Leeham News and Analysis
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Leeham News and Analysis
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A330neo sales off to slow start: Air Lease Corp
May 16, 2018, © Leeham News: There is “intense” price competition between Airbus and Boeing on the A330neo and 787, says an industry leader.
Sales of the A330neo are “off to a slow start,” says Steven Udvar-Hazy, executive chairman of Air Lease Corp. Hazy expressed confidence in the neo, which ALC has ordered, seeing it as a “natural replacement” for the aging A330ceo, the Airbus A340 and the Boeing 767.
Hazy made his remarks at the 38th annual Airfinance Journal conference yesterday in Miami.
All-out war
Airbus and Boeing are engaged in an all-out war between the two models.
Sales of the A330neo have been slow and the customer base is highly concentrated. The program suffered a blow when American Airlines elected to order the 787 vs the A330neo as it sought to cancel its A350 order.
The loss was not unexpected. The campaign was an uphill effort for Airbus because the 787 was already in service with American—35 of an order for 42 already had been delivered. The A330neo would have added fleet complexity while sticking with the 787 allowed American to plan retirements of the A330ceo, 767 and some 777-200ERs, simplifying the fleet.
The American loss came on the heels of Hawaiian Airlines dropping the only order for the A330-800 and flipping to the 787, a move also expected but a PR black eye nevertheless.
Related stories:
- Airbus, Boeing square off with A330neo, 787
- Retirements will spur A330neo sales, Airbus says
- American loss casts shadow over A330neo sales
Then, a large A330-900 order with Iran Air now has disappeared following the withdrawal from the Iran Nuclear deal by President Trump. The amount of US content in the A330neo requires US approval, and the US said it would block the deal. A Boeing MOU also was blocked.
Boeing is aggressively campaigning to win sales for the 787 vs the A330neo, trying to kill the program and clear the way for the 787 and the prospective New Midrange Airplane.
Airbus complains that Boeing is pricing the 787 below its cost for the A330neo.
Still, Hazy (and Airbus) point to the large customer base for the A330ceo why the A330neo’s day is coming.
Is Boeing busy shooting themselves in the foot, what will the production cost of an B787 be in 5 years time when today’s orders are being delivered?
What will Boeing’s cash cow be in 2023+ when 737 deliveries starting petering off?
With the 737MAX sales crashing earlier than 2023, and the 321XLR probably launching this month, Boeing will have to rely on the same old cash cow they have for 80 years, the USAF, er American taxpayers.
If considered a spoiler to make the B787 bleed profitability the neo has made a lot of sense. Without it Boeing would be making millions more on each unit. Further the NMA would have had a clear run in the slot above the A321. So the A330neo has had some success in reducing options open to the competitor.
At the same time they do have to sell some. I am amazed that Airbus isn’t heavily discounting the neo to a level that the B787 cannot reach. Boeing is determined to sell 13/month into the longer term and perhaps there is not space for the sort of volumes wanted by both of the offerings. I always saw the neo as being the obvious aircraft on transatlantic trips replacing all the B767s/ A330ceos and other similar markets.
This is still typically the window (after launch before EIS) where airlines don’t order until they are able to assess actual performance parameters. Airbus has some cancellations to fill, but that will happen later. The A330neo/787 competition hasn’t really started except in the minds of the respective salesmen. The comparison I’ve seen on this site before is between apples and oranges you can’t buy yet.
The 787’s main competition is the A350 but then again, the A350 has far fewer free slots to sell as production has been slow to ramp up so its also premature to announce a winner.
The shoe is on the other foot compared to 787 production troubles and the A330 racked up tons of orders. Airbus is wise to sit tight and mind production and the order book will sort itself out once there are slots to sell.
The 787s main competition is not the bigger A350, that is aimed at the 777-200 and -300 models. A common mistake
In an an “all-out war”, I’d rather be in the position of having the costs of my aircraft programme largely amortised, instead of being forced to price at a near loss for a programme that has long since gone off the scales, with respect to development costs and deferred production costs.
The 787 is not amortized yet?
Pretty sure US accounting allows a 5 year depreciation in capitol assets.
Need to have AP weight in.
