Pontifications: Improbably, 787 surplus develops

Hamilton KING5_2

By Scott Hamilton

May 16, 2016, © Leeham Co.: As improbable as it sounds, a short-term surplus of Boeing 787s has developed, say several market officials. Lease rates in some cases on 787-8s and 787-9s have dropped below $900,000/mo for 787-8s and somewhat above this figure for 787-9s as lessors compete with Boeing to place airplanes.

Analysts covering leasing companies, both publicly traded and privately owned, have also heard about falling lease rates for 787s.

“However, this all hinges on the cost and learning curve assumptions, which are difficult to get confident with considering we hear 787 lease rates are under pressure, and there are slots opening up, which can impact timing of future deliveries,” Canaccord wrote in a research note last week after the Boeing Investors Day in which officials outlined the plans to recover $29bn in deferred production costs. Other analysts also report hearing of lease pricing pressure on the 787s.

The most commonly quote sales prices are about $115m and $125m for the two airplanes, with the latter also said to go for $138m. Lease rates to mediocre credits are typically 1%, or $1.15m and $1.25m. Good-to-excellent credits typically see lease rates of 0.75% to 0.82%.

It’s the discount to the 1% rate that have been under pressure, according to lessors and advisors.

How has a surplus of this high-demand airplane occurred?


Boeing created some 787 surplus

United Airlines Boeing 787. A deal to swap 787-9 orders in favor of 777-300ERs were in part responsible for creating a surplus of 787s. Source: AirlineReport.com via Google images.

Some of the surplus was created by Boeing as sales scurried to get orders for the 777 Classic to bridge the production gap to the 777X.

Boeing struck a deal with United Airlines last year to swap 10 787-9s on order for 10 777-300ERs. Sources say the 777s were heavily discounted as part of Boeing’s effort to fill the production gap between the Classic and the new 777X. This freed up near-in delivery positions. Boeing had to scramble to find homes for the 787s, a lessor says. The United airplanes were re-placed by Boeing, even as lessors tried to place 787s with the same customers.

This year, Boeing and United swapped another four 787-9s for four more -300ERs, freeing up the former’s slots.

Aeroflot cancelled 24 787s as part of its down-sizing. This brought the total of suddenly available 787s to 38. A few more 787s were cancelled here and there, as well.

Several lessors that ordered 787s on a speculative basis now found themselves competing with Boeing to place airplanes. Boeing, of course, knows what the lessors’ contract prices are for the airplanes and for Boeing, its first priority is its own production airplanes, say market sources. Knowing the contract prices for the lessor airplanes gives Boeing an advantage in pricing. In addition, Boeing has different profit margins than lessors and different financial and production pressures than lessors. Most tend to work in Boeing’s favor when it comes to competing for business.

Boeing did not respond to a request for comment.

As noted in our post of reactions to the investors day, analysts remained skeptical of Boeing’s ability to recapture $29bn in deferred production costs. Margins outlined by Boeing are aggressive.

Other 787 challenges

There are other challenges coming up on the 787 as well. Greg Smith, the CFO, told the analysts on investors day that integrating the 787-10 into the production line will cause flat deliveries in 2017, not growth, but there will be a surge in deliveries in 2018 when the 787-10 is scheduled to enter service.

“There will be some headwinds in 2017, despite the growth that is taken into account. Obviously, we’ll have lower 777 production rate, getting down to the seven per month. And at the same time, we’ll begin the transition to 787-10. And again, in order to have smooth transitions at 787-10 in the production system, think of that implementation very similar to how we introduced the 787-9 or the 737 MAX. Longer initial flow times on those airplanes, building test airplanes in 2017, delivering those in 2018, and as a result our delivery expectations for 787 in 2017 will be about similar to 2016. And with all that said, again we continue to expect cash flow to increase in 2017.”

Going to production rate 14/mo for the 787, as it turns out, is contingent on Boeing selling another 161 aircraft in the 1,300 accounting block.

“As we look forward over the remainder of the decade, wide-body sales campaigns will be the focus, again selling 777s and maintaining the seven per rate production, selling the remaining 36 unsold 747s in the accounting block and recovering the $880 million of deferred production and then lastly selling the additional 787s which will solidify the 14 per month production rate,” Smith said.



81 Comments on “Pontifications: Improbably, 787 surplus develops

  1. I have little doubt the 787-9’s will find new homes smoothly. Lots of existing operators and its middle of the twin market. The 787-8’s will probably be harder to place, specially the reworked ones when leases of the first batches also start to end.

