Boeing’s McNerney on 787 costs, obsoleting airplanes

July 8, 2015: Bloomberg News interviewed Jim McNerney, then-CEO of The Boeing Co., June 15 at the Paris Air Show. (McNerney relinquished his CEO title a week later to Dennis Muilenburg.)

Although McNerney got it wrong on the ExIm Bank (he predicted approval before the sunset June 30), the other information he shared is interesting to hear.

  • Current airplanes are being obsoleted at a faster rate than ever before.
  • Volume production is Boeing’s “friend” on the 787, where costs continue to be a concern.
  • Fuel pricing isn’t slowing sales.

The comments about obsoleting airplanes at a faster rate than ever before is a particularly interesting observation. Lessors base much of their business plan on expected useful life of the airplanes, residual values and the ability to sell aircraft for profit before obsolescence. Useful lives typically have been 25 years (before any freighter conversion potential), but the industry has been seeing some scrapping of far younger airplanes, both in the single-aisle and wide-body sectors–and not just for odd-ball airplanes like the Airbus A318. Airbus A319s, Boeing 737-700s, A320s, 737-800s and 777-200ERs have been sent to the scrap heap at relatively young ages that were unheard of a decade ago.

 

15 Comments on “Boeing’s McNerney on 787 costs, obsoleting airplanes

  1. “Airbus A319s, Boeing 737-700s, A320s, 737-800s and 777-200ERs have been sent to the scrap heap at relatively young ages that were unheard of a decade ago.”

    Is there an explanation for this?

    • Maybe higher aircraft utilization, combined with more cycles (because of high share and higher growth in short segments) mean that the aircrafts actually gets worn out faster?

      • Not worn out faster, but a major overhaul coming due can influence the decision to fly, to park, or to part.

  2. Presumably the useful economic life of aircraft is a function of the rate of technological improvement, particularly in fuel efficiency and reductions in maintenance costs, as well as trends in the cost of fuel and of new aircraft.

    The higher cost of fuel in recent years has driven an increased emphasis on fuel burn improvements, shorter engine generation cycles, and the introduction of major new aircraft enhancements such as composite structures. If fuel prices stay down, we may see a lagged response of longer aircraft lives unless currently unknown innovations change the picture.

    • I left out one other major factor – the low interest rate environment, which has reduced the effective cost of new aircraft. If interest rates rise, the rate of new aircraft purchases should fall, and existing aircraft stay in operation longer.

      • Assuming Exim is re-authorized, they and their European equivalent will probably be made to find ways to keep rates low for buyers.

  3. Left out is how valuable the parts are.

    Ergo, really how many 777s etc have been parted out rather than sold?

    If all of them are getting parted out then that’s news, if a few are and the rest are turned over within organization (or outside sales) then not so much.

    • The very first prototype/production 777 was with Boeing for 6 years and then went onto Cathay where it flies today.
      No such luck for 787 where first 3 are at museums all ready

    • Remarkable. It’s McNerney, so maybe some short term opportunism is in the game.

    • McNerney:

      Airbus A319s, Boeing 737-700s, A320s, 737-800s and 777-200ERs have been sent to the scrap heap at relatively young ages that were unheard of a decade ago.

      Tinseth:

      Tinseth also said industry data shows the economic life of airplanes continues to hold steady. “We’ve done an exhaustive analysis of the data. Everything tells us that airplanes are long-lived assets and continue to be good investments.” Tinseth pointed to new Boeing research indicating that, despite the use of various definitions of the subject, no fundamental changes have been observed in the economic life of aircraft.

  4. I have an idea that i would like to share and discuss.
    Last year leehamnews wrote that a cheap 767-300ERW can match the 787 operating cost.
    https://leehamnews.com/2014/05/26/can-a-cheap-767-300er-replace-the-757w/
    Based on this how can you make this plane better WITHOUT increasing the price tag? By incrementaly upgrading it. A good plan to begin with is this
    http://aviationweek.com/advanced-machines-aerospace-manufacturing/boeing-rolls-out-777-upgrade-plan
    But we can take it a step further:
    1. Reprofiled engine pylon.
    2.wing to body fairing change
    3. Revised tailcone and position lights
    4. Resheduled inboard aft flap
    5.gapped outboard airleon
    6. 1.1 percent more fuel reduction
    7. Split scimitar winglet
    8. New ram air turbine
    9. New vortex generators
    10. Boeing sky interior
    11. The 787 suite is already offered
    Combining all changes above the aircraft has a total of 6% improvement in fuel consumption. This 767-200NG can compete with for the same that 767-300ERW can compete with the 787. The diference in the price tag

  5. I have an idea that i would like to share and discuss with you
    Last year leehamnews wrote that a cheap 767-300ERW can match the 787 operating cost.
    https://leehamnews.com/2014/05/26/can-a-cheap-767-300er-replace-the-757w/
    Based on this how can you make this plane better WITHOUT increasing the price tag? By incrementaly upgrading it. A good plan to begin with is this
    http://aviationweek.com/advanced-machines-aerospace-manufacturing/boeing-rolls-out-777-upgrade-plan
    But we can take it a step further:
    1. Reprofiled engine pylon.
    2.wing to body fairing change
    3. Revised tailcone and position lights
    4. Resheduled inboard aft flap
    5.gapped outboard airleon
    6. 1.1 percent more fuel reduction
    7. Split scimitar winglet
    8. New ram air turbine
    9. New vortex generators
    10. Boeing sky interior
    11. The 787 suite is already offered
    Combining all changes above the aircraft has a total of 6% improvement in fuel consumption. This can help boeing keep the production line open. But let think a step further. The 767-200NG can compete with an all new MOM for the same that 767-300ERW can compete with the 787. Price. The diference in the price tag can compesate the diference in fuel efficiency.

  6. One reason is that low interest rates combine with different ownership models (leasing). Maintenance has not become cheaper, the opposite is true. Hence, it makes sense to dispose aircraft earlier when flying it becomes costlier. Most aircraft start to require major structural inspections after 10-15 years. Single Aisles a little bit more robust, and may do 45000 cycles.

    The early retirement of an aircraft is more lucrative the larger the installed base is. The first retired aircraft can probably experience a high re-use factor while spare parts are still expensive (there is no second hand market). Later retirements will face an abundance of spare parts.

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