Airbus, Boeing under price pressure

The Wall Street Journal has two articles about Airbus and Boeing being under price pressure. There is a third article by the WSJ about Airbus wanting its suppliers to consolidate.

The two companies have accused each other of engaging in a price was in the single-aisle category. Airbus also is dropping prices on the A330 vis-a-vis the 787, as we reported following an Airbus presentation last May at its Innovation Days in which it illustrated a $900,000 lease rate for the A330-300 vs a $1.2m rate for the 787-9. The A330 had a slightly higher list price than the 787-9 and the time (Boeing since has raised its list price and is now higher).

 

26 Comments on “Airbus, Boeing under price pressure

  1. The A330-300 vs 787-9 pricing will interesting.

    The 787-9 is more capable and fuel efficient, the A330 shares commonality with 1000 A330/ A340s in service, is available within a few years and had its break-even point probably a decade ago..

    • The A330 is available in as little as One (1) year… As noted by recent orders. Which tells much of its recent success. Not so much about future lease rates, residual value and sales.

  2. The simple fact is that the 787-9 has much more value than an A330-300. This is reflected in the lease rates.

    I found it funny that Airbus was trying to peddle the higher lease rate for the 787 as a bad thing. LOL, it’s in fact quite the opposite. The higher the lease rate means the aircraft is more desirable, and that the leasing companies can get that premium for the planes. Low lease rates are a bad sign, because it means the lessors have to discount the price to place the unit, reflecting the market value of that unit is lower.

    • “The higher the lease rate means the aircraft is more desirable, and that the leasing companies can get that premium for the planes.”

      I’d argue that the “disireability” of the AC as reflected in the lease rates you refer to translates more so into higher acquisition costs, not necessarily a higher implicit interest rate used in the lessors payment calculations (ie: a lessor premium being charged for a certain AC type)

      There are 5 components to operating leases:

      1) Present Value (capitalized cost)
      2) Term Length
      3) Interest Rate
      4) Future Value (residual)
      5) Payment

      All of these are interrelated when looking at lease payments: changes to any of components 1-4 will impact #5. We can assume that interest rates are the same: they are what they are on the open market unless a manufacturer is subsidizing them. Term length is typically fairly standard (12 years if I recall). Therefore the only things that are going to drive a payment difference of $300K/mo are acquisition cost and/or residual values. I’d assume that a 787 holds a far higher residual value than the A330. If the acquisition costs were the same, this would drive a lower payment for the 787. Therefore, I’d say it’s pretty safe to assume that a far lower acquisition cost on the A330 is driving the significantly reduced monthly payment we are seeing in the above example (since it would have to overcome the lower residual amount).

      As for Airbus pitching a higher lease payment on the 787 as a bad thing, I suppose that’s up to the airlines to answer: $300k/mo amounts to $3.6MM/year or $43.2MM over the life of a 12 year lease…and that’s PER FRAME. For an airline making a substantial fleet decision, that’s only amplified further. Of course, I’m only talking about absolute dollars here. I realize that there are many ther factors (efficiency, fleet commonality – with existing 777 operators, maintenance, passenger experience, etc.) to consider .

      • Nice post, I would love to see more of these posts with substance. Better than the simplified Airbus or Boeing is best remarks.

      • Are any 787 leases in a “consumed” state?
        (i..e is anybody actually paying these rates in revenue service
        or is it just projection on certainly carefully managed assumptions.)

  3. The A330-300 had its EIS in 1994. The 787-9 is hoped to EIS in 2014, 10 years after the program was launched. Re the various lease rates and conditions, its often a little to complicated to jump to (desired) conclusions. e.g. there are hundreds of leased A330s around already, that could have influence..

  4. I just think today’s price lists, from A or B, don’t stick more to any reality !
    As said, the A333 may be sold as low as 100M$ if necessary !

