Looking under the hood at the Qatar order

Oct. 10, 2016, © Leeham Co.: Qatar Airways announced an expected order Friday for Boeing 777s and 787s, but surprised with the addition of a Letter of Intent for up to 60 Boeing 737-8s.

The latter was characterized as a “blow” to Airbus, which has been the target of high profile, public attacks by Qatar’s CEO, Akbar Al-Baker, over issues related to the

Akbar Al-Baker, CEO of Qatar Airways. Photo via Google images.

Akbar Al-Baker, CEO of Qatar Airways. Photo via Google images.

A320neo and A350-900. Qatar is a launch customer for each, and each has been delayed due to supplier issues from Pratt & Whitney and Zodiac, respectively.

What Al-Baker expects Airbus to do about PW and Zodiac has never been made clear, but it’s the Airbus name on the airplane, so it’s Airbus that is the target of Al-Baker’s well-known wrath.

Al-Baker refused delivery of the first couple of A320neos due to the engine issues and threatened to turn to the Boeing 737 MAX in retaliation.

The announcement Friday was viewed by some media and aerospace analysts as following through on that threat and delivering a “blow” to Airbus.

But an LOI is the lowest form of a “commitment” to an airplane and one that doesn’t typically even involve deposits.

Let’s look at Friday’s announcement in detail.

777/787 portion of the deal

The 777/787 portion of the deal is the easy part.

The order for 10 777-300ERs and 30 787-9s is exercising previously existing options. The delivery streams weren’t announced.

The -300ERs are a welcome addition to the Boeing order book, for there were only six net sales this year before inking this contract. There were eight, but lessor Intrepid Aviation canceled two in exchange for taking two Boeing 747-8Fs into its portfolio for lease to an existing 747 customer. Market reports were widespread that Intrepid couldn’t find homes for the two -300ERs due to lack of demand and its lease rate goals.

So Boeing now has 16 net 777 orders this year, against a target of 40-50. In January, LNC examined the 777 Classic production gap and illustrated big holes next year and in 2018. It’s important to remember that the gap continues well past the 2020 EIS of the 777X, which has a slow ramp-up.

This analysis was before Boeing announced rate reductions and, of course, before any orders.

Boeing has a lot of work to do to fill the gap with new orders. More likely, another rate reduction is coming. Morgan Stanley just issued a note predicting a rate reduction to 3.5/mo. Other analysts suggest 4/mo, which is the figure a supplier told LNC last month.

737 MAX LOI

Qatar’s announcement of an LOI for the 737-8, rather than being a “blow” to Airbus, draws a fair amount of skepticism when one looks under the hood, so-to-speak.

An LOI is the lowest form of “commitments” to an airplane. The line-up is firm Order, followed by Option, Memorandum and then LOI. No deposit of money comes with an LOI.

For all the public threats by Al-Baker to turn to the 737-8, an LOI doesn’t exactly strike fear in the hearts of Airbus or PW. All the public tantrums are viewed as negotiating ploys, and this could be a step in that direction as well.

Fleeting planning

qr-neo-max-deliveries-101016

Click on image to enlarge.

“It makes no sense to fly a mixed narrow-body fleet,” LNC was told by a source who knows Al-Baker and Qatar’s fleet and route planning. This source called the LOI a “theatrical” tactic directed toward Airbus that, in the end, won’t be tolerated at levels in the Qatari government in order to avoid hurting government-to-government relationships with France.

Al-Baker said the MAX would be delivered in 2018. The obvious question is where Boeing would find the slots to meet this schedule.

Turkish Airlines may provide the answer.

It also was revealed Friday Turkish will delay 737 MAXes and A320neos on order because of the internal turmoil and terrorist activity in the country.

The number of deferrals wasn’t revealed, nor the delivery streams. The chart shows the delivery streams of the Qatar A320neos (including A321neos) and the Turkish 737-8s.

Sustainable growth?

Al-Baker said the 737-8s are for growth, not to replace a canceled A320neo order. But it’s been suggested to LNC Al-Baker is facing a growth slow-down (as is Emirates Airlines, though at very different levels) and doesn’t want the A320neos right now anyway—hence the campaign against Airbus and refusal to take deliveries.

If there is truth to this, then an “order” for 737-8s doesn’t make sense—except as a way to annoy Airbus.

If the Turkish airplanes are those destined for Qatar, at least in theory, the contract needs to be firmed early next year at the latest to spec out the Buyer Furnished Equipment Al-Baker will want.

