Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
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Farnborough does little to relieve 777 Classic, A330ceo production gap issues
The orders and commitments announced by Airbus and Boeing at the Farnborough Air Show last week for the A330ceo, the A330neo, the Boeing 777-200LRF and the 777-300ER will help fill the looming production gaps for the two airplanes, but work by both OEMs still needs to be done.
See the production gaps, before the orders and commitments were announced, by clicking the following links:
Airbus A330 delivery schedule, 2015-2020
Boeing 777 delivery schedule 2015-2020
As the charts indicate, Airbus and Boeing each have large gaps between the current backlogs and the current production rates: about 115 a year (10/mo) for the A330 and 100 a year (8.3/mo) for the 777. The charts include orders, options and letters of intent. Based on statements by company officials, they are counting on 100% conversion of options and LOIs to help fill the gap, topped off by new orders and commitments.
Airbus has been facing a dearth of orders for the A330 in recent months. Boeing will say that this is because the A330 has seen its day, now that the 787 program is on track (even if reliability, hovering just under 99%, still is short of the 99.7% goal). Airbus says that many customers have been sitting on the sidelines, waiting for a decision whether the A330neo would proceed. Now that it has, Airbus believes orders for the neo, and the ceo, will begin rolling in again.
Airbus launched the A330neo with 121 commitments.
Boeing announced 20 777 Classic orders and commitments.
Boeing’s production gap is more challenging to fully understand because there are a large number of orders and commitments listed in delivery dates to be determined in the Ascend data base, on which the analysis is based. Boeing’s 2015 and 2016 seem in pretty good shape (assuming 100% conversion of commitments, likely a challenge). From there, the gap increases. The 20 orders and commitments at the FAS are well under the rate necessary to fill the gap. Boeing says it needs 40-50 orders a year (we believe it closer to 40-60).
Airbus has a greater challenge. The A330neo is planned to enter service in 4Q2017, with a two year overlap for ramp up to the goal of 10 per month. Airbus’ production gap sharply increases from 2016. A large order for the A330 Regional, intended for the Chinese market, will fill the bill–if it materializes, but the government hasn’t placed an order since the program was announced 13 months ago.
Airbus says it plans to maintain A330 production at the rate of 10/mo through and beyond the EIS of the A330neo. We think this will be a challenge. Boeing says it will maintain the 8.3/mo rate to the EIS in 2020 for the 777X. We have our doubts about this, too–as do more and more Wall Street investment banks. Aerospace analysts are increasingly raising doubts about Boeing’s ability to maintain rate to the X’s EIS.
Airbus’ and Boeing’s ability to obtain more orders for their aging products by the end of this year should be telling. We think orders will drop off as EIS of the new derivatives nears, not increase. Let’s see if the two OEMs prove us wrong.
The answer is very simple, both A & B should decrease their production rate to a more realistic level otherwise both of them will be forced to do that.
The market is saturated with wide body planes order unless big discounts are made for the current planes which may encourage airlines to chance their old ones.
You also provided the answer: big discounts. At this time with the dawn of low cost long haul carriers (air asia, scoot, norwegian) at discounted deal on a 777 or A330 might sell perfectly fine. Though I must admit doubt if they’ll maintain a production rate of 10/8.3 per month… More like 8/5 if you ask me…
Actual production rates have seen huges changes year-over-year. What is the problem of having a production line running at 60% for a year or so? OK, given the dismal purchase prices the orders were probably calculated on basis of a fully occupied production, giving best productivity and lowest cost of production.
However, many “production assets” (i.e. human beings) can shift to other lines for a while. Airbus will have ramp-up of A350 that year, is probably in temporary need of people. At most sites, going from A330 to A350 or A320, means crossing the street.
90..95% of work on a frame does _not_ happen in the FAL.
Would be interesting to know how flexible the arrangement really is.
I was about to ask about this. How possible is it to use a rate decrease on one aircraft program to reallocate resources such as; finance, supplier inventory and production, management, and FAL labour, to increase production on another aircraft line?
“goal of 10 per month”
I’m not sure if that’s the goal. Airbus is aiming at a production rate of 7 or 8 A330neo’s per month.
I agree. Was it SUH who said that Airbus can start off with around 80 per year for the first couple of years or so of neo production and then decrease gradually afterwards?
It would be more realistic to base A330 delivery gap analyses with the recent 121 A330 commitments included, instead using a pre-NEO graph.
The 121 extra A330 in 2017-2021 period make a huge difference in the graphs / perception.
Yes, I’m not quite sure why 777X orders are included, but not A330neo?
The limit for 10 A330 per month is also somehow wrong. The best output for A330 was last year with 108 aircraft. The bar is at 120 aircraft per year. According to my knowledge Airbus is working for 11 months or even less a year. In 2010 and 2011 the output was less than 90 A330.
They are building A330s at a rate of 10 per month. However, as you point out, they don’t work 52 weeks a year. I believe 2013 was the first full year building at rate 10.
“I believe 2013 was the first full year building at rate 10.”
No, they achieved 10 per month in April 2013.
http://www.airbus.com/newsevents/news-events-single/detail/a330-production-rate-reaches-10-per-month-to-meet-strong-global-market-demand/
” Airbus says that many customers have been sitting on the sidelines, waiting for a decision whether the A330neo would proceed. Now that it has, Airbus believes orders for the neo, and the ceo, will begin rolling in again.”
So customers waited to see if the A330neo would be launched, so they could order the ceo? Do they expect Airbus to now heavily discount the ceo?
It is just the case that most customers now can calculate what aircraft they really want. The NEOs are priced right between the A330CEO and the A350. I think several airlines just started calculations about which aircraft to buy so I won’t expect any orders soon. Some A330CHN – oh- A330R might fill the final gap?
The CEO would be heavily discounted then you see large numbers of freighters ordered.
Actually, there is NO real gap in production … at Airbus, as 330 goes down, then 350 is ramping up and at Boeing, while 777 goes down they will have to both ramp up finally 787 – 8 and 787-9 plus starting prd of 777 X … all those program will get factories very very busy
I think you might be missing the point. The article is talking about the tail off in production of the A330 and 777 before the A330neo and 777X get up to full speed – on the same production lines. It’s not about producing other models to compensate, it’s about the current models transitioning to the new models.
Both OEMs need to sell quite a few more of the current models to avoid a slow-down, followed by a speed-up of production. We’ve seen in the past how difficult that can be. Both OEMs want steady production rates.
You are right … however, 350 is already ramping up and was supposed to replace 330 before the NEO was announced … quite recently
The A330NEO solves (part off) the A330CEO line gap problem. The 777X isn’t doing the same for the 777Classsic, because it will enter service only in 2020. Now, is that really relevant comparing the relieve of the 777 Classic and A330ceo production gap issues ? Of course!
It seems Airbus is shortly to sign an agreement for an A330 “production facility” in China. I believe this will be an outfitting facility for A330Regionals. In return, it’s rumoured that China will order “up to” 200 A330Rs. That will fill a large part, if not all, the production gap and should allow Airbus to maintain current production rates for a good while.