Jan. 4, 2016, © Leeham Co. Let’s take a walk through our outlook for 2016.
Boeing is 100
The Boeing Co. is 100 years old this year. July 15, to be precise. This is the last day of the industrial portion of the Farnborough Air Show.
There will no doubt be all kinds of celebrations at the Air Show. To the extent possible, I would imagine Boeing will try to have a whole lot of orders to announce there. There will be all kinds of run-up to the 100th anniversary. Few throw a party as well as Boeing. (Just don’t sing “Happy Birthday;” I never have liked this song.)
It’s a great achievement and we should all celebrate with Boeing for the next seven months.
Speaking of celebrations, EMB will roll out its first E-190 E2 Feb. 25 in Brazil, on schedule. The aircraft is planned for entry into service in 2018.
Oil prices fell through 2003 levels last month, the level at which the Boeing 7E7 was launched in December 2003. I spoke a few days ago with the president of a West Texas oil company, who told me he believes prices will fall to around $18 in the first or second quarter this year. (Goldman Sachs predicts oil will drop below $20 soon.) After that, this president says it will take about 18 months to rise to about $65.
LNC sees marginal credit airlines deferring new airplane orders and retaining older aircraft longer with these low prices, but we don’t see the likes of United, Southwest, Ryanair or other “blue chip” customers deferring.
New airplane orders slowed last year for Boeing but remained healthy for Airbus. With production rates reaching record levels—into the upper 700s per year at these two OEMs—we don’t think it matters if new orders don’t reach a 1:1 book to bill because the backlogs are around 10,000 airplanes.
But having said that….
Tough times ahead for A380, 747-8 and 777 Classic
I don’t see any recovery of orders for the Airbus A380, Boeing 747-8 or the Boeing 777 Classic. Production rates have to come down for each—it’s just a matter of
when. Boeing announced a rate cut for the 747-8 from 1.5/mo to 1/mo, effective this March, but it’s hardly enough. Another rate cut is necessary (actually, the program needs to be terminated). The previously announced rate cut from 8.3/mo to 7/mo for the 777 Classic isn’t enough, either, in our view. Boeing is counting on a recovery in the cargo market to support both programs, and it’s not happening.
The A380 should have a rate cut, but Airbus doesn’t have its costs down enough to support one. The backlog is thin, with a large portion of positions ordered by dicey customers. An A380neo would breathe some new life into the program, but Airbus is in no hurry to launch the program.
Big orders this year?
I don’t see much in the way of big orders, but one to watch for is the delayed decision by Emirates Airline for either the Boeing 787-10 or the Airbus A350-900.
Though all parties deny it, I still think there is a link between this and the prospective A380neo.
Bombardier has to pony up some blue chip, quantitative orders for the CSeries this year. Last year was devoted to getting new management and restructuring the company. Certification was received in December. Now it’s time to convert MOUs and LOIs to sales and to get new orders from quality customers.
One deal to watch: the oft-talked about United Airlines requirement for 100-passenger airplanes. The A319neo and 737-7 aren’t really competitive in this sector. The CS100 and Embraer E190/195 are the planes to watch. EMB’s chief commercial officer, John Slattery, is going to aggressively try to win this deal—he’s got a major incumbency at UAL and doesn’t wasn’t to give it up. BBD is aggressive with the price after it wrote off $3.2bn in development costs on the program. UAL officials said they will likely stick with Boeing or Airbus, but if I were United, I’d buy the CS100. It has the ability to grow into the CS300. As good as the E-Jets are, and they are very good, up-gauging is limited.
And speaking of BBD, entry into service for the CS100 is scheduled around May (no firm date has been announced) with Swiss International. Industry eyes will be watching how smoothly the EIS goes and what kind of support BBD will have (BBD’s product support reputation, whether fairly or not, isn’t all that good.)
Certification of the larger CS300 is planned for this year, followed by EIS.
Roll-out and flight testing of the A350-1000 is slated for this year.
With the delivery delay last month of the A320neo (not entirely unexpected in this corner; I started hearing of this possibility months ago), eyes will be really focused on whether Pratt & Whitney has its engine issue resolved with the GTF. This is PW’s 20-year bet to return as a major player in the commercial engine market.
Farnborough Air Show
Look for the 737-8 MAX to be there. Look for Qatar Airways’ own mini-air show display, as usual. Will Emirates be ready to announce its deal here? Will Airbus make a decision on the A380neo?
No Middle of the Market airplane for FAS. We look for this next year.
It’s Boeing’s birthday. Deservedly, the show should be Boeing’s.
Flight testing of the MRJ90 was supposed to start in earnest this year. Given the issues announced by Mitsubishi on Christmas Eve, it’s not going to happen.
Roll-out of the first C919 should happen this year.