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.
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.
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.
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.
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 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.
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.