March 13, 2015: More Notes from the sidelines at the ISTAT conference this week in Phoenix.
Boeing 777 production rates and advancing schedule
Randy Tinseth, Boeing VP-Marketing, predictably stuck to Boeing messaging Monday at the ISTAT conference when I asked him about the change in tone I described in my post Monday morning about the 777 Classic production rate to the entry-into-service of the 777X.
Waving a copy of my post in the Q&A session of Tinseth’s market update and saying I had transcripts of every Boeing earnings call and investors presentation in which the “bridge” question was posed since the 777X program was launched, I cited Boeing CFO Greg Smith’s response to orders in the March 5 JP Morgan investors’ day and asked Tinseth about it.
Tinseth said Smith’s response was consistent with all previous statements. I further challenged Tinseth, and he responded by saying that come 2018 Boeing will look at the production rates of the 777 Classic.
Every person outside of Boeing I spoke with in the halls of the ISTAT meeting—analysts, industry officials, media—who had read my post of March 9 agreed: Boeing’s messaging has changed, softening the line of confidence exhibited since the X was launched in November 2013. Even a few Boeing employees attending the conference privately agreed: the message has changed.
While Tinseth stuck to the corporate line that Smith’s comments were consistent with previous messages, he revealed for the first time a date—2018—at which production of the Classic might decline. (I think it will come in 2017, which I’ve written on previous occasions.)
Officials have previously said they intend to “feather” Classic and X production rates as the 777X enters service in 2020. “Feathering” is understood. However, the message has been that the Classic rate will be maintained at 100/yr right up to X EIS. Greg Smith’s JP Morgan comment, “We’ll continue to monitor it. We’ll make whatever adjustments we need to make but we don’t see any need to make those adjustments at this time,” is the first deviation. One Wall Street analyst wrote me, “On your change in tone observation on 777, I couldn’t agree more…
“That 787-8 to 787-9 comment certainly hinted at lower production levels before first delivery of the X…you know for “extended flow times” and such.”
Tinseth’s citing of 2018, a first, at least in public, is a widening in that crack as I see it.
So why is 2018 significant? Because, according to others in a position to know who also attended ISTAT, Boeing wants to advance the EIS of the X from 2020 to 2019. As production of the X commences in advance of certification, the Classic rate comes down concurrent with X production beginning and ramping up.
All this assumes, of course, that there won’t be any repeat of delays experienced on the 787 and 747-8. This means 2016 will begin to be the time to measure progress toward EIS.
Why the back-sliding on the confidence rates can be maintained?
Because, according to our sources, Boeing Sales is finally getting through to Boeing Chicago that the task will be tough to achieve without major price cuts. Even with steep discounts we are hearing in the market, as low as $120m plus BFE (Buyer Furnished Equipment), Boeing is having a tough time selling the airplane.
The US Scope Clause
John Slattery, chief commercial officer of Embraer, says the Mitsubishi MRJ90’s weight is too heavy under US Scope Clauses for regional airliners to operate on behalf of Legacy carriers.
Ross Mitchell, the top salesman for Bombardier, says some of Slattery’s EJets are too heavy, which gives his CRJs an unbeatable challenge.
There’s more to this story to come.
There was heavy interest in the topic of the Boeing 757 replacement, both on the stage and off. I think to some degree this is because people like to talk about new airplane programs and right now you have the Bombardier CSeries, Embraer E-Jet E2 and the Mitsubishi MRJ–not quite as sexy as the Airbus and Boeing programs. I’ll have more on this next week.
Mitsubishi MRJ90 flight test program
Mitsubishi, which is about two years late for the MRJ90, will send several airplanes to the US for flight testing in an effort to accelerate the timeline in order to meeting delivery date commitments. One of the locations for test flights is Moses Lake (WA).
Why, might you ask, would Mitsubishi bring its flight test vehicles from Japan to the US?
It’s because air space around Japan is highly restricted plus China continues to claim airspace nearby. US air space generally isn’t restricted. Japan Air Lines for decades used Moses Lake as a pilot training center. The airport there was an alternate landing site for the US Space Shuttle. Boeing uses the airport for testing, and Boeing and Mitsubishi have a technical relationship on the 787 and an agreement to help Mitsubishi on the MRJ.