    The B787 has been launched in the 70 M $, and I think now, Boeing CFO may threaten to hang anybody willing to sale a B789 under 150M$

    Situation of the A320 CEO and B737 NG may be reflecting the same case now !
    Nobody wants to pay more than 30-40 M$ per unit … and MOL is just waiting a little more to order …

    Lessors have to integrate this reality, whatever happens with their orders situation !

  5. Rensim :
    I just think today’s price lists, from A or B, don’t stick more to any reality !
    As said, the A333 may be sold as low as 100M$ if necessary !

    Airbus is still making money on them, in contrast to Boeing with its currently delivered B787. That shows how much the non-recurring cost determine the financial performance of a program. Or to put it simple: taking risks and investing in technology doesn’t pay off that well in the near term. It just kills you some day if you don’t. Best example: McDonnel Douglas.

    • One could also waive the A380 at that as well. Airbus says they won’t turn positive cash flow on that until 2015, and that was before the wing cracks. Or the CSeries as well.

      It just goes to show that in the airliner industry, piss poor prior planning is VERY expensive and you pay for it over decades, regardless of OEM.

  6. Price pressure is the result of supply outpacing demand. Vicous cycle: Two many seats in the market -> ticket price pressure -> low/negative airline profits -> aircraft price pressure -> OEMs increase production to maintain revenue growth -> more seats in the market…

  7. Seems like even if Airbus gives away the A380 for free no one wants it anymore 🙂 Too much airplane, a political dream seldom makes a good business deal.

    • I’m not sure if no competition, most legacy (re-) oredering them and excellent performance offer a solid base for steep discounts.

      Usually not en590swe.

  8. And eventuals customers for B748, will get them too for free , and may get a 20 M$ refund if they bargain a little !
    Just for a smile !

    • LH seems to have gotten their 747-8i under a “buy one, get one free” scheme.
      Emirates is said to have paid $234m. looks like “buy two, get one free” 😉

  9. Getting under price pressure in a duopoly market with extremely high entry barriers…how stupid is that? 🙂

    • Guru Josh,

      I agree with you.
      A price presure in a duopoly sounds like a bad joke, especially when both of them have an insanely huge backlog..

      The whole story does not make any sense, does it?.

      • .. unless if the “firm” orders are not as firm as they are supposed to be …

      • If the banksters force the economy into another crash a significant part of that backlog will not survive. obviously.
        On the other hand: There is a hard limit on how much
        virtual money you can skim of as real world “profits”.

        If you are not happy with your marketshare in a duopoly
        you can fix that by way of better products or cheaper products.
        Boeing did a combination of a smoke and mirrors “better” product and significantly undercutting the existing price horizont for the 787. This worked as an aquisition method.

        Then see the NEO as a simple, low cost and effective measure to compensate this shift.

        Boeing tried to repeat the 787 gambit but due to “high winds”
        the smoke was blown away and “cheaper” had to carry more load to achieve sales.
        To stem that tide Airbus followed suit.

        A Duopoly without collusion only keeps off new entrants.

      • No RR?
        Who makes T(rent)700 ? 😉
        Would be interesting to get some reliable engine statistics.
        Following the (tabloid) press just doesn’t cut it.

  10. Uwe said: “A Duopoly without collusion only keeps off new entrants.” Whereas, a duopoly with collusion…?
    Wasn’t it Adam Smith himself who said something like: “In a market it is not too long before the players are in the coffee ship fxing prices…”? (In IATA it’s known as tariff co-ordination.)

  11. Boeing dropped the ball with the late EIS of the 787. The A330 sells well mainly because its the only airliner in that class on the market with a short delivery time. The 3 years Boeing lost bringing the 787 to market meant many more orders for the A330. Just think if Boeing had the 787 on time and in the last over 3 years the number of frames delivered would have been well over 100 and this would have translated in less orders for the A330.

    • Boeing never held that ball in their hands. Only a mirage.
      CM nicely put it: “You need 8+ years for a new plane”.
      He should know.
      It is open if Boeing management only misled their customers
      and the public or themselves too.

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