    I see Boeing coming up with an improved -8(.5) in the not to distant future. To prevent a future MAX8 situation on the Dreamliners. Restoring full commonality with the -9, getting out the excess development weight. Maybe 2 rows extra reducing CASM / besting A330NEO.

  2. Is there a reason Boeing couldn’t move existing customers up in the order instead of having to make hasty sales due to the United conversions? 38 frames is less than four months production…

    • Not easily. Remember that each airline customises their planes, at the very least making engine selections, but also cabin equipment, and various other parts. (I saw a documentary on the 747 once where they said the airline could order them with the clip on the captains clipboard being on the top or on the side!) This affects the whole supply chain, as various parts take a while to make. There isn’t 4 months of slack in that.

      Additionally payments are made as the planes are manufactured. The airlines won’t appreciate being hit up early for the money, as they will have their own planned schedule where they are juggling other things too like retirements/returns of existing aircraft, route updates, crewing and training etc.

  3. Could this surplus be a symptom of something larger than 777 end of the line fire sales?

    Airbus is increasing production of the A330ceo, and in 2015 no other wide-body aircraft received more orders.

    When fuel is as cheap as it is, could it be that the asking price of the 787 is to high? There haven’t been many 787 lately…

  4. This confirms ground the reality. Airlines are not that eager to get new airplanes like B787 at an exorbitant extra capital cost, when fuel prices are low. Their older fleet augmented with a few ‘Neos’ looks ok for them now. Boeing will have wait for rising fuel prices like a glider pilot waits for upward current to regain their usual upper hand with airlines.

  5. “How has a surplus of this high-demand airplane occurred?”

    Well, takers in this domain tend to neither go fast nor on a whim. Carefully rearranging the delivery flow would have been a worthy effort.
    Assuming that Boeing has not sat on its hands in this respect we have to return to the initial tenet.
    If an item increases its availability but the market does not absorb it the “high demand” assumption may be just wrong.
    ( pricing has turned softer than the producer can accept. items then turn replaceable.)

  6. Hi Scott

    I can’t believe that the B787 is uniquely affected by such events. Is this as you suggest a temporary blip relating to delivery management or is it the harbinger of a weakening marketing in view of the considerable rise in supply that can be expected going forward?

    Best regards


    • Southwest sucked up every available 737-700 available to replace old 717. Other US airlines do the same with small Airbus’ and 737s.

  7. I think this is a blip in the statistics. Reuters have just reported airlines are asking the lessors to extend leases on existing aircraft for 2-3 years. This is a result of low fuel prices which makes keeping older aircraft more economic.

    What this does do is delay the natural replacement cycle of aircraft resulting in a situation where there is an in-balance. Time is rubber!

    Even tough the lessors are currently having to accept lower leaser rates for 787’s, they are able to command higher lease rates for older existing aircraft. If we consider the current environment allows the leasing companies to postpone the outlay of capital associated with buying new aircraft, in many instances the lessors can maintain or in some instances grow revenues without the outlays associated with the cost of capital.

    I don’t think the lessors will be complaining.

  8. Question. Once the airframe manufacturer signs up a lease customer for a spare airplane, do they sell the plane and the lease onto a commercial lessor?

  9. Greg Smith: “There will be some headwinds in 2017, despite the growth that is taken into account. … And with all that said, again we continue to expect cash flow to increase in 2017.”

    – Perhaps 2017, yes, but what about the following years? First, when the 737 MAX will start to enter service it could have a temporary impact on deliveries. But I expect this impact to be relatively mild unless the MAX experiences some difficulties like the A320neo is going through right now with all those white tails accumulating. Things will be more worrisome when the 777X will itself be about to enter service at the turn of the decade. I hope everything goes well until then, because otherwise the revenues could be in serious decline for a number of years. For after 2020 the 737 business case will most likely start to deteriorate rapidly and I think it will be increasingly difficult for Boeing to ask a price commensurate with current margins. And this could start to happen way before a replacement will be in sight. So I think it is a legitimate question to ask how the MAX will be doing in the 2020s. And during this same period will the 777X also be capable to attract many new orders? And around the same time will the 787 finally be in a position to generate substantial revenues? The irony is that the Dreamliner could very well be at that time the only aircraft in Boeing’s portfolio that will keep the cash coming in. But this remains to be seen.

    Greg Smith: “As we look forward over the remainder of the decade, wide-body sales campaigns will be the focus.”