The next several months will be a time to watch closely to determine whether Al-Baker delivered a “blow” to Airbus—or was just blowing smoke, again.

40 Comments on “Looking under the hood at the Qatar order

  1. Well, I suppose if Boeing have given Qatar a veeeeeery good price then 737MAX would be competitive against A320neo. Who knows…

  2. It is never good for business to loose a client, even bad ones, but I think that if Alibaba was going to Boeing Airbus would not cry too loud for too long and would easily replace the lost order.

  3. What about the MAX slots that SW delayed? I though those would be the slots Boeing was out to sell to AAB.

  4. Scott,

    Where do the 77Ws from the Saudia order come in. I understand that they’re under the cloak of undisclosed orders but they’ve been revealed correct?

    • I have the same question. There are only 11 777-300ERs still listed for “unidentified customers” on Boeing’s Orders/Deliveries site. My assumption was that those 15 Saudia 777s will also be incremental to Boeing’s YTD orders. That gets you from 16 to 31. If Boeing can finalize the Iran Air deal (more of a long shot given the financing hurdles), that’s another 15 777-300ERs in the bag.

      I would guess that all of these orders have deliveries starting in late 2017. I don’t know why any airline would order 777s now if it didn’t want them to start arriving until 2018 or 2019.

      I think Boeing will be able to hold the 7/month production rate through 2017 and possibly 2018, largely because a 7/month production rate doesn’t actually translate to 84 deliveries a year. Probably high 70s in 2017 and mid-60s in 2018. Getting enough orders for 2019 seems like the real problem — unless Boeing can pull the 777X forward.

  5. My take is that Qatar will take the 737-8, its a slightly better option due to the slightly large pax count vs the A320.

    They will take the A321 when it suits them.

    Mixed fleet? Lets see, 777 (3 version in service or on order), 787 (two versions), A330 (who knows how many versions) A350 (two versions) A380.

    • My initial reaction, too, on the NBs. Qatar could fly the ‘best’ of the 2 families – 737-8 (higher capacity than 320), and 321LR (without current competition). The mixed fleet argument is somewhat mooted, to the extent Qatar can really use this large number of NBs.

      We’ll never know the details of the contracts, which allow Akbar to keep his promise to keep cancelling deliveries until Airbus gets it right. Is Airbus willing to sacrifice deliveries to other customers, to keep Qatar’s NB business? Will Qatar try to switch to the 737-10? How many WBs would Qatar have to order so Airbus cancels the NB contract?

      Can Qatar and Akbar resist France’s political pressure, on Airbus’ behalf? To what extent has Qatar’s rulers already approved Qatar’s switch to Boeing NBs?

      • I would of thought that Airbus might be happier to sacrifice Qatar’s NB business to keep other customers happy.

        • Looking at the Flightline at Toulouse for the last two years, its always been Qatars A350’s that are held up,not so much other Airlines. Is the man as picky as they say and if so maybe Airbus would like him to disappear! There are real problems with Zodiac,its a company in denial.
          What I dont understand is why Airbus don’t sue the hell out of them. As for PW it seems everything has been fixed and the only delay is Airbus verifying that this is so. Al Baker, I think, like many pundits, that this a hissy fit at Airbus.

      • If it is Politics the ME3 have a reason to buy both sides of the Atlantic. AA/DL/UA are pressuring US authorities to hold of the ME airlines, just as AF/KL/LH are in Europe.

        Maybe a back door deal between AAB and Tim Clark to split the business evenly? Then EK get’s A350s? Maybe but a bit of a longshot I think. I think Scott is right about a protest LOI and some hard price compensation dealing/delaying due to economic slowdown.

        • I have to say,I dont think Clark will ever buy A350’s. I think its a ploy at Boeing to get a better deal. He will buy all Boeing.

  6. And yes it is Airbus fault, its their job to keep the supply chain working.

    Buck stops at Airbus (or Boeing). Bowed rotor just was found? I doubt it.

    Zodiak, get a better supplier (or fix what they had)

    Other issues cropping up in the supply chain, it isn’t as easy as some think it is.

    • >Bowed rotor just was found?

      Quite possibly. However, I find myself wondering when was it that P&W last designed a whole new engine, and how many of the engineers who learned all about such pitfalls through bitter experience were still around when they got the GTF program up and running? Though didn’t the F35 engine have a similar problem?

