boeing going for a GE gift followed by very aggressive marketing ) was not an obvious developement at the time.

      Draco Tavern seems to be available as eBook, see http://larryniven.net/ebooks.shtml , http://larryniven.net/menu/exclusive_menu.shtml.

      • You keep bringing the GE engine monopoly up but the 777 originally had RR engines and the were ETOPs qualified. It only became exclusive for the -300ER derrivatives. Nothing stopped A from building an A350 instead of the A340 early in 2K, except for the 380 blunder.

    • “777 and their own A330 made it very clear that over the entire lives of these planes, big twins would very quickly (1995 at the latest) be the waive of the future.”

      Chris, the main problem for the big twin conventional tube-and-wing configurations continuing to represent the wave of the future, is the fact that they are about to run out of space under the wing as each new generation of engines have ever higher bypass ratios.

      For example, compared to the Trent-800 baseline, Rolls Royce’s 174 inch diameter “2025 preferred System Concept UltraFan engine” ***, with a take-off thrust of 63,600 lbs, would have a 50 percent increase in overall pressure ratio, a 15 percent increase in turbine inlet temperature and a 5 times higher bypass ratio (30:1 vs. 6:1 on the T-800). The TSFC (normalised for engine power) of the UltrFan engine would be roughly some 22 percent lower than the Trent-800 engine, 14 percent lower than the Trent 900 engine, 10 percent lower than the Trent-1000 engine and 7 percent lower than the Trent XWB engine.

      You can’t fit 174 inch diameter engines under the current twins. For example, the fan diameter of the 115,000 pounds of thrust GE90-115b engine is 128 inches while the bypass-ratio is only 7.08:1. However, if you would hang an UltraFan engine as high in relation to the wing as what’s the case on the 737MAX, you could fit an engine as large as one with a 174 inch diameter without reducing the distance between the inner engines and the apron/runway. K1 on the A388 at operating weight empty (OWE) = 1.28 m (page 48):

      http://www.airbus.com/fileadmin/media_gallery/files/tech_data/AC/Airbus-AC-A380-20111101.pdf

      ***AW&ST/July 9, 2012/Page 89

      As for your views on the A345/A346/A388, I would just point out that I’ve provided quite a few rebuttals to your assertions in the past. :-)

    • I see Christopher has the opinion the A345/6 and A380 are self inflicted wounds. He probably has the same qualification for the 787 and 747-8. The A340 and 747-8 are derivatives complementing families. For the 787 and A380, they’ll be in production for the next 25 yrs so few people would like to make such a judgement.

  9. What about technical risk? It appears that a longer span CFRP wing for the 787-9 was dropped on technical concerns. This includes the side-of-body fix consisting of 120 or so titanium ‘bath tub’ fairings reportedly adding 800 lbs in weight to the 787-8. Has this area been re-designed to do away with the bath tub fairings in the meantime? If I was on the Board I’d like to see this issue solved before authorizing ATO for a 777X with a CFRP wing.

  10. KDX125 :
    Weight is only a secondary concern with the SOB fix. The primary concern is the repercussions of the stiffness that the fix added.

    “The primary concern is the repercussions of the stiffness that the fix added.”

    What ever that means?? Must be a technical term ;)

Leave a Reply: Note Reader Comment Rules

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s