Look at entire portfolio when investing in sub-types, Airbus and Boeing say

Jan. 23, 2019, © Leeham News, Dublin: Investors and lessors should take into account the entire product line offered by Airbus and Boeing when considering sub-types that may have few sales to date, officials of the two companies said at the annual conference in Dublin organized by Airfinance Journal.

Tim Myers, president of Boeing Capital Corp., and Mark Pearman-Wright, Head of Leasing & Investor Marketing for Airbus, said the 737-7, 737-9, 737-10, A319neo, A321LR, A330-800 and the new 777X should be looked at in context of the entire 737, A320, A330 and 777 lines when making investment decisions.

Slow-selling airplanes

The 737 line is dominated by the 737-8, Myer said. The other models have not sold as well. Although Myers declined to provide sales numbers, LNA previously reported that based on public announcements and customer company documents, about 70 737-7s have been ordered.

Based on public announcements by Boeing and customers, including order swaps to the MAX 10, about 250 MAX 9 orders were outstanding going into the fourth quarter last year. Using the same sources, MAX 10 orders numbers between 550-575.

Boeing has a huge backlog of Unidentified customers with unspecified MAX orders that could inflate any of these numbers.

At Airbus, there are only 55 orders for the A319neo at Dec. 31.

The A330-800 has only a handful of orders.

Investors and lessors typically like broad customer bases and “liquidity” (ie, a large number of airplanes in service or on order) of types and sub-types as investment opportunities.

Niche airplanes like the 777-8, which won’t enter service until 2022, the 777LR, the A350-900ULR and the A321LR, likewise fall within limited appeal for investors.

Then there is the Airbus A220, which until last July was the Bombardier C Series. Bombardier’s own poor financial cast a cloud over obtaining orders and gave pause to some lessors to acquire the aircraft through a direct order or via purchase-leaseback (PLB).

Looking at the bigger picture

Pearman-Wright noted that some C Series had been financed for Air Baltic through PLBs (Nordic Aviation Capital, for example).

“We’ve certainly [seen] much more interest” since the Airbus purchase of 50.01% of the program, he said. “We clearly have more lessor interest now. The Air Baltic sale/leaseback was oversubscribed. Bringing it into the Airbus stable, the investors appreciate that.”

The MAX family must be viewed as a whole when investors consider which models to put money into, Myers said.

The MAX 10, a program launched at the Paris Air Show in 2017, now represents about 12% of the 737 MAX backlog with some 550+ orders.  In lessor terms, this is a small number. The MAX 9 is about half this and the MAX 7 a fraction.

The MAX 10 EIS is next year; the MAX 7 enters service this year.

“When you look at the MAX family, one of the things you have to look at is how we provide the whole gamut and meet our customers’ needs,” Myers said. “The heart of the market is really the Dash 8. There will be investments in the 9. There will be investments in the 10. When you look at the Max family, you have to look at the whole array.

“What’s out in the investor base today, you have a lot of people trying to differentiate themselves.”

(One such lessor is Altavair, when while yet to invest in the MAX family has acquired 737-900ERs and the 777LR, two limited-appeal aircraft sub-types.)

“If you go for bid on the 737-8, you probably will have 35 or 40 offers. That won’t necessarily be true for some of the other product types that may be viewed as more of a challenge in the investor base.”

Pearman-Wright said that the operator base for the A319 and A330-200 is broad and both airplanes sold well.

The retirement age of the aircraft will begin to create a wave shortly into the next decade, when he sees sales of the upgraded neo versions taking off.

Versality will help sales of the A319neo and A330-800, he said. The ranges of each aircraft allows long operations while these aircraft also serve shorter routes.

“The investor community has to look at the A319neo and what it does in its niche,” he said.

The 330-800 will replace the 330-200, with a replacement wave to come. “It’s the cheapest, most versatile airplane you can acquire,” he said of the -800.

Myers said the MAX 7 has hot-high, longer range and somewhat less capacity than the MAX 8 and will find its own use. “That’s just as true for the MAX 9 and the MAX 10,” he said.

“As an investor, you have to look at the whole MAX family and how it will be used,” Myer said.

New designs

The 777X has less than 350 orders with about a dozen customers, but 72% of the orders are concentrated with the three Big 3 Middle East airlines.

