Should manufacturers be counting options and letters of intent toward program certainty? We’ve always thought this was pretty cheeky, but in reality there is a reasonable foundation and history for doing so. Years ago Boeing regularly ridiculed Airbus for announcing “commitments,” denigrating these as not being “real” orders (and, of course, literally they weren’t). But then came the losing battle between the A320neo and the 737 MAX. Lo and Behold, Boeing touted “1,000 orders and commitments” for the MAX in a PR effort to bolster the competitive position of the MAX. Of course, these “commitments” (in the form of options, MOUs and LOIs) converted to orders eventually.
Today Boeing openly touts its orders, options and LOIs to make the case that the 777 Classic can maintain its current production rate of 8.3/mo right up until the 777X enters service in 2020. Adding a new dimension to this otherwise unconvincing case, Boeing CEO Jim McNerney adds “sales campaigns” to the mix. It’s one thing to be confident of option and LOI conversions to firm orders for a new airplane or one in its mid-life. It’s quite another to attempt to make the case for a plane that’s starting its nadir. Airbus has the same issue with the A330 Classic.
The prospect of converting options and LOIs to firm orders is more convincing for the A320neo, 737 MAX, A350, 787 and the 777X. The latter has 300 orders (resting at just 66 for the moment) and commitments (principally LOIs). We have no doubt these will become firm orders.
By these standards, Bombardier is better positioned with its CSeries than most acknowledge; it has 445 orders and commitments (but just 201 firm orders) for the airplane. These commitments should convert to firm orders, eventually. More concerning is the quality of the skyline. Odyssey Airlines, a start-up, seeks an odd funding mechanism to capitalize the carrier. Republic Airways Holdings continues to throw cold water on the prospect of its taking its large order (thought BBD continues to insist it has a firm contract with substantial penalties for cancellation). Porter Airlines has a conditional order that depends on government approval allowing jets at and expanding Toronto’s Billy Bishop Airport.
Our information is that Airbus will proceed with the A330neo. Overlooked in all of the discussion is what will happen with the A330-200, considering that sales in recent years have shifted to the larger -300 model. We believe the -200 will also get the neo treatment. The A330-300 doesn’t have the range of the Boeing 787-9. For those few airlines that need a range of around 8,000nm, the A330-200 comes close at 7,150nm and the neo would add perhaps 400nm.
More to the point, the A330-200neo could give a boost to the slow-selling A330-200F, improving economics of this variant—and positioning Airbus to make a renewed effort to sell this airplane to the US Air Force when the KC-Y competition opens up at some point. The A330-200-based KC-45 got marked down on fuel costs in the second round of the tanker competition, ultimately won by Boeing,