When the 787 deferred production cost debt is either balanced or written off, then and only then is the deferred production cost amortised.
http://ii-sl.org/ii-sl/787_and_777_Deferred_Inventory_Comparison.html
Boeing total debt has not increased since 2009, a couple of years before the introduction of the 787. Consequently, even though in its accounting the 787 has not been paid for, the onetime $30bn total in deferred production cost accrued has been paid for on a cash basis.
Boeing is a cash generating machine and can afford to price the 787 at a level to kill the 330neo, regardless of program amortization status.
Maybe the time has come to “kill” Boeing’s golden goose, the 737-8, with an 320+ and rattle the lower end of the NMA with the 321+. Will force BA to up 787 prices, and there is the 330NEO sales.
@Peter
2009, eh?
https://seekingalpha.com/article/830971-analyzing-the-debt-and-risk-of-boeing
@ov99
Good point. Total debt is as I said, but putting deferred production cost that won’t be recovered for a decade or more into current liabilities seems out of whack. Still, Boeing generated $11bn in free cash flow in 2017 compared to Airbus’ $2bn, so I think the pricing argument still stands. Boeing is a cash machine.
I posted this question before, but anyway. What is it about the A330 which can turn a long range airliner into a NMA challenger?
Maybe I am wrong but reading through the lines think AB could be considering a clean sheet aircraft between the NMA and 789. It will be a few years behind the NMA but exploit the additional benefits of Ultrafan engines?
An 321+/LR+ with new wing and 2nd generation GTF’s the NMA “party pooper” at the lower end.
There is ZIP that make the A330 a 797 competitor.
Much like Boeing saying the 737-9 was a competitor for A321 sales. Even Scott was accepting that until I pointed out that nearest is a long ways from direct. Good to see he can change his views when those errors are pointed out (grin)
The A330 as a NMA is purely a PR spin joke.
It is a bit early stating the A330neo is dead. Boeing most likely can squeeze most of its major suppliers when giving deep discounts having a formula cutting its own prices by the discounts given and let the suppliers all aroud the world with their goverment support bite the bullet. Airbus might buy to fixed prices having to swallow the discounts all by themselves. James McNerney learnt that while at GE and took that system to Boeing.
First flight for first A330neo for first customer TAP was just today (2018-05-16).
I guess many other potential customers just wait for real world data before moving. They can wait because oil price is rather low.
I also guess the engines will work properly due to knowledge of problems occurring on similar ones. RR delayed the A330neo for some reason.
Empty mass. The A330 is too Heavy for a NMA that mixes short range flying with up to 4500nm flying. Its Engines are designed for long range flying and few cycles between heavy shop visits (that cost $5M and up).
Airbus can pour moneyt and engineering talent to remove some empty mass and put a new smaller all carbon wing +wingbox onto it and swap the fuselage alloy to Al-Li, still it will be a bit Heavy and with Engines burning 15-20% more fuel than the brand new 797 Engines.
But can Airbus use these 797 Engines onto a light weight rewinged A330? Maybe, most likley that would require a bit higher landing gears and a new optimal position of the Engines on the wings. If Boeing goes for min mass and no full size LD3 cargo space it makes room for this A330-MoM version for some cargo Heavy customers.
Are 330CEO’s still “for sale”? If so a “Limited Edition” 330-200CEO with Air Space Cabin could put some further pressure on the 787-(8) pricing and stop customers from jumping the ship?
Of course they are. The are still making A330MRT and some backlog to deliver. Like the 777F, it will be around for a while.
Now, someone will have to buy one occasionally to make that a reality.
Dont think Boeing is going to make 777F and 777X along side each other. I think there will be a gap in 777F for a few years until a 777XF is announced ( maybe without the wing extensions as the ULR isnt required)
AA’s big 787 buy reminds me of deeply chagrined look on Jim Albaugh’s face during that for him horrible news conference back in 2011 when AA announced it was buying a total of about 460 planes from both OEM’s, but in the process rejected B’s offer of 737NGs followed about 5 years later with NSA. AB went on to crush B and take and hold to this day about 65% of that mkt.