Myers again said that investors have to look at the entire 777 line, with a replacement wave beginning in 2021-23.

Boeing-Embraer

Myers said the Embraer EJet is already a proven airplane and that Embraer has a long history of successful products.

The pending joint venture, in which Boeing will own 80% and EMB 20%, therefore is unlikely to provide the same investor boost to the EJet as did Airbus to the C Series.

25 Comments on “Look at entire portfolio when investing in sub-types, Airbus and Boeing say

  1. While I agree on the over subscribing of the 777X to the ME 3, I have to laugh at only 350 orders.

    A few years ago, 350 orders for a single aisle would have had the management doing cartwheels, let alone a big bird like a 747.

    Only 350? phew. 747 in all the 55 or so years sold what 1500?

    And the A330-800 is the cheapest? Boeing is (was) undercutting Airbus on price with the 787. List is higher than a 787.

  2. In a way, I do not completely understand leasing. I thought airlines first decide what planes they want. Then they find a leasing company that is willing to make the purchase of the brand new equipment. I would think a leasing company would know where they are first going to place the planes and for how many years. I supposed this is a many layered business.

    • I didn’t understand this comment:

      “If you go for bid on the 737-8, you probably will have 35 or 40 offers. That won’t necessarily be true for some of the other product types that may be viewed as more of a challenge in the investor base.”

      Who is going for bid? Who is making the offers?

      • Leasing background? Try the search button near the top of the page
        https://leehamnews.com/2015/08/21/bjorns-corner-saleleasebacks/
        general background can also be found in google search

        Sometime lessors can get the market wrong as this story from 2010 indicates
        https://leehamnews.com/2010/12/09/lessors-banks-in-blistering-critique-of-airbus-neo/
        ‘“Spending so much resources and goodwill for what remains an interim solution is difficult to understand. Can this thing be sold at a premium? No way, so the shareholder would probably be worried.”

        • The discussion from the above links by Duke, I actually understood. Must have missed these reports when they came out a couple years ago. These strategies for buying / leasing planes must have been thought up in Business Schools. Like I originally thought, it is a many layered business. It also strikes me as cynical when banks and corporations look upon new fuel saving technologies as cutting into their piece of the pie. If some 800s are replace by -8s, and ceo’s are replaced by neo’s early, then maybe in this uptick in aerospace, they’ll go to second tier operators sooner rather than later, or be converted to cargo haulers.

          • The cost of capital, aircraft block buys and effective tax rate due to use of depreciation rules in their favor makes well run leasing companies a good business.

    • It would be good to see an article on the many variations of it.

      Probably some are prescribed, others are ad hoc (popular ones) they know will get a home.

      Doing both would spread the risk out. Kind of like a winter contract that has a fixed base and or per snow event options.

      One year with no fixed contract and no snow, when we got hit the contractor found few of his sighed up people available. That cost some bucks and delays.

    • Thanks for the link, amazing aircraft. Was always nice to de-plane via the rear door with a strong jet fuel smell hanging in the air, especially early morning on a chilly day when still some heat coming from the engines.

      • The thing about the 727 that I find interesting is that reading pilot accounts they either love the plane or hated it, no middle ground at all.
        I thought it was a nice aircraft to ride in EXCEPT the time I sat way in the back (the coveted toilet adjacent seats) where the noise from the engines was deafening. If that was a ‘whisperjet” I would have to hear the one that spoke in a normal conversational tone!

        • Maybe compared to a Convair 880? Four turbojets on takeoff power must have been quite the roar — not that 727s ever whispered.

          I used to watch the last of the old Northwest 727s take off from MSP (later moved to Champion Air, then retired) and those were hush-kitted and still very loud.

  3. You have to look at aircraft types that is a bit unique but is easily converted to the “coomon type”. The A350-900ULR is structurally the same as the A350-900 and thus can easllity become a A350-900, same with A321LR that is an A321neo with extra tanks that can easy be converted to a normal A321neo, both have the same engines as the “base model” but might have a sligth throttle push programming plug that also can be replaced to the base models thrust.
    Often is the base model superseded with a stretch model like the 777-200 to -300ER, 767-200 to -300ER, 787-8 to 787-9, A320 to A321, and sometimes it is a stretch to far like the 757-300, 767-400, A340-600 and we will see how the 737-10 and 787-10 will sell, Airbus risks the same with the A322 if it just a fuselage stretch and the A350-1100 was stillborn as a simple low cost stretch.

