How Boeing is working to convert Qatar’s MAX LOI into a firm order

Boeing 737-8. Boeing photo.

Boeing 737-8. Boeing photo.

Oct. 18, 2016, © Leeham Co.: It’s only a Letter of Intent, the agreement between Boeing and Qatar Airways for up to 60 737-8s.

Qatar announced the LOI two weeks ago because its CEO, the notoriously fickle Akbar Al-Baker, is royally pissed at Airbus over delays for the A320neo. Qatar was the launch customer for the airplane, ordering 50. Citing issues and delays with the Pratt & Whitney GTF engines, and other unspecified problems, Al-Baker refused to take delivery of four of the first aircraft.

He repeatedly threatened to drop the A320 order altogether, but then at the press conference announcing the LOI (along with other Boeing orders), he said he doesn’t walk from contracts.

Forget for the moment the contradiction.

Here’s how Boeing is working to convert the LOI into a firm order.

Early delivery positions

Qatar needs early delivery slots in lieu of the A320neos, the first of which was ready to be delivered early this year.

Boeing’s 737 MAX backlog continues to 2020. Even with the practice of holding back some slots for key customer campaigns, it’s unlikely that Boeing at this late stage has any of its own slots. It needs to go to customers and ask for positions back—or to lessors who may not yet have placed the MAX with lessees.

It’s pretty late in the game to find lessees who haven’t already placed the MAX next year. But with low fuel prices, it’s not beyond the realm that lessees might be persuaded to retain their current aircraft, allowing the lessor to lease the MAX to Qatar or return the positions to Boeing.

There are, of course, commercial considerations all the way around to do this. It’s complex but not at all unprecedented.

The delivery stream for the MAXes was not announced, although Al-Baker said in the press conference that it would start it 2018. Qatar is scheduled to receive the A320neos this year and next.

Let’s look at what Boeing could do to deliver 737-8s early.

2017 Delivery slots

LNC considers it highly unlikely that slots next year are feasible. It’s too close-in for lessors to not have lessees already lines up, and getting Buyer Furnished Equipment for Qatar’s desired configurations at this late date is problematic. But who among lessors has 2017 slots?

According to the Ascend data based, ALAFCO (of Kuwait) and Aviation Capital Group have eight MAX 8s scheduled for delivery next year. Whether any of these eight are still available, or can become available as described above, is unknown.

No airline that would be considered financially weak is scheduled for delivery in 2017.

2018 Delivery slots

But the picture changes dramatically in 2018.

Lessors ALAFCO, ACG, GECAS and SMBC have 35 MAX 8s listed for delivery in the Ascend data base.

qr-neo-max-deliveries-101016

Click on image to enlarge.

Financially troubled airlines Turkish, Monarch and GOL have 34. Turkish already announced it will defer its order for MAX 8s, 21 of which come in 2018. (Turkish is also deferring A320neos.) Monarch just received a new financial injection, avoiding collapse. Boeing agreed to help in the restructuring to preserve its MAX order, according to news reports. Might Monarch’s six MAX 8s next year be an opportunity for rescheduling and available to Qatar?

GOL of Brazil has seven MAX 8s scheduled for delivery. GOL’s been restructuring and these airplanes might also be an opportunity.

Time’s getting short

Time is short for make decisions, even for 2018. Orders must be placed for Buyer Furnished Equipment, usually at least a year in advance. Qatar may have to take 201 airplanes in a configuration that would serve as an interim solution.

What about the A320s?

If Boeing is able to work out early deliveries, the question then becomes, what will Qatar do about the A320 order?

After cancelling the first four, will Al-Baker cancel the remaining orders? Will he cancel some but not all, refusing to accept any aircraft that doesn’t have the in-production remedies (as opposed to aftermarket solutions) for the issues he’s upset over?

Pratt & Whitney has production solutions for the initial shortcomings of its GTF. But LNC is told there is another issue that crops up in the extreme heat in Doha, Qatar’s home base. Until this is fixed, LNC is told Qatar won’t accept any A320neos.

The in-production solution may not be available until well into next year, LNC is told.

This long a delay gives Qatar the ability to cancel the entire Airbus order, LNC is told. But is Al-Baker really willing to wait until 2018 to receive any new narrow-body airpalnes?

Al-Baker is well-known for making U-turns in his positions. In this case, he’s canceled four airplanes already, but then says he won’t cancel the contract. It’s not at all impossible that he could make another U-Turn and cancel the entire contract if Boeing can open the delivery slots.

It’s also possible Qatar could eventually fly a mixed fleet.

One person familiar with Al-Baker, Qatar fleet and route planning and international politics between Qatar and France believes the LOI is a bluff to put pressure on Airbus.

Given the weak airlines, Turkish’s announced deferral and potentially working with lessors to lease to Qatar or return positions to Boeing, the odds of concluding a deal and converting the LOI to a firm order look better all the time.

 

25 Comments on “How Boeing is working to convert Qatar’s MAX LOI into a firm order

  1. If the summer heat in Qatar is the problem with some engine system (I guess hydraulic) will the problem go away with hot rod Leap-1B Engines?

    • Its more a problem of density altitude. Modern aircraft components on most planes can withstand the heat but the air starts to get thinner when its extremely hot which means u need more thrust as there is less lift – or more runway which isnt an option..

      Emirates abandoned a big order of A350-1000’s in 2014 reputedly because Airbus werent getting the promised 97,000 lbs of thrust from the XWB-97s. It was rumoured that available thrust was 93,000 lbs, though I think they have overcome that problem now with their new ALPS tecgnology on that engine.

      • The thrust of the trent xwb-97 can exceed 100k. ME airlines shoot from the hip. Nobody is following

        • That would be nice A350-8000 territory. In any case ME is not the only market out there and Airbus have added additional weight savings on the A35K.

