Boeing’s plan to bridge 777 production gap includes a 777-200 P2F strategy; we’re skeptical of the idea

Boeing plans to begin an effort to stimulate demand of the 777 Classic to bridge a three year production gap to the 777X entry-into-service in 2020. One of its strategies is to persuade current 777-200 operators to sell their aircraft to cargo airlines for conversion, replacing these with new 777s. This was first reported by The Wall Street Journal.

We’re skeptical of this on a couple of counts. First, we remain unconvinced that 777-200 operators will be incentivized to buy new 777 Classics unless there is a deep, deep discount—something Boeing claims it doesn’t plan to do, although we wouldn’t expect Boeing to say anything else.

Secondly, converting the 777-200ER under Boeing sponsorship puts its own new-build 777-200LRF under pressure. It is true that the range and payload differences make these two aircraft very different in sector performance, but a cheap 777-200ERF is…cheap…compared with the very expensive 777-200LRF. It’s also far less costly for a cargo airline to park a cheap cargo aircraft than a new one. There have been very few sales of the 777-200LRF, and a 2011 deferral by FedEx of 11 and a 2013 cancellation of three by Cathay Pacific Airways are indicative of the soft demand for the type.

Boeing is counting on a recovery in the cargo market to spur demand of the 747-8F, for which sales have been worse than anemic. For several years, Boeing predicted a recovery this year, but there are few signs of anything meaningful. Now Boeing has shifted this thinking to the 2016-2017 period, according to an article in Flight International. If this revised thinking comes true, the timing would fit nicely into Boeing’s 777 production gap. But there are plenty of aircraft in storage that theoretically could be returned to service for a lot less money than a new-build main deck freighter.

The following statistics are derived from the Ascend data base. The theoretical return potential is our assessment.

 

Wide-Body Stored Aircraft with Theoretical Return Potential

744F

743F

A300-600RF

MD-11F

762F

763F

Total

42

1

6

20

5

4

78

Table 1.

It is clear from Table 1 Boeing would be competing with a huge number of aircraft that are already converted and waiting for a market recovery. The International Air Transport Association’s 2013 recap of the airline industry showed that air freight had only a 45% load factor. Given the state of today’s cargo market, we see little demand for a new entry into an already saturated supply.

In addition to the 78 aircraft with a theoretical potential for returning to service, there are another 162 wide-body freighters in storage. We believe all of these are destined for the scrap heap. Table 2 details these.

Wide-Body Stored Aircraft With Unlikely Return Potential

A300BF

A310F

DC-10F

742F

741F

Total

28

15

22

92

5

162

Table 2.

For what it is worth, there are hundreds of narrow-body aircraft (mainly Boeing 727Fs) in storage but only a few with realistic return-to-service potential.

Narrow-Body Aircraft with Return Potential

757F

733F

734F

Total

6

3

6

15

Table 3.

 Another reason to be concerned about Boeing’s plan for the 777-200 P2F scenario is that adding this to the marketplace will also undermine the ailing 747-8F. Although we recognize there are very different airplanes, the overall market weakness cannot support yet another Boeing-sponsored competitor.

We’ve previously written about the threat to new-build, main-deck freighters. Boeing’s 777 P2F plan does nothing to change our mind.

 

 

 

 

26 Comments on “Boeing’s plan to bridge 777 production gap includes a 777-200 P2F strategy; we’re skeptical of the idea

  1. I think the 777P2F is an excellent plan for the reason that P2F is an economical solution in the aquisition but it would be a good compromise between the A330F and F-777 more expensive! I would not say I’m skeptical ..

    . Why not!

    • I think the 777P2F is an excellent plan for the reason that P2F is an economical solution in the aquisition but it would be a good compromise between the A330F and F-777 more expensive! I would not say I’m skeptical ..