    – I can understand that the emphasis will be put on wide-body aircraft because those normally generate substantial margins and Boeing had until recently the upper hand over Airbus in the wide-body sector. But all of its programmes are now more or less in trouble while Airbus is gaining momentum with its larger models, except for the A380: The A350 is doing extremely well and A330neo appears to have a great future. In the meantime the 747 is agonizing, the 787 is struggling and the 777X is being seriously challenged by the A350. The situation is certainly not as rosy as mister Smith has painted it.

    • I would put the 737 major problems about 2025.

      On going till then vs the A321 as Airbus ramps up to 50% production of the single aisles to that model will be on going pain.

      An aspect is availability, if you can get an Airbus in the time frame you want then a 737 is a good substitute (or keep with).

      Long term you have to be at least discussion with Airbus the A321, even if you add to your fleet and not complete replacement of the -8 and -9

      • TW: “I would put the 737 major problems about 2025.”

        – Yes I would tend to agree with this date, but the situation will have started to deteriorate long before that. The year 2025 is when the production rate will have already started for some time to go down along with the margins, and all this at a time when there will be no replacement readily available to pick up the slack.

        TW: “An aspect is availability, if you can get an Airbus in the time frame you want then a 737 is a good substitute (or keep with).”

        – What could also help Boeing is that the C Series production will likely also have reached its maximum potential, which for the foreseeable future will be limited to 120 or 240 a year, compared to the Big Two at more than 500 a year each.

        • I think we are already seeing the wobble, but deep dire or actually fall off the cliff is 2025 roughly.

          Or pretty good in the -8/-9 area (keep9ing those as complimentary rather than A321 competitor) and its already dire in the A321 area.

          I don’t see the C series as a real factor with Boeing looking to move the -7 up into the 150 seat area.

          It may even be complimentary with economical ops and feeding 737 and wide bodies at larger airports.

          • “I don’t see the C series as a real factor with Boeing looking to move the -7 up into the 150 seat area.”

            What about if Bombardier moves up the CS300 into the 150+ seat area with the CS500?

          • So far BBD is saying not on the radar, taken with a grain of salt.

            I do agree the 500 is a very interesting item, it may well be that by the time it comes up Boeing has done what they need to.

            That may means moving up higher still and seeding that area to BBD. Too much in flux right now I think to make predictions. I think Boeing knows full well they have an issue, what they are or aren’t going to do about it is going to say a lot about Mullenberg management success or another McNenearny failute to bite the bullet and kick the plane down the runway.

    • “The A350 is doing extremely well and A330neo appears to have a great future. In the meantime the 747 is agonizing, the 787 is struggling”

      Total Sales

      Last three years…

      a350… (-32,-3,21) = -14 orders
      b787… (41,71,12) = 124 orders

      Last 5 years…

      a350… (27, 230, -32,-3, 21) 243 orders
      b787… (-12, 182, 41, 71,12) 294 orders

      First three years of introduction…(not counting YOI for 350)

      a350… (2,292,163,51) 488 orders
      b787… (56,235,157) 448 orders

      First five years…

      a350…(2,292,163,51,78, -31) 535 orders
      b787…(56,235,157, 369, 93) 910 orders

      10 years in for 350… 798 orders
      9 years in for 787… 792 orders

      It should be noted that in it’s tenth year the 787 recorded 182 orders which seems a tall order for the 350 to match.

      Regardless, it seems unreal to say the 787 is “struggling” and the 350 is “doing extremely well”.

      • @Geo, NH

        I take your points, the only observation could be that in very recent months there have been a dearth of orders for everyone in relation of BtoB. Whether that reflects the ‘lumpiness’ of orders or a wider malaise is another matter. You could argue that the only frame not affected by this is possibly the a330neo which continues to pick up dribs and drabs month on month. To infer a strong advantage of one OEM to another is wrong IMHO over such a short time period. The critical risk is not so much competition between the two but instead total demand for new aircraft.

        • As you may have seen by now in my reply I was not referring to sales but to the pending forward loos that is attached to the Dreamliner programme. But you raise an interesting point about the dearth of orders for everyone in recent months. I have noticed that trend myself and was wondering if this is just a temporary situation or if it is related to an anticipated slowdown in the world economy that could make the buyers somewhat more prudent. I anxiously await Farnborough next July to confirm this trend.

