Pontifications: “Everyone” deferring Boeing 787s? Not hardly.

Hamilton (5)

By Scott Hamilton

April 27, 2015: c. Leeham Co. With the announcement on the 1Q2015 earnings call that American Airlines is deferring Boeing 787s, I received an inquiry from a media person: what is it with the 787 that “everyone” is deferring the airplane?

I found the question puzzling.

True, this comes on the heels of United Airlines swapping 787 orders for 777-300ER orders, but this hardly counts as “everyone.” And the reasons for the maneuvering was well-stated and for very different reasons.

United’s 787-for-777s deal was well known. It had been reported months ago, and it’s been in the works since the fourth quarter of last year. Boeing actually hoped to seal the deal by year-end to further get the PR boost of “strong demand,” as well as the cash flow influx (which we’ve now written about ad nauseam). But to get this deal, pricing was dropped well below previous standards (to around $130m-$135m vs $150m-$170m, including Buyer Furnished Equipment), a pricing UA could hardly refuse. The 777-300ER has the range to fly from UA’s Newark or Washington hubs to Asia, and it has more capacity (nominally 365 passengers) than the 787-9 (nominally 280 passengers) in three class configuration. Market demands drive United, and it didn’t need 10 777s in addition to its current orders, so swapping the airplanes at the price obtained makes perfect sense for UA, with only incremental capacity additions.

For Boeing, getting the 787s back from United at near-term delivery slots enabled it to satisfy the early demands from others. More-or-less a win-win, though there is much more to the back story as it relates to filling the 777 production gap and the cash flow.

Over at American, the story is different.

America said weak traffic demand prompted its deferrals of five 787s. The deferrals were just a little bit to the right, not much: four to 2017 and one to 2018. Our Market Intelligence is much more basic: AA wanted to swap 787-9s to the smaller 787-8s (market demand), which is allowed in the contract. Boeing couldn’t accommodate on the timetable AA wanted, hence the new schedule, according to our information. Plain and simple.

These two examples are hardly “everyone.” These two examples are specific circumstances to specific carriers. When it comes to the broad topic of cancellations or deferrals (as I am often asked, in context of the ever-present “order bubble” topic), I have always responded that absent some shocking global or terrorist event, any cancellations or deferrals will be specific to carrier circumstances: poor finances, changing strategy, changing market conditions or whatever. I don’t see wholesale cancellations of deferrals at any of the Big Four OEMs–just spot transactions for reasons described.

Consultant Richard Aboulafia was quoted about the UA transaction as this proved the 787 isn’t a game-changing airplane after all. Rich and I are friends and we have a long, friendly kind of needling relationship. I think his statement (if accurately reported) is just flat-out wrong. Boeing has sold around 1,000 787s. It’s in a market sector that is smaller than the -300ER. UA’s opportunistic deal fits UA’s needs.

There is nothing wrong with the 787. Not “everyone” is deferring and the 787 remains game-changing.

 

 

23 Comments on “Pontifications: “Everyone” deferring Boeing 787s? Not hardly.

  1. Lets not forget KLMs deferral last month of two bodies, and of course Qantas deferring some of their 50 options and cancelling 35 firm orders, ouch. On the positive side, current operators are placing orders for more, so it seems some airlines have their fleet mix right and love the plane, while others have a cloudy crystal ball when it comes to future needs.

  2. I think it is slowly sinking in the 787 is a very good airliner but not more. While Boeing indeed sold 1000 787s, Airbus sold 1000 A330s too, during the same period. That’s sobering.

    http://www.flightglobal.com/assets/getasset.aspx?itemid=60566

    About Richard, he’s known/ admired for speaking out without nuances. While his preferences are known he spanks his fav if he feels they’re underperforming.

  3. Airlines defer aircraft orders or deliveries for different reasons. And Richard Aboulafia’s statement cannot change the fact that the Boeing 787 is a game changer.

    • The airlines that are flying 787s are ‘game changing’ how? It seems to be just taking over routes used by 767-300ER or 777-200ER.
      Its certainly financial game changer for Boeing with the latest planes being sold at a loss of $20mill odd per plane ( even after delivering 250)

      • 787 is not a game changer, its a very good airplane in its segment, the tech is a change, but that’s still working its way out to be seen in the next generation not this one.

        A tech to far?

      • For all the damage Boeing has done to itself with the industrialization of the 787 Dreamliner, the fact remains that it is, in fact, a highly advanced commercial airliner that has introduced a set of operating from LN90, that meet guarantees and allow for the opening of thin long-haul scheduled commercial routes that until the 787 were not possible. No, this has nothing to do with Airbus or the A380, this has everything to do with the p2p, which Boeing has long pushed, and backed with its market analysis and forecasts.

    • The 787 didn’t change the game, as attested by the ongoing orders for the A330 and A330neo.

      Similarly neither A350 or A380 were game-changers. Arguably the original 747 was, however.

  4. I think some of the discrepancy probably comes down to: What precisely is the definition of the adjective game-changing? If it’s “good”, then the 787 certainly is game-changing. If it’s “such that the value of competing products is significantly affected”, then one could argue per empirical data that the 787 probably isn’t very game-changing. Semantics aside, the 787 is a modern, fuel efficient small wide-body.

    • My take of the United swap with 777s, is more interesting seen in the light of their announment of refurb of 767-300ER and maybe buying some more.
      The 777-300ER will probably replace some 747-400s ( at never to be repeated prices plus early delivery) and the existing 767s (plus some more) will continue rather than be replaced by 787.

  5. Once Hainan announces there firm 787 9 order..thanks in part to the United news, all this talk wiill basically be silenced, early delivery slots are the key..
    A win win for boeing …

    • Exactly,Boeing & Airbus probably hoping for more cancellations.Why did they sell so much so cheaply and then find themselves struggling to shift the older stuff?This applies particularly to the a330 which Airbus never expected to sell that many of.

  6. When is the last time Boeing sold a 787-8?

    Do they have problems selling them, or are they just not willing to sell it?

    • American wanted to swap 787-9s for 787-8s–does that count?

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