      I think you’re misunderstanding.
      Nobody is saying that a 777-200P2F would be a bad aircraft.
      However, Scott (and myself, too) thinks that
      a) The market is too weak for this. There are still a lot of already-converted freighters parked waiting to be returned to service before any meaningful rebound of conversions/new-built freighter sales is likely to occur. As Airbus’ John Howey (director of sales for aircraft conversions) put it: “For the first time ever, we have excess capacity for the A300-600, with some stored. All of that needs to come back before you can have new capacity. I don’t see a rebound in freighter values in 2013, and frankly probably not in 2014 either” And he wasn’t saying that with regard to the 777, he was talking about Airbus’ own A300P2F and A330P2F – the latter launched in 2012 which is yet to see a customer. http://www.afm.aero/magazine/fleet-operations/item/751-on-hold-eads-efw-on-cargo-growth

      b) Pushing 777-200P2F conversions isn’t going to help 777 Classic sales leading up to 777X EIS, and it would be bad for 777F (new-built) and 747-8F sales.

  2. Compliments for splitting out aircraft with realistic return potential. The 777-200ER has great payload range. That what made it so successful in the 1995-2010 period. Carrying a lot to /from Asia on 2 engines.

    If the 772ERs are pushed aside by the 787-9 and A350-900 in rest of this decade and prices take a dive as a result, they no doubt will become very popular freighters. Airbus’ A330F salesmen won’t be happy.

    Maybe Boeing takes limited future sales of the 777-200LRF & 748F as a starting point now, which I applaud as a realistic approach.

    Related 77X news, when JAL ordered A350 and Richards and others were quick to conclude the 787 troubles played an important role. JAL apparently drew a (more painful) conclusion: http://www.cnbc.com/id/101454387

    • The A330F salesmen also sell the A330 without the F. There is no market for A330 P2F because the P-version makes more money.

      • There is no market for A330 P2F because the P-version makes more money.

        Indeed. Now, that may change once the A350 and (potential) A330neo come on line, but for now, there is apparently no reason for anybody to sell their A330s for freighter conversion – not enough demand in the cargo market, and still way too much demand for A330s in the pax market.

    • Okay Mr Keesje- I read the aritcle and I read the comment that “Airbus was just better.” In these days of personal feel and not real data, can you define what JAL used to measure “just better?” When a rep makes that kind of comment it’s terrible that much is left to the reader to define. Wish the “just better” had been linked to maybe CSM, offering price, service and support, something because “just better” is not a standard industry measure. Thanks for the link because the comments were so standard business fare for 2014. Investments are made often because things “are just better” than the competition. Really? Private Equity investments are made around, “I just felt better about the leadership and their strategy”. Really, and 6 months later the company is bankrupt.Cut the weasel words and provide evidence. Maybe Airbus can create a marketing pitch around being “just better” and it being a more painful conclusion than Boeing ever thought it would be.
      Sorry Keesje- nothing against you, but daily I deal with people who use these type terms to claim performance difference. When called on it they try some other run of terms, but never willing to go to the data and show specfically where the issue presented itself.

      • Sorry, you have to listen to the JAL “rep” (excutive board member btw). Its the video on the page linked.

        He says Airbus was selected because of economic efficiency compared to what Boeing offered. It more then compensates the inefficiencies of operating aircraft of two manufacturers (pilots, spares).

      • Why are you questioning Keesje though? He only provided the link and it wasn’t his words, it was from JAL. Perhaps next time you’re flying through Japan, you can make a stop at JAL HQ, request to see someone higher up and ask them explain their words to you? As I think you’re asking the wrong person in Keesje, unless he works for JAL?

        • People coming from a PR driven culture often have difficulty grasping
          communications lacking in hyperbole.

      • “Sorry Keesje- nothing against you, but daily I deal with people who use these type terms to claim performance difference. When called on it they try some other run of terms, but never willing to go to the data and show specfically where the issue presented itself.”

        Are these people you deal with CFO’s of major airlines?!

      • Sorry Keesje- nothing against you, but daily I deal with people who use these type terms to claim performance difference. When called on it they try some other run of terms, but never willing to go to the data and show specfically where the issue presented itself.