      It’s very easy for such things to be corporately forgotten, even if there’s lots of people on the planet who know of them.

      • Very true. Even happens inside a company when they refuses to use the historical knowledge present due to disdain by one party for another (aka, I don’t care if it damages the company, they are kept out)

        Don’t ask me how I know!

      • And RR? I think a clean sheet design is going to give them some headaches as well.

      • I understood that GTF design is in production for decades already
        GTF is OK for BBD and Embraer … Airbus have a different assembly on the pylon this is why rotor axle is able to bow when engine stops

  7. With the delays and difficulty ramping up, having Turkish postpone, and Qatar refuse early delivery could assist in Airbus’ catch-up and get their schedules back in order… Not a wonderful thing as money doesn’t get paid across, and I’m not sure of the work needed to place a refused and airline configured aircraft with another airline (are the refusals already painted and ready to roll?)… But it’s not as if there isn’t a HUGE backlog of ready customers… And picking up a good deal… All the better.

  8. @leeham;

    What’s your take on the 787-9 choice? What would be it’s role/benefit compared to Qatar’s 787-8 and the A350-900?

    Perhaps substitute some 787-8’s on order?

    • More passengers?

      All 787-8 deliveries complete.

      You have to assume e the -9 compliments the -8 fleet.

  9. The buck stops at Airbus, I agree. In todays supply chains it’s always a suppliers, integrators put it together.

    Funny is that with most airlines it is not one person that takes the decisions. Mostly specialists teams that advise.

  10. Screaming Al has probably got himself a screaming good deal here.Huge political factors going on as well. Not sure that I buy the line that this is in return for agreeing to sell F 15s, Boeing really needs orders for 777s and F 15s,all the favours seem to be coming from Qatar. The US seems to of paid Israel to allow this deal to go ahead. All very mysterious.
    Where are the Boeing fanboys? Airbus are definitely going through a sticky patch at the moment. Even worse than the airliners is the A400, the nightmare that never ends,it’s becoming dissy with the number of corners it’s turned. The French and German government’s won’t have contemplated buying C130s lightly. H225 also major problem.
    It now seems that the Monarch order announced by the Daily Telegraph is an existing order, plus some accountants trickery. This sort of thing rarely ends well and British leisure travel is going to be severely affected by the falling pound. These aircraft slots might become available soon.

  11. “What Al-Baker expects Airbus to do about PW and Zodiac has never been made clear, but it’s the Airbus name on the airplane, so it’s Airbus that is the target of Al-Baker’s well-known wrath.”

    – Not long ago Al baker gave a lot of camel dung to P&W because they were unable to obtain proper guarantees on the engine. This gave Qatar a good excuse not to order the C Series. Which brings me to the next quote.

    “This source called the LOI a “theatrical” tactic directed toward Airbus that, in the end, won’t be tolerated at levels in the Qatari government in order to avoid hurting government-to-government relationships with France.”

    – Al Baker wanted the C Series, but the Qatari government wanted to obtain the presentation of the 2022 World Cup. My understanding is that the French pressured Quatar to order the A319neo instead of the C Series in exchange for France’s support. Eventually the A319neo were replaced by the A320neo. The A320neo might be too big for Qatar though. I imagine that the A320neo replaced the A319neo because the latter was not efficient enough compared to the CS300. The risk is overcapacity though.

    “The -300ERs are a welcome addition to the Boeing order book, for there were only six net sales this year before inking this contract.”

    – It makes sense that any airline would want to order the 777-300ER. It is still a very good airplane if one needs the capacity. And it is readily available at very good prices. The only risk is that oil prices might go up again.

    “Other analysts suggest 4/mo, which is the figure a supplier told LNC last month.”

    – Four a month is not bad at all compared to the 747-8I or A380. Of course at that rate it can no longer be considered a cash cow, especially in view of the fact that Boeing is not in a position to obtain high-margin prices for it. Hopefully the 777X will be a popular airplane, otherwise the risk will be that it could become obsolete before Boeing has time to recoup its investment.

    • So Qatar’s orders rarely have anything to do with what the airline requires? According to you, the orders are used for political manoeuvres?

      • “So Qatar’s orders rarely have anything to do with what the airline requires?”

        – Why do you say rarely? I have only mentioned one order: the A319.

        “According to you, the orders are used for political manoeuvres?”

        It is not according to me, it is according to what has been reported. Again, I was not talking of several orders but of only one. I have nothing to substantiate what I say or to prove it, so you can file it in the gossip category.

