Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
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Jet Airways, Kenya Airways dumping Boeing 777s
Jet Airways is disposing of all 10 Boeing 777-300ERs (five of which are already leased out) and Kenya Airways is disposing of three 777-300ERs, according to published reports from the regions.
The Jet aircraft are 2007 and newer; the Kenya aircraft are 2013-2014 aircraft.
Jet Airways, partially owned by Etihad Airways, wants to rid itself of the five 777s already leased to other parties. Kenya Airways can’t fill the -300ERs, according to a person familiar with the situation.
A Boeing spokesman said these late model aircraft coming to market won’t affect the company’s effort to sell new 777s as it works to fill the production gap between the Classic and the 777X.
On a recent earnings call, CEO Jim McNerney said the slots are essentially sold out in 2016, half sold out in 2017 and some 2018 slots have been sold. Through May 5, Boeing sold 25 777s this year, including 10 to United Airlines in a swap freeing up 10 Boeing 787-9s.
“A Boeing spokesman said these late model aircraft coming to market won’t affect the company’s effort to sell new 777s as it works to fill the production gap between the Classic and the 777X.”
Of course they will. Good machines for as good price. It’s a risk both A&B face. IMO the most important reason A is holding off a A380 NEO.
Guess I’m not getting how the A380 has come in to this conversation. EK and others need a different business model to get interest in the A380 vs the 777? I know you know more than me, but should this not stay with the impact of used frames 777 sales impacting new 777s? More connected would be a discussion of whether Boeing filled the spots vacated by AF/KLM, and if those are now filled then that might validate what Boeing is saying about impact of competitive alternatives to the 777s. Right? And even that is not close, but an A380 sales strategy?
I believe the problem for the A380NEO is the existing A380 itself.
A number of used units ex Emirates will come onto the market within about four years, and with enough seats it kills anything on seat mile costs, without new engines.
During his interview with Bloomberg the other week, MOL stated that they would not start their low cost long haul project until he could get cheap wide body aircraft in about four years time.
Maybe new end of model 777’s perhaps, or used A380’s?
Remember Ryanair did start with used aircraft, so would not be so far fetched, and 800 seats on A380 would attract a serious amount of value added income using their business model.
You mean, like the same as people opting to buy a used mini van for its larger space than a hot new crossover SUV.
I dont see that working that way either.
Its not the only reason, its just one of them.
You can list them in various order but.
1. NEO or not, its going to cost money, wreck commonality and those who have committed can’t afford to buy a second batch. So far they have worked for a limited number (Emirate aside).
All engine parts become different, repair ops have to re-gear or give up A380 service. Emirates is the only one that is in a position to do that.
If you can’t fill a 777 what make you think you can fill even a cheap A380 (and so far LC carriers have not made long haul work).
And yes it kills you current offerings and those are slim enough.
And you still have to contend with the 900 decision and that would all be on Airbus.
Where it goes I won’t make a prediction, maybe it will grown into itself and maybe it wont. Until it they see which way it is leaning, Airbus looks to stand pat and see if the tea leave clear up.
With condolences to the families, an A400 on a test flight in Spain has crashed after takeoff test flight, reported to have killed 4 and two seriously injured.
http://www.flightglobal.com/news/articles/airbus-confirms-four-killed-in-a400m-crash-412138/
who want to buy an a380 except emirates and maybe qatar ?
Keesje?
Well if the 747 has become too small after 30 years of and the 777, even the 777x makes you leave passengers at the gate, hiring extra crews that aren’t there, flying hubs thats won’t give you extra slots, there’s no alternative then buying the efficient A380s. You don’t want to stuck with restricted, compromised twins when you need growth for the next 25 years. It just makes sense.
😉 Ask BA, SQ, AF, LH, QF etc.
Told you, it just makes sense. And to that I agree
Hey, this is about a Boeing Plane!
The triple 7 is the A340-600 of summer 2015,a gas guzzling metal hog with no real future! It´s too big and heavy and with more and more 787-900 and now A350 entering into service, the end for the big bird is coming closer, except for Swiss Airlines(Lufthansa). Why would you lift 30 tonnes or more of unnecassary padding into the air on each flight?It doesn´t make sense anymore!
I wouldn’t see the 777 this way. The 777-9X will have the lowest cost per seat and 4.7% lower CASM than the a350-1000. I do not to say something more
Hi John, anyone saying : “The 777-9X will have the lowest cost per seat and 4.7% lower CASM than the a350-1000.” assumes he has identified the one and only source or is a strong believer/ supporter.
As Leeham explained last week, anyone you can toggle the numbers/ declare a winner by handpicking suitable starting points / assumptions.
http://www.aspireaviation.com/wp-content/uploads/2013/12/Screen-Shot-2013-12-31-at-15.09.09.png
Swiss is likely using the 777-300ER to replace its A340-300 fleet
The A340s were bought to replace its low hours MD11.
You see where this new buy is heading?