        Are these people you deal with CFO’s of major airlines?!
        :-D

        No offense, l7room, but you might be talking to the wrong people. Or you’re talking to the right people but not taking them seriously enough.
        I also deal with people who claim performance differences between our own products and competitors’. When called on it, they’re (for the most part) actually quite good at showing the data to demonstrate where the issue presented itself. Which is actually a good way of starting a conversation about our own products vs. the competitor’s. It’s actually where it gets interesting, as you get to dig into evaluation methodologies and understanding what’s important for customers. If you’re interested.

  3. First, we remain unconvinced that 777-200 operators will be incentivized to buy new 777 Classics unless there is a deep, deep discount—something Boeing claims it doesn’t plan to do, although we wouldn’t expect Boeing to say anything else.

    Fully agree, but it’s easy to work around the discounts for 777 Classics. Boeing could simply offer standard discounts while buying back 777s for conversion at above-market-value prices.

    Even if some airlines go for it, I don’t see too many new 777 Classic orders coming out of that. Maybe around 60 over the next five years, certainly not enough to provide a meaningful bridge to 777X production.
    There may be additional airlines willing to sell 777s for freighter conversion, but they won’t necessarily buy new-built 777 Classics in return – more likely 787-9, which are going to have a much longer economic in-service life.

  4. I always thought that the gap of 3 years without 777 production is too large – it is a loss of 360 new-builds.

  5. I have doubts that airlines will take new B777-200. There are better aircraft in that size category.

  6. SELLING 777 at a deep discount ? Why not? Its just a continuation of the 7 late 7 mantra. We lose money on each plane- but will make it up in volume. besides which, if we defer taxes long enough to pump up ‘ profits ‘ and maybe pay them later with cheaper inflated dollars, then the current crop of Miss- management ( not the hydroplane ) can retire with platinum parachutes before the effulent hits the turbine !!

  7. 777 P2F as an “incentive” for 777 operators to swap 777 for 777X, moving the 1st gen types out of paxliner parking areas over to the hangars of some “dedicated airfreighter” appears to be a RISKY gamble because it sets out from an erroneous appraisal of the competitive mecanisms driving dedicated ULD airfreighting. The proposed strategy can prosper only to the extent ULD airfreighting volumes expand at rates significantly greater the growth patterns of the world’s WB paxliner fleets.

    Boeing, you are well advised NOT to take this assumption for granted ! Paxliner bellyfreight is marketed by excellent/expert freight coaching teams, with bottomline offers based upon marginally costed rules onboard WB paxliners, ie to cost levels lower than dedicated airfreighters may ever hope to reach even with zero invested capital (ie with P2F conversion = a give-away ?). Somber previsions prevail for the “dedicated” ULD airfreighting business, as long as the production/delivery of WB paxliners flourishes, as is the case these days. I can see significant proportions of 1st gen 777 being simply scrapped, rather than P2F-ed ?

    An alternative source of FTK could presumably derive as Modal Change from Shipping, however not prima facie in the usual ICAO-type ULDs, but preferably in the TEU = AGA format. This implies P2UF – not P2F – 777 workshops … where UF is for “UltraFreighter”. Good Luck with the challenge, Boeing ? Better start from a clean sheet !

    • It’s not even 777X — Boeing wants the 772 operators to swap their 772s for new 772s or 773s. Not a lot of value (for the operators) in that, methinks.

    • … but we don’t know what potential deals Boeing has in play. If Boeing can lure one of the package carriers into the equation such a proposal might gain traction.

      Just remember the main body of the equation will be based upon on maintaining residual values of the entire 777 family over the long term. For instance, if airlines decide to replace older 777’s with newer 777-300ER’s this could create a supply situation where there is enough feed stock to give cargo operators confidence to proceed with a 777 P2F program. This, in turn would create a secondary market for 777’s, which in turn would help maintain residual and part values for the aircraft family.

      Considering Boeing have delivered more than 400 777-200ER’s I think for many of the 777 operators they could see real value in such a program.

      Time will tell.

  8. The 777P2F conversion may make economic sense. Due to the wingspan, it does not seem to be a replacement for the MD-10/11 or compete with the 767-300F. It is a very good cheap option when compared with a new 777F or 748F, so maybe not so good for those two. But to spur sales replacing 772ER with 773ER, it is a good strategy. Boeing can exploit demand, until Airbus can produce 15 to 20 A350 per year. Just as Airbus does with the A330 versus the 787.