        For me Al Baker is one of those colourful characters we see in commercial aviation, like John Leahy and Steven Udvar-Házy. They are all very smart individuals who happen to express themselves forcefully. They are theatrical, like me in some of my posts, and it’s a question of personality and style. This trio is not afraid to speak up to defend their own interests, and they express themselves in no uncertain terms. To follow them is like watching a professional wrestling match, and they contribute to maintaining commercial aviation’s reputation of being a Sporty Game.

  12. I find it hard to believe that Al Bakar out of all people orders an out going model like the 777-300ER. That is not the Qatar airways standard.

    Clearly there is some sort of political motivation or some other form of catch in this deal. It may also be in part of Al Bakar’s wrath and vindictive personality.

    • Perhaps Qatar Airways is running out of cash and Al Baker was looking for a good deal. Like I said in a previous post the 777-300ER is still a very good airplane, is readily available, and at a discount. But it’s value is tied to the price of oil and I think in the Middle East they understand better that anywhere else that the prices will probably not go up in the foreseeable future.

    • Massive diplomatic pressure to order 777 and F 15 is the overwhelming factor here,although we don’t know the details yet,they are definitely linked. Ofcouse it’s a factor in Airbus sales as well.

      • “Although we don’t know the details yet, they are definitely linked.”

        I am intrigued by what you say, but for now it is as clear as mud. Could you please explain your reasoning.

        • General experience of having been alive for a long time,timing and Boeings obvious need for orders for orders for these particular products. Kuwait has just bought small numbers of 2very similar fighters. This is madness but there are political factors. Israel has just received a generous new arms settlement from the US and everyone knows that it’s not a coincidence that Qatar and Kuwait have waited a very long time for the paperwork to be ready.

          • Sorry, but I don’t get it. I am not into military aviation and know very little about what is going on. You mention Koweit, Israël and Qatar. It is my understanding that Israël military officers have a low opinion of the F-35 but had no other choice because it was a gift. As for Koweit I understand that they were liberated by a coalition led by the US and have no other choice but to buy the F-18. But what does the F-15 have to do with Qatar Airways and the 777-300ER they just ordered? You seem to suggest that the US forced them to buy the F15s and the 777-300ERs, or that they had an obligation to do so. In the case of Israël and Kuwait it is pretty obvious that Lockheed and Boeing are beneficiaries of the Washington military welfare, but in the case of Qatar I don’t see the link. Until recently they only had a small fleet of Mirage 2000 and were widely expected to replace them with the Rafale. How the US were able to convince them to acquire the outdated F-15 instead of the Rafale, I have no idea. And I understand even less what the 777-300ER has to do with that. That being said, I must admit that I do find it a little strange that Qatar would buy the F-15 when they were scheduled to buy the far superior Rafale, and that they would acquire the 777-300ER when in fact they could purchase the more modern 777X. Is Qatar Airways strapped for cash? Are they in a hurry? Did Qatar receive incentives from the US government? Sir Grubbie, I suggest you send an emissary of yours to the Middle East in order to find out what is going on. 🙂

  13. Normand: Kuwait has also just completed an order for some 30 Eurofighters – clearly more advanced (note I did not say better to avoid a debate!) complete with Brimstone and other weaponry. It was ordered after the US deal was ‘agreed upon’ and before the US deal was completed. Like you I suspect politics – the ME states and Israel have been long playing complicated games with the producers of modern jet fighters.

  14. Interesting to see what was censored in this article – rather revealing in my humble opinion. I guess Al-baker’s newsworthy comments would not be popular with the Airbus base that follows this site.

    “Boeing has been making airplanes decades before anyone else even thought of manufacturing airplanes, so the experience that they have in this field has made them so robust that they make one of the finest and more solid, reliable product of any company,” Al Baker said Oct. 7 in Washington. “I know that Boeing’s competitors would not like me saying this, but I’m sure that inside, they know that Boeing makes the best airplanes.”

    http://www.avcom.co.za/phpBB3/viewtopic.php?t=181212

    • @Ethan: Not censored, Ethan. Didn’t see the quote but even if I had, I’m not sure that in the context of what this article was about it would have been all that relevant.

      • I don’t know if he is a genius or not, but he certainly is a very smart cookie.

  15. Pingback: How Boeing is working to convert Qatar's MAX LOI into a firm order - Leeham News and Comment

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