Albaugh fought back by reminding everyone that B was AA’s wide body supplier, and so it is today in light of AA’s big order. This time around A was faced with a brand new competitor and so it’s weak attempt to rely on reenginning its product to compete with the 787 is not likely to work. Remember, the 787 now has one tremendous advantage in addition to it’s new technology, and that is that nearly 600 are in service and they seem to be doing just what they were designed to do. That huge fleet-in-being means going forward that the poses little if no risk of failure from some unkown defect.
Despite not getting many orders, Airbus are probably making a higher profit on A330neo’s than Boeing is making on their 787’s. And that is BEFORE you factor in the deferred programme costs for the 787. By the way…what you say about Airbus “attempting to rely on re-engine work” is exactly what Boeing are doing with the 777 now that the A350-1000 is on offer. Just wait till Airbus start tweaking that thing. That along with the US restrictions on the ME3 will probably see them cancel a hefty chunk of those 777’s in favour of the A35k.
With all due apologies to the Airbus enthusiasts, I am finding this to be a great belly laugh.
What Airbus is saying, Boeing is selling the 787 below what we WANT to sell the A330NEO for and have decided that Boeing simply has to sell the 787 at what we say!
Seriously, ROFLMFAO.
I guess no one locked Boeing in on that.
A330NEO was conceived on being paid for (more or less) and Boeing could not match the price.
So Boeing did better than that.
And Airbus complaining is they arn’t play fair (by our rules) – Wow.
And it looks like my prediction of 250 A330NEO is too high.
Air Lease of 1000+ is like Pluto. Way out there man.
Maybe a good Poker game by AB, next time BA raising prices and AB undercuts when they really wants the order (HA and AA kind of done deals?).
On the upside, short term slots for sale on the Iran 339’s.
Wasnt it Boeing who raised merry hell about ‘unfair pricing’- dumping was the term they used ?
What say you then ?
2 purposes:
– beating B with its own arguments
– preparing the EU for anti dumping tariffs in case Trump gets any ideas.
Dumping is actually a no-no. Selling your products at a lower price than another company wants to sell their products is generally called competition. The C-Series was dumped into the US market, it was just ruled that Boeing suffered no harm.
TW,
I noticed that too and was likewise amused.
How dare they sell their stuff at a lower price than what we want to sell our stuff for!
Was often wondering what impact a single engine option has on 330NEO sales. Maybe someone out there has an approximate figure of what the 330CEO engine breakdown is?
Overall for the A330-300 the RR Trent 700 has a 64% market share with the GE CF6 and PW 4000 having roughly 18% each. With more recent deliveries though RR has about 75-80% market share.
In his farewell interview (with Scott Hamilton) Leahy mentions Airbus were holding back the A330 to not hurt A340 sales.
Looking at the A330 NEO I start to think Airbus is holding it back on the 330 again (to protect the A350?).
Why no stretch (to around 68m 223ft)?
Airbus is developing higher MTOW to extend max range for a plane airlines tend to buy for transatlantic and intra-asian (not sure if that’s a word). Seems to me they a simple stretch would be relatively easy (the stress is on relatively).
If taking grand scheme into account, maybe the point of the A330 NEO isn’t to be a massive sales succes (though Airbus would love that). Instead it’s a succes if it keeps Boeing from making lot’s of money on B787 sales and keeps select airlines in the Airbus camp.
Like the point of the B737 MAX 10, which seems aimed at preventing airlines to switch to Airbus, and less aimed at making money on the MAX 10.
I think you hit the nail on the head. AB seem to be pushing the A350 at a hefty price and trying with all their might to sustain that. This does mean they have to be careful not to discount the A330neo too much given that for many missions it will be a perfectly capable albeit smaller alternative than the A350. Pricing the catalogue is all about maximising the overall income and not just deep discounting. The B787 is cash positive but needs massive volumes to keep it going in that direction.
Where are the Boeing cash cows? The B77w has gone with only end of line deep deep discounts. It is left to the MAX 8 and the B787 to do this job. I don’t think the B787 is generating those lovely margins that Boeing used to enjoy on their star models of the recent past.
They arent ‘hefty prices’- the so called list prices cover different things for different manufacturers.
Hello Sowerbob,
Re: “Where are the Boeing cash cows?”