  4. I do not agree with some points.

    Example A319neo and all but -8 version of the B737max.
    They are just inferior planes compared to the other options, and very niche.
    The -319 and -7 just loose against their main version 320 and 7M8.
    7M9 is so much inferior Boeing was forced to pull out 7MT, to not loose it all to A321neo. Still, it’s inferior plane.

    Same is true for the A338. The A339 is just bigger and more efficent, unless you need the range. If you do need the range, propably you buy the B789 which is the better choice for a lot of airlines as we see.
    The sweet spot for wide bodies seems to be somewhere at B789 – A359.

    I disagree with the B777x. Mainly a gulf aeroplane, and it seems to be to big for many carriers (some call it A380 problem).
    If you have to replace B777, for the B772 versions you propably choose a B789, A339 or A359 if you are looking for a one to one replacement in size.
    For the B77W, the A35k is the same size model, the B779 is simply 50 seats more.

    Airlines especially in the US do fear overcapacity. That’s the reason why they didn’t order B748, A380 and now B777x.
    AA will build around the B787, and they fly the 789 with just 25 less pax than the pretty new B77w.
    Same for United – B787 and A350. As AA the just have a few B77W.
    Delta is building it’s WB fleet around A339 and A350.

    I don’t see them ordering B777x soon.
    Also, on the lower end, A & B have somewhat a backlog of 10.000 neos and maxs. Those have to replace something.
    Embraers and CRJs going bigger?

    For me it depends a lot on each version.

    • The 779 a good 747 replacement but could be too much aircraft for many as an 77W replacement?

      • Exactly.
        or just to much suited for the main customer Emirates.

        Not to forget A35k is 15t lighter, pretty hard to “fly that in” permanently if you don’t have the demand to always fill your plane.

        BA will order B779, it fit’s well for them as they still run a huge B744 fleet.
        Also slots are tight.
        The ordered 18 A35k and have 18 options, with 35 B744 flying.
        I would not pe surprised if the order 20 B779 to replace some of their B744, the A35k would then replace some B772s and rest of the B744.

  5. For 737 only operators, I think the verdict is still out on the -7. On the assumption that half the routes only require 120 to 150 passengers regularly; Will they purchase the -7, or add the A223? Or just use the -8 with 25 to 50 empty seats and pay for the extra flight attendant and landing fees, but have better flexibility with one less type? I don’t know what the most economic answer is, but flying on a WN 738 with 50 empty seats is nice as a passenger.

    • Southwest says they are still committed to the the 7. We shall see how the market shakes out. 🙂

    • The 737-7 rests on 60-70 mostly deferred orders, 2 customer + small opportunists.
      https://en.wikipedia.org/wiki/List_of_Boeing_737_MAX_orders_and_deliveries#Orders_and_deliveries_by_customer

      A220 has 500 orders with dozens of serious customers.
      https://en.wikipedia.org/wiki/List_of_Airbus_A220_orders_and_deliveries#Orders_sortable,_presorted_by_date

      The time has come to stop thinking “the verdict is still out on the -7”. The verdict is out: the airlines don’t want it. A reason Boeing went after Embraer.

      • AA and UAL are operating large fleets of A319’s some of which are not getting younger. At some point these will need replacement, the A220-300 much be on the shopping list.

        Not sure what are the typical sector lengths these are used on and also don’t want to sound like a stuck gramaphone, but there is merit for an A220-500 with around 20 more seats than the 223. But also, don’t think AB will do it before an A320+ as it will cannibalize the A320.

        If AB can do a “Hot-Rod” version of the A220-300 for Hot-and-High strips and/or short strips and/or add some 300-500Nm range it will be selling like popcorn at the movies and effectively be the end of the road for the 319 and 737-7.

    • @Steve, that’s the current 7 MAX: 138 seats v 125, straight shrink of 737-8 vs its own airplane. Hasn’t sold any better than the old design.

      • ‘hasnt sold any better ‘.
        Not expected to , in marketing they call it a price leader. Where customers are expected to base their price expectations on the lowest price model.