      • Thanks for pointing that out, Geo. The comment “The A350 is doing extremely well and A330neo appears to have a great future. In the meantime the 747 is agonizing, the 787 is struggling and the 777X is being seriously challenged by the A350” seems hopelessly wrong in light of, umm, you know….facts.

        • In scope of the established overstatement in language employed here I’d see this as a rather held back observation.

          Nothing about killing, blasting out of the water, …

          Really! rather held back language imho 🙂

        • @Neutron73

          To better understand my post please read my subsequent replies. About the Dreamliner I was referring to its 32B forward loss. But for the 747 I was indeed referring to sales, which should not even be a subject of discussion. As for the 777X it is reasonable for anyone to believe that the A350 represents a serious challenge. As I mentioned in another post the 777-8X is in serious trouble against the A350-1000, but on the other hand I think the 777-9X will likely prevail over the A350-1100. But that doesn’t mean the 777-9X will not be challenged.

          • Well, looking at the lack of orders for both the A350-1000 and the 777X in quite some time, I think both are “challenged” at this point

          • Indeed they are, and I have addressed that issue with Sowerbob in another post. Frankly I don’t understand very well what is going on. We may have a better idea at Farnborough which, like Paris, normally reflects the mood of the entire year.

          • Any A350-1100/8000 will probably be a straight stretch of the 1000, a 100 sales will probably pay for it, call it a 350-1000+ to be honest. It will however put pricing pressure on any more 779 sales.

            Operators are worried about the economy, no surprise there, but I note that freight was a lot more affected by the last downturn, indead never really came up again, so long range freight capable aircraft like the 787 will lose out to the 330 NEO in an enviroment like this. A350-1000+/1100/800 or whatever you call it will gain strength as well.

      • I was not referring to sales like you do here. I meant that the 787 programme is struggling with a 32B forward loss. In terms of sales the 787 has done extremely well at the start of the programme because it was a very promising design and Boeing were giving them away. And despite its troubled past I think the 787 has a great future ahead and could actually become Boeing’s cash cow eventually, but this may take quite a long time before it happens. As for the A350 I have noticed that some people don’t want to recognize that it is itself and extraordinary success; and the fact that it was developed several years after the Dreamliner may have given it an advantage because it allowed Airbus to properly size its competing aircraft, especially in view of the fact that at the time an A330ceo could eat at the Dreamliner’s lunch when the latter was not looking. We can also imagine that Airbus had at the time an A330neo in reserve with the intention to launch it at the most appropriate time. I must admit though that I was sceptical at the beginning that the A350 could successfully challenge both the 787 and 777, but I have since changed my mind and now believe that it will be difficult for Boeing to make the 777X good enough to block the A350. In my view the 777-8X doesn’t stand much of a chance against the A350-1000, but it remains to be seen if the A350-1100 will be able to offer a stiff opposition to the 777-9X. It will certainly be an interesting battle to watch as no party is assured to win at this stage.

        • “I was not referring to sales like you do here. I meant that the 787 programme is struggling with a 32B forward loss. In terms of sales the 787 has done extremely well at the start of the programme because it was a very promising design and Boeing were giving them away. ”

          – This fact was easily understood from your OP but I guess you needed to elaborate on it many times to make it clear for all…

          Despite the later start it is quite possible for the A350 to reach overall programme profitability before the 787.

          • “This fact was easily understood from your OP but I guess you needed to elaborate on it many times to make it clear for all…”

            – Yes I didn’t think it would have been necessary to be more specific at this stage. This kind of reaction shows how insecure some of the Boeing fans still feel today. But they are fewer in numbers than when I started posting here five years ago.

          • “– Yes I didn’t think it would have been necessary to be more specific at this stage. This kind of reaction shows how insecure some of the Boeing fans still feel today. But they are fewer in numbers than when I started posting here five years ago.”

            Ah yes, when someone disagrees with you they must be an “insecure Boeing fan”.
            Fact is you were responding to a quote about sales and also I might remind you that sunk costs are sunk costs regardless of whatever accounting system you might use.It does not affect incoming cash flow from 787 sales.
            But pardon me for just responding to what, you know, you wrote.
            -insecure Boeing fan 🙂

          • “Sunk cost is sunk cost”

            That is why I posted few month ago that the best move at Boeing was to make Mr Macsomething redundant and put Mr Muillenberg in place.
            Another still “unsecure” Boeing’s fan

          • [Edited as a violation of Reader Comment rules.]