      • I’m not sure if thin air is the problem here.
        The smaller aircraft requires shorter runway and since the airport is equipped for much larger airplanes, there should be more than enough runway to achieve the speed/lift needed.
        right???

        • Pattern flights are not very profitable for any airline.

          So even Qatar Airlines has to look where they can land and more than that take off again.

          There is also a limitation on tire speed.

        • In the past PHX had very high temps that would not allow some airliners to take off. Cold air is denser which translates into more thrust produced that in hot air conditions.

  2. As it was stated somewhere, that the rapid growth of Qatar Airlines is slowing down, and that they are not so unhappy about the Airbus troubles, could it be, that this whole thing is a real U-turn?

    If Qatar can walk away from the whole contract, then maybe the delay of the aircraft till 2018 is not a disadvantage, but an advantage! It would post-pone the deliveries well into a time when growth at a slower pace is ready for those new aircraft. Time will tell I guess.

    • But slowing growth doesn’t equate to buying 40 widebody aircraft and intending to buy 60 NB aircraft.

  3. I’m not sure the MAX -8 and -9 will do great from Hamad International. The heat & range requirements should play a role. Few 737-900ER’s in that area.

    Maybe 30 737-7.5’s, for a price suiting the situation, fills a future requirement replacing A319/A320s.

  4. Ok, Scott, I’ll “bite”. Why won’t you spell out–in detail– the other issue with these neos?

      • Not sure that Airbus will be very happy with the engineless A320neo airframes that are sitting on a bit of the apron with a Qatar livery at TLS. This story seems to run and run with too much unsaid. Id the GTF is not good enough why can’t AAB ask for them to be swapped out for LEAP-A engines??

        On another point saw a piece by Fabrice Bregier taken from a German newspaper repeated in City AM (a free rag handed out in London). The Airbus plan is to beat Boeing in production by 2020 centred unsurprisingly around the A320neo and the A350 confirming what has already been suggested by Scott.

        Apparently they are still ‘hopeful’ of hitting 50 deliveries of the A350 by year end. Something I very much doubt given the current position

        • Engien Swap: I belive only Boeing has the setup to do an engine swap ont he 787 as they wanted a commong conection setup.

          No word that can be done on an A320, it might be possible by changing pylong, re-wire and conneciotns but expowsinvie.

          That is trumped by the reality that all the LEAP engines are committed to other customers amidst a heavy ramp up obligation. No spares and the bodies would have to be wired and plumbed to match up with the LEAP setup vs GTF.

          So they would have to go back up the line, get the parts, break the plane out of production sequence to install and lack of the parts for that configuration.

          I believe totally no-doable short term (a year).

          Have to see if LEAP A works there as well (probably but still not tested)

          • I wasn’t suggesting on existing frames but rather going forward, take your point re existing obligations though

        • GE is sold out and does not have the ability to supply the engines in a time range siutable for Qatar.

  5. Question from someone has barely has any idea how these things work:

    It’s clear that all of the NEO issues seem to be coming from P&W, therefore if this continues to be a thorn for Airbus, leading to customers lost, is there any form of redress that Airbus could seek from P&W? The issue will probably get fixed, but if it doesn’t this would be the 2nd(or 3rd?) a P&W engine will mess up an Airbus plane.

    I assume there’s probably an indemnity clause that protects P&W?

    • The engine works, and it is meeting performance targets. Just has had start up issues. P&W might pay performance penalties for customer like QR but not to all NEO customers. QR has a specific issue, which is confined and not systemic.

  6. Scott- If Boeing felt they could not get the deal done why would they support an LOI? Seems to me Boeing offered the LOI so they could actually go out on the market and notify customers interested in delaying that there is an option available to offset up to 60 delays. I would assume that might drive Turkish to come forward and offer their frames, as well as lessors being able to go to their clients with a solid proposal for pushing delivery dates. Don’t see Boeing doing this for any other reason than selling 737-8 MAXs? Boeing might have even asked QR to give them time to “creatively” find the needed slots. Also to tell QR what the added cost will be to pay customers for agreeing to a delay? Might be a good deal if an airline can get $50 Mil for pushing an order 12-18 months? And if the canceltion fee is offset by a repayment from Airbus and P&W then the deal could be an excellent wash?

  7. Maybe it’s time for Airbus to call Qatar’s bluff and just cancel all their orders.
    Then they could say privately “See how good a price and delivery schedule you can get from Boeing now, Al, now you only have one possible supplier”.
    And tell the Qatar board there’s only one condition under which they will ever obtain an order from Airbus, this involving someone ‘pursuing other interests’ or ‘spending more time with their family’.

  8. WHO SAID AMERICAN BUSINESS CAN’T COMPLETE GLOBALLY?
    Ten years from now, the so-called BRIC countries may change the picture!

  9. Mr Scott Hamilton predicted about two years ago that Airbus will surpass Boeing in deliveries by 2018. Now Airbus has moved the goal to 2020. I sincerely believe they have miss their opportunity with the slow and miss delivery with the A320neo and A350. Boeing is very good at production even with the low 777 going forward.

    • I am not happy comparing aircraft output on the base of frames. A comparison based on normalized seating or max seat count would be more appropriate e.g. 853 seats for A380 vs. 199 seats for 737Max200. So 12 A380 per year are just slightly more than one month of 737 deliveries.

      • How many routes can the A380 be put on? How many A380’s have been ordered and sold compared to the thousands of 737’s and A320’s? How many routes need 853 seats? Very few compared to the narrow bodies. The 737’s and A320’s are making a profit for the OEM’s, the A380 is not.

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