Boeing’s Investor Relations department in Chicago sent a message to aerospace analysts to tamp down concerns about falling oil prices and questions over the impact on airplane orders.
Its message is:
In light of recent questions around falling oil prices, [we] want to provide you a few key points on how we are thinking about the current fuel price environment.
Boeing Value Proposition
Setting aside the understandable self-promotion in the Boeing Value Proposition, which applies equally to the Airbus Value Proposition and which would have been better to label the New Airplane Value Proposition, we don’t find anything with which to quarrel here. We have received many calls from media and the financial community about the impact of oil. We tell these callers that we see no prospect of cancellations or deferrals on narrow-bodies, where the vast majority of the backlog is, due to low oil prices. Any cancellations or deferrals will be due to individual circumstances of the customer. The same is true of wide-body contracts, in our view.
Where we do see a potential impact is for the possible purchase of the Airbus A330ceo and Boeing 777 Classic. These airplanes are only marginally more fuel efficient than those built 10 years ago and lower oil prices narrow the delta to such a degree that the efficiency argument loses must of its luster. Only by deeply discounting the ceo and the Classic do we think sales will be forthcoming for these models. We think the 777-300ER pricing has to fall to $120m or less to become attractive and the A330ceo to $70m-$80m, depending on the sub-type–and probably less, considering that Delta Air Lines CEO Richard Anderson publicly pegged his target price for the A330-900 at $80m-$90m. Nobody outside Delta and Airbus knows for sure what Delta contracted the -900 for, but we’ve heard even lower pricing than the public figure, and this is entirely unconfirmed and from a partisan source.
Our bottom line is that what goes down (oil prices) must go up. Oil prices tanked in a straight line after the 2008 global financial crisis to levels that were below those today. It took 2 1/2 years to return to the pre-recession peak levels approaching $140/bbl. We certainly aren’t qualified to predict when and to what level oil prices will climb, but history repeats itself and most oil-producing nations can’t sustain low oil prices for their own budgetary reasons. Airlines and lessors know this, too–and so we view the backlog as safe and even if there is a pause in new airplane orders, it will be temporary.