    • Normand, my guess is that 2018 and 2019 will be the great headwinds for Boeing as the 777 deliveries slow down before the launch of the 777x. My guess is that Boeing will only have customers for about 5 per month- this will put tremendous pressure on profits. It also looks like the tail end of the current 777’s are being sold a big discounts – so they will sell a few at very low margins.

      So Boeing appears to be sacrificing the 787 to keep the 777CEO going. Smells like short-term thinking.

  10. “Aeroflot cancelled 24 787s as part of its down-sizing. This brought the total of suddenly available 787s to 38. ” Aeroflot’s order has never been on the 787’s production schedule as far as I know, and it was announced quite awhile ago, so it can’t contribute to the number of “suddenly available 787s”. Leaving those out, you’re down to the 14 exchanged for 777s by United, or little more than one month’s production.

    With an over 5 year backlog on a long-delayed program, one would think that some of those customers would be happy to get earlier delivery on a few frames. Whatever the reason for softening lease rates, the small number of “suddenly available” aircraft is unlikely to be a significant contributor.

  11. As I recall there was no drop off plan when the 787-9 went into production (though through another brilliant management screw up they managed to impact the whole system)

    I have wondered if the rate to 12 is sustainable let alone 14.

    And they could not find production slots for Delta? (or more accurately Delta did not want the 787 and only used as a ploy)

    I would say the A350 sales have done well, not to the scale of 787 (how much the price had to do with that is certainly a debatable question)

    A330 make for an interesting contrast and how well that does other than the carriers that specifically wanted it to fit into their existing is a longer story.

    Air Asia is not a poster child for success as they keep kicking the order can down the runway.

    As we have seen with the single aisle, over booked does not mean you are immune (Boeing currently but Airbus as well maybe ?)

    Is rate 50+ really going to fly there as well?

    • TW: “I would say the A350 sales have done well, not to the scale of 787.”

      That statement is not accurate and on the verge of being false. The fact is that the A350 programme has sold to date more than 777 aircraft, and more than 500 long before EIS. That is comparable to the 787 which of course remains first with an unprecedented 800+, but I would definitely say that both are of the same scale. What is not on the same scale though is the profit Airbus is going to make on each and everyone of them as soon as they will pass onto the other side of the learning curve. Which is not expected to take very long.

      • Hmmm, I think we can disagree on where it is at without the word “false” being put into the discussion.

        With the 787 there are at least as many options of various types as there were orders, I don’t see as many A350 options.

        I don’t disagree that the A350 has done well, but I think the 787 is unique and as time goes on it will continue to garner orders as well as the various options picked up. A350 is more concentrated on one model (800) and the 787 has spread across 3 (with the -8 throttling down now)

        A bit like the A320NEO and 737 in reverse. Boeing got a head start and likely to maintain that lead (though not as dire to Airbus as the A321 is to Boeing)

        It will be interesting to see when the 787 surpasses the A330 (grin). A lot depends on if its a 250 aircraft market or Hazy 1000 (0r someplace in between)

        I think its surpassed the 767 and 777 as the all time wide body leader (767 may have a second life with tanker orders over 20 years)

        • And keeping in cotext.

          747: All time wide body leader, basically halted growth wise, on life support, if it continues at very low numbers. It will get surpassed by 787.

          777: Next, tough one, is the 777X a derivative or all new for realistic purposes?

          A330: Next, $64 question on popularity for the NEO. I think its limited but have been wrong one time (I thought I was wrong and turned out to be right after all!) grin…… Definitely a true derivative.

          767: Right behind the A330, between tanker if it gets two orders and any remaining popularity for cargo for a revised one. Much more iffy, likely to stay in that position.

          A350: Just getting started. Is the crack between the 787 and the 777 wide enough for jumping into 2nd or 3rd all time place? Still staying tuned. Keeping in mind its all focused on one model with a nice but costly adder for the 1000. (well we have to put DC10, MD11, L1011 in last)

          • To argue the 350 is doing as well as the 787 by counting progress since introduction is perfectly valid but it’s also the argument Boeing has been using for the MAX vs Neo and has been widely ridiculed here for.

          • Unless there are some unforseen developments in airfram materials A330 could even get the NEO treatment again in 10 years time and stay competative at a price. An A330 NEO mk II would have similar CASM to a re-engined 787. Only a near clean sheet mediam range aircraft would knock it out.

        • “With the 787 there are at least as many options of various types as there were orders, I don’t see as many A350 options.”

          I was counting only the firm orders, which went roughly like this at the time of EIS: 800 for the 787 and 600 for the A350. It is an appreciable difference for sure, but as far as I am concerned they both play in the same ball park.