  9. Well upgrading the 777s with winglets, avionics, cabins and PIPs to keep hem relevant until a competive solution for the 788 – 779 gap seems a likely development anyway.

  10. FedEx was extremely interested in the 777P2F, they may well still be.

    They ran a mix of MD11F and MD11P2F and that worked.

    A lot of routes the 777F is more than is needed.

    That may not change the 777 production situation but it might merit the program on its own (UPS would be another candidate).

  11. We are talking about a production (wait for ?) phase-in/(anticipate ?) phase-out overlap headache that Boeing set off at Dubai’13 and will end somewhen into the next decade. Meanwhile (you are right, thysi !) the 777CG (current generation) FAL is spewing out newbuilt aircraft at a pace of 100/year … Boeing now fancy the dedicated airfreighting industry can absorb numerable quantities of mid-life – P2F-ed – 777CG, to make room for those 777CG newbuilds, when better newbuilds – 777X – are coming just around the corner (and a variety of suitable A35X models as well, possibly even A33X NEO models – wait and see ?) … Hmmm ?

    How big is the number of 777CG interim newbuilds that Boeing needs to move ? The revelation of this P2F plan does nothing other than to spell the name of the problem. FedEx, DHL, UPS and their likes may possibly absorb some numbers of P2F, agreed, but the fundamental shortfall in competitivity of ‘dedicated’ airfreighters vs bellyfreighters remains, so (joining keesje) l advocate to continue selling those ‘hot potatoe’ excess 777CG newbuilds – scrupulously PIP-ped up and tweaked, goes without saying – for what they are worth into the paxliner industry, ie BAU – business as usual – whilst slowly pulling back on the 777CG FAL throughput flowstick ?

    Forcing P2F conversions in larger numbers than warranted and they (or white-tailed newbuilt 777CG) will end up somewhere in the desert, because unavoidably those interim 777CG newbuilds will move slower and slower : this is the common law of technological advance and Boeing themselves have wanted things to be that way going 777X, so now they must live up to their own decisions ?!

  12. “when better newbuilds – 777X – are coming just around the corner”

    That is a problem. Looking at the slides & graphics, Boeing makes it feel like the -X is around the corner. http://www.newairplane.com/777x/

    It isn’t. The 777X is where the 787 was in 2002. 6 Years before scheduled EIS. Design freeze is years away, Boeing is negotiating with airlines. That is what matters & why 777 operators massively opted for A350s recently. Another reality that hasn’t sunk in everywhere.

    What if ANA decides 10 abreast 777s on 12-15 hour flights would damage the brand too much? That would make the top 8 777 operators A350 customers.

  13. I do think there will be a market to replace current in-service DC-10F aircraft which a 777-200ERF conversion might fill. Later a 777-200ERF could replace the MD-11F and A300Fs in the cargo market. For FedEx, a 777-200ERF with a common pilot type rating as the 777-200LRF might be a good way to replace aging MD-10Fs without introducing a new type rating.

    • Lufthansa Cargo already replaces MD-11F with new 777F.
      Lufthansa Cargo operates D-ALCN, the last MD-11 ever built.
      Lufthansa Cargo has two potential gaps to exploit: A330 or 777.

  14. Pertinent weblink, keesje : it pin-points how Boeing ‘expertly’ are luring prospective Buyers away from ‘here-and-now’ Reality – which is and has always been the timeframe of Lambda Airlines’ strategic planners. Nobody is duped, the lure is quite directly obvious. The immediate interpretation is : something is wrong with 777 classic, wait for 777X !? Boeing are shooting themselves in the foot, inadvertently yet factually setting the sales pointer at the competitor’s earlier A350 …

    @ Airbus Sales, the first thing they tell you is “we pay you guys to sell what we produce today” (ie, Product Marketing – NOT Sales – are in charge of the future) … seems as if Boeing forgot their own Business Essentials ?

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