The trouble with the 777 (nonX) from this year on is that it is only competitive with the 787 and the A350 when you can fill it to its last seat. That is the reason why Boeing will have a tough time to sell it at production cost from now on. Besides, it appears that the oil price had found its bottom in January and will now climb back up. If you look at the charts, it might just have been a similar ditch like in early 2009 and we might be back to 100 USD real fast. In that scenario we will see more used 777 come to market and the demand for new ones shrinking fast. I expect that Boeing will have to reduce production of the 777 by half. Just like Airbus will have to cut production of the A330 further – they are in exactly the same situation.
Interesting prospective. I think the 777 survived fuel prices the last time. Kind of hard to throw them out if you a cargo business. If you can fill them they are wonderful, and some airlines have business models that have benefited from them. The A330 also has a nice spot, whether gas is low or high. The 787s and A350 have some ground to make up before either the A330 or the 777 are too old.
In the years past the 777 had the upper hand on fuel efficiency over the A340, once the 300ER could do pretty much all the long-haul the A340 was design for. That table has turned with the appearance of the 787 and the A350, which means the 777-sales guys are now fighting with their backs to the wall.
Ordering the classic 777 now for delivery in 2018 or 2019 when the oil prices will surely be up to normal and more and more competitor are flying the carbon-birds does not look like a good plan to most airlines I suppose.
The A330 is quite a cheaper and less risky to fill plus the 330NEO will be earlier on the market than the 777-X and Airbus has already cut the production rate further, so I guess they will have a little less trouble.
Guess it depends on where you are sitting. This article seems to say, the factor is based on where you’re going, how much you need to carry consistently because those factors determine which option fits best. Check out the link:
http://seekingalpha.com/article/3172496-boeing-are-low-oil-prices-providing-a-tailwind-to-the-777-instead-of-the-787-part-1?app=1&auth_param=11l4mt:1al3p2v:d43f799413f1f9601a91289344939ac2&uprof=66&dr=1
Scott, can you learn whether the Kenya 777s were financed with US Ex-Im support? If so, isn’t this an example of the cheap financing tail possibly having wagged the dog? Also, is it clear that Kenya, rather than US taxpayers, will eat any shortfall between aircraft sales price and balance owed under the Ex-Im guaranteed loan? Not much amortization occurs in the first 1-2 years of a 12 year loan.
Dont worry about Kenya Airways defaulting – they are still solvent- there is an Australian communications business NewSat who defaulted on a $300 mill Lockheed Martin satellite last January.
Ex-Ims biggest customer with 80% of the loan book is Boeing. Some say if you look past the tricky accounting ( well their biggest customer is Boeing) then the its costing the US taxpayer around $200m a year – thats if there are no defaults.
Ex-Im booster point to the low default rate, which if really true would have private investors piling in. But of course they dont use standard practice for declaring default and some tricks like restructuring a loan to push out payments.
The unstated risk, is if borrowing costs increase then the difference will be forced onto taxpayers like in the 1980s when there was a $8.5 bill hole.
And thats was before the aircraft buying boom.
Honestly- who really cares? The airline can’t use them, there is a market for them, and they will find a home. They are simply too new to go away, so who ever has the debt will get paid. Deals like this happen often and the Ex-Im Bank has coverage. If they didn’t they would be closed. Oh wait, that’s what people are trying to do right. Again, who cares?
The point was that Ex-Im doesnt do second hand deals ( as far as I know) so the debt has to be paid by Kenya at settlement. Or maybe Boeing will take them in return for some new planes ?
Something doesnt make sense, in that the last 777-300ER was delivered about 7 months ago. Seems really short time to find out you dont want it.
Could it be the terrible teens 787s have found a home and something has to give.
Time to throttle back 777, 747, A330, and A380 build rates. The curtain is closing, aside from the current order book, how many new NET orders for these models? Cast your predictions now, or forever hold your peace.
That makes sense if you’ve done all you can to beat opportunities out. Me thinks there is more in all of those bushes except for 747-8Is. JL is not finshed with the A330 yet, and EK wants to use the A380 to kill all other long haul air service competition. The 777 has a few more left in ER garb and they will limp to 2020. Even if Scott says he can’t figure out how. The A330 and the 777-300ER make it to 2020 but past that things will be very tough. The A380 has some powerful friends who will keep the program going well past it should because there is no other option for the Keesje theory. He was right on the A321 so he must know something we normal people are not linked to.
Current orders:
A380 317, A332/3-1315, 773ER-768
I see production ending at 350, 1350, and 850 at most.
The A380neo, A339, and 779 being a separate subject of course.
The title of this piece is quite provocative by using the word “Dumping” as if the 777 is not good enough for the airline.
Like Malaysia and South African, Kenya is planning to scale down their ambitions and will very likely reshape their fleet to fit into the new vision.
I foresee that Kenya will probably order 330NEO’s and could dry-lease A330CEO’s to span the gap.
It is bad planning to have both MAS and KE putting 777’s on the market at the same time.
Lets face it, the A330 CEO and NEO is most probably the jet with the sweetest spot in terms of cost, range and capacity today.
Kenya Airways is NOT getting rid of the B777; it is getting rid of the B777-200ER and acquiring new B777-300ER alongside the B787 Dreamliner to replace the aging B767-300ER.