          “A350 is more concentrated on one model (800).”

          This is not so. Airbus will not do the 800 due to weak demand, and the A330neo will take over. For now the bulk of the orders goes to the 900 and Airbus is working on the 1000 to compete with the 777-8X; and there is a good probability they will also do the 1100 in order to be able to offer an alternative to the formidable 777-9X. For sure the 787 had a head start but the A350 is catching up fast and it will cover a larger territory that will include both the 787 and 777.

          • “For sure the 787 had a head start but the A350 is catching up fast and it will cover a larger territory that will include both the 787 and 777.”

            …and the A350 doing it with a superior cabin experience more comfortable for its passengers vis a vis 787 and 777.

          • Normand: I dropped a digit, 900 for the A350.

            As for the A350 catching up fast? 300+ 787 flying vs how many A350?

            Rate 12 a monthly for 787 vs rate ? for A350?

            A350 has not even caught up to current production, by the time they match it the 787 will have 400+ flying.

            I would call that a “flying” head start that A350 will never catch up.

          • Come on TW, make a little effort to understand what I write! 😉

            The A350 is not catching up with the 787 where it is today but rather where it was at the same stage. Why should I need to specify this? The Boeing fans do the same “mistake” when they compare the A320 to the the 737. Similarly the C Series is often a victim of this kind of misappropriation when it is compared to the A320 and 737, and the people making that “mistake” don’t realize that the C Series actually surpassed them both in terms of sales at EIS, the stage where the C series is today. In terms of years of service the 737 is 49 years old and the A320 is 28 years old, when the C Series is still in the womb.

          • Same logic apply to 737 Max … it will never catch up with a320’s due to late start … at least quite soon total sales of a320’s will surpass total sales of 737 even if started 20+ years before !!!

          • To catch up with the 787 at years since introduction the 350 is going to need to rack up about 180 orders this year which seems unlikely.

          • @Geo
            You start counting from the year of introduction. What about starting to count from roll out?

            The first 3 787 were delivered 4 years after roll out. Within the first three years since roll out Airbus delivered 15 aircraft and the thourd year is 2016.

          • MHalblaub, I am talking orders, not deliveries.

          • And I have to add to my numbers

            By December the 787 will have reached 500 deliveries!

            A350 is still ramping up, very slowly.

            The A350 started very close to the same time as the 787, they just keep having to re-do it.

            The 787 will sell more and deliver more.

          • @TransWorld

            I hope you are right because the 787 could be in a position to save the show if the situation was to deteriorate for Boeing’s other models. But the Dreamliner’s ultimate success rests on three things that are difficult to assess at this point:

            1. By how much can Boeing further reduce its manufacturing costs.
            2. How much money can Boeing obtain for the 787 on the market.
            3. What will be the price of oil in the coming years.

            One can imagine that by the 500th aircraft the situation will have stabilized and that it will be increasingly difficult after that to make further progress in terms of manufacturing costs. As for the price Boeing can obtain for the 787 it will depend on how well the A330neo and A350-900 fare on the market. When Airbus launched the A350 I thought it might get squeezed between the 787 and 777, but it turned out that it was the 787 that got squeezed between the A330 and A350. And in my view the A330neo can only make the situation more difficult for the 787 because the former will always be less expensive to make while the latter may not offer a significant enough technical advantage over the neo. The C Series faces a similar situation with the A320neo. As long as oil prices remain low the C Series does not offer a significant enough technical advantage to compensate for the price BBD would like to obtain for it. Of course all this could change if oil prices start to go up again for an extended period of time. But no one can predict that with any degree of certainty.

    • FYI Delta has announced they are pushing delivery of 4 A350s:

      “The airline also said it will keep its longer-term expansion in check by deferring the delivery of four wide-body A350 aircraft from Airbus Group SE to 2019 or later, from 2018. Delta has 25 A350-900s on order” -Reuters 5/16/16

      • I’ll add that it will be interesting to see if DL delays any planned twin aisle retirements or takes advantage of low fuel prices to keep the 767s (and perhaps a few 747s that the A350s were to replace) in the air, maybe at a lower tempo since DL’s goal in the deferral is to only grow ASM by 2% rather than 3% in the 4th Q.

        • Last time Delta delayed an order they never bought the aircraft (787). Shades of the future?

  12. And Off Topic but as we are into Pontification:

    It would be really good to get some of the technical assessments from Bjorn brought outside the pay wall (with an understandable delay of 3 or 3 months?