According to the 4-27-18 Bloomberg article at the link below, Boeing seems to be doing OK in regards to generating cash flow and rewarding its investors. Rewarding investors doesn’t seem to be very popular with most of the people who post here; however, I suspect that it is very important to the people who are able to provide the billions of dollars to fund new programs. I know that personally all my investments are based on what I expect will provide maximum return to me. I don’t waste money on investments with mediocre or poor returns.
“Airbus’s production difficulties caused it to burn though an astonishing 3.8 billion euros ($4.6 billion) of cash in the first quarter. Boeing had about $2.7 billion of free cash flow during the same period, according to Bloomberg data. A five-year comparison makes even grimmer reading from an Airbus perspective. By my calculation, Boeing has generated $39 billion of cash since January 1 2013, about 13 times more than Airbus.
Hence Boeing has returned $44 billion of cash to shareholders via dividends and share repurchases in the past five years, about nine times what Airbus has managed. ”
https://www.bloomberg.com/gadfly/articles/2018-04-27/airbus-is-building-gliders-while-boeing-floats-on-cash
From an investing point of view the question is short term vs long term?
Long term I’d prefer if boeing would have gotten rid of the defered developement and production costs on the 787 program (currently around 27B) instead of buying back it’s own shares.
Short term a company buying back shares can be really good for an investor (it raises the share price).
Hi
I concur with your thoughts regarding free cash flow, I am not clear the degree to which Boeing makes that on commercial. I was trying to get at the fact that they have lost the classic cash cow of the B77w and the B787 is not quite there yet. It is probably reflective of the massive importance of the MAX over all else. Question marks on efficiency of Arbus vs Boeing in the simple act of building a plane have always been there to me
With the grimmest news continuing to come out about the 737MAX, the 777-9 looking like the next 346 or 380 given the overcapacity of the ME3, Boeing can always fall back on that good old cash flow generator with trump’s help, the American taxpayers.
As expected, the 330NEO just used again as a bargaining tool by US airlines to get the lowest prices for the 787’s.
Well done 330NEO, you squeezing the profits out of the 787 and when airlines open their eyes they will know which one was actually the better choice.
BA is going to squeeze the profits out of you with maintenance contracts. Wonder why United’s CFO is leaving so suddenly, maybe he saw the writing on the wall?
http://c.newsnow.co.uk/A/938478982?-303:3665
An 330-1000 comes up now and then as 787-10 competition, if interest in a 330-1000F materializes it could be the optimal use of the the 330NEO wing. On the negative side it could undercut 359 sales and/or airlines won’t be interested in an “old” design.
A 330-1000 will look very attractive for high capacity routes under 4000nm versus the 787-10. Airlines already using the 330ceo can easily grow capacity, with around a 25 percent reduction in seat costs.
The 330-800 might hold the key to the 330NEO story. It could be sold at per seat prices similar to the 789 (thus 10-12% lower total price). Selling the 338 at such prices should not impact 359 sales, and a 351T 338 will have better range than the 789 and/or carry more freight (weight/mass), however not more volume.
Well, since AB is part of the topic for today: Where oh where is the (coming) AB bribery “perp walk”? It’s way overdue! Can’t wait to see what big exec AB “names” are in it! Maybe they’re going to get the timing just right, and do it during Farnborough? And sorry, I guess bribery’s “off the table” as a current sales tool for the 330neos. LOL
I also think the A330 Neo’s days are yet to come, just like the A350-1000. I also think planned A321NeoLR plus will do serious damage to the NMA. Boeing’s weapon will be the 787-10 in terms of a large mid-range plane.
AB needs to come up with a solution to the 787-10 before its too late.
One long term option could be an A359+, 6 panel (3.28m/128″) stretch of the 359 with ~22 more seats (2×9 + 1×4). Two models possible from this?
1)359+, 84Klb engines, 359 wing and landing gear, MTOW 270-275T, range ~7000Nm and,
2)359+ULR, 97Klb, 35K wing and landing gear, MTOW 315T, range 8500+Nm.
Interesting comment in last paragraph of this article. Does AB know something? They often under promise and over deliver.
http://c.newsnow.co.uk/A/938312037?-303:3665
If they can go to 254T MTOW wit 76Klb’s Game ON.