    • @TransWorld on your suggestion of a three month delay: I appreciate the suggestion, which we’ve previously discussed, but we just feel the information is too valuable to do that. Then it becomes permanent Internet stuff.


      • Yes I agree with you Scott, three months is definitely too long. One month should be enough…

        Hamel 🙂

      • More seriously Scott, I think you deserve every penny you’r asking for, because you work so hard. And I thank you for everything we got for free so far.


        • Fully agreed with Normand. Call me deeply interested rather than critical.

          Is it possible an out of date time like 6 months or the information has reached some kind of expiration date. ?

          It would be great background even if dated.

          Possibly in a side link to avoid current events.

    • Paywall was built at about the time Bjorn joined the European team … have to say that his contribution is excellent … BUT I have no monies to pay for it ..

      • I have the money but I would have to forgo the Mortgage, or eating, sigh.

        • sigh !! yes and smile for the (only?) one who share exactly my situation.

          Sure,Scott will not accept this “out of topic” comment

  13. Interesting post. I am not surprised that low fuel prices are impacting lease rates for the Boeing 787. It seems like a no-brainer to keep a 767 flying for a few extra years if you can, given the current environment, rather than replacing it today. Those planes will need to be replaced eventually, though, and Airbus doesn’t really have a good option in that size range.

    I do have doubts, though, about how many planes are actually available from Boeing, as opposed to lessors. The first United order of 10 777-300ERs did replace orders for the 787-9 over the next few years. However, the more recent order for 4 777-300ERs came at the expense of 787-10s scheduled to deliver in 2020 and beyond. At the same time, United converted 5 787-10s for delivery after 2020 to 787-9s that will arrive beginning in 2017.

    So the net effect of those two United orders on 787 production through 2019 is actually minus 5, not minus 14. The other 787 conversions are for 2020 and thereafter, and there is plenty of time to resell those slots. The trajectory of oil prices over the next couple of years will determine how much of a premium Boeing ultimately gets for those planes.

    • Its probably going to go up. Funny thing is the Saudis are complaining about oil price when they could have made it go up a lot, self inflicted wound.

      Yes we are going to change our5 economy but we ar4e going to keep pumping madly.

      US is throttling down a lot as its a real capitalistic operation (sometimes for better but not always!)

      • There is some argument that peak oil is about demand rather than supply. As economies decarbon their dependence on energy then the model of the oil industry changes fundamentally and all producers may be at risk of steadily declining prices. There again I used to believe in peak oil supply…..

        Emissions, tariffs and taxation will become the big thing that forces efficiency on airlines, at least according to this model, until this viewpoint is debunked or changed of course

        • I endorse the idea of peak demand rather than peak supply as we may indeed reach a point in the not so distant future where supplies will permanently exceed demand. At the end of last year in Paris the world nations came to a global agreement to reduce gaz emissions, or at least to limit them. And last week in Montréal the ICAO members took important steps to impose new norms on gaz emissions to the airlines and operators around the world, which will penalize those who won’t meet the new standards. Those penalties will have to be factored in when airlines will consider acquiring new equipment. This is likely to favour aircraft equipped with new technology engines like the 737 MAX, A320neo, C Series and Embraer E-Jet E2.

        • The proper word is “de-industrialize”, since alternative energy sources are not working out well.

          (BTW, one scam is to quote installed capacity but solar and wind do not produce electricity 24/7, far from it, so average output is a proper measure. And there’s the cost of having NG-fuelled generation to meet demand when the sun is not shining and the wind is not blowing.)

          • The problem aviation has is high profile, thus a good target for politicians – who like to be seen to be doing something.
            Aviation’s high profile can be seen in media reporting of crashes, compared to deaths on roads.

            Richard Branson’s pandering doesn’t help the industry, if he really believed fossil fuels are bad he’d shut down his airline.

            Which airplane to buy will depend in part on the operator or lessor’s time horizon – a long horizon is needed to justify investing in lower costs such as fuel and maintenance. Investors want stability, whereas instability is increasing in Canada and the US because voters are fed up with standard politics and/or are demanding free lunches, and Europe is in trouble from confused energy policies – when the lights start to go out will citizens we in the streets with pitchforks? War of course creates instability – Islamic Totalitarians are active, Communist China rattles sabres, and Russr threatens but may be unstable internally.

            How much airlines need to pander to de-industrialization politicians with aircraft using less fuel is a variable. Any flexibility of operation in a design might help, such as airfield performance and life limits (use on shorter routes accumulates more cycles). Reliability is of course paramount, otherwise maintenance cost depends on labour cost which is theoretically lower in many countries (but political instability and inability to get their act together to produce impede realization).

      • On oil price

        The only rule with commodity price is, on average and on long term, the price is equal to the cost of the source you have to open to exactly match demand.

        CO2 emissions are due to aircraft for only 2% …governments will/must first check the other 98% (electricity production, cars, home heating …)
        Less emission from aircraft is pure marketing from airlines otherwise it is a “bottom line” issue.

      • Well, they gambled and so far they’ve lost.

        With all the oil now found outside of the Middle East, and the relentless drive of producers to reduce costs, and the possibility of Communist China building nuclear plants some day, and the amount of coal in the world, oil prices may not be high for a very long trime.

        There is the question of anti-human activists trying to block pipelines. The fool premier of Alberta is now pleading with Canadians outside of AB to help them get oil to market, while introducing policies that hamper producers.

        She probably wants the pipeline to the east done, it potentially will supply a refinery in New Brunswick that now gets oil from Saudi Arabia via tanker. Oil from sands on the AB/SK border is probably already flowing to the US Gulf Coast via the Keystone pipeline which was extended from OK to the coast (Keystone XL is just a bigger shorter pipe). Northern Gateway to the Prince Rupert/Kitimat region of the BC coast is improbable. Expanding capacity of the existing pipeline to the Vancouver BC area, probably already having legs to the northern end of Puget Sound, is more likely. Of course trains carry oil, but railroads have had difficulty matching existing demand – I understand the RR to the port at Churchill MB on Hudson’s Bay has trouble meeting its grain commitments, a priority in Canada due to the productive farmlands to the west.

  14. The 787 prices will take the A350 and 777x prices along for the ride. Probably puts a dent in the prospects to launch the A350-1100.

    • “The 787 prices will take the A350 and 777x prices along for the ride. ”

      That will be interesting to watch and provide hints as to why the “high demand” 787 frames show problems in placing.

      Market saturation or a clunky product.:-)

      • Good point. It will take some years for the market to set the relative value of the A330neo, 787, A350, and 777x in relation to each other. What’s the true added value of a CFRP fuselage for maintenance?

        Will the A330 follow the path of the 737, where the later model ends up selling more than the earlier iteration? In the case of the A330neo, 1500, a 15 to 20 year production run, is certainly possible.

  15. I believe that we are in a position where both OEMs have concentrated on highly capable aircraft in terms of payload/range. There appears to be a glut of these aircraft going forward (a350/b777x/b787/a380). They are more capable but at a cost and that sacrifice the ultimate efficiency that could have been obtained with a less capable aircraft. This issue was masked by high oil prices as the designs then were still very competitive regarding life cost and maybe played wonderfully in attracting block orders from the ME3.

    Now the ME3 orders are to a greater extent satisfied for the foreseeable future and the oil price has fallen the market is now more nuanced. If you wish to operate over shorter ranges with lower payload and not in a hot and high environment there is one economical choice available. The a330neo provides you with a tried and tested package sufficient for this market at a knock down price. The life cost is lower.

    I think this gives Airbus a key advantage as they can package A330/A350 to offer some degree of operational commonality but allowing airlines to better match their needs for both highly capable and moderately capable aircraft at an attractive price

    • And its possible that availed windows of banks of aircraft (for fleet) are now so far out there is no sense in ordering something you don’t have clue is going to be like in 2025?

      Wait for the bust and pick up good bargains on used or new cheap.

  16. On sales and deliveries in comparable time frames, Airbus is still ahead of Boeing in that market space occupied by the 787. Do not overlook the A330 as a competing alternative to the 787.

    • There is that.

      I would say the A330 was not a competitor but a lack of 787s that now has a new lease on life.

      It will be interesting to see how it does over time.

      I don’t think its the upper limits put out, will see

  17. Well, gosh. One has to consider:
    – order lead time
    – fuel price plummet reduces immediate motivation
    – what the airplane does versus others (.e.g. 777)
    Didn’t Boeing get into the ramp-up trap? (Have to produce quality efficiently but get organized to do so – a perennial problem, second-sourcing during WW II was a challenge for many companies to spool up.)
    And of course there was the huge delay in development – wasn’t the notion that the 787 would be in service for Olympic games in Communist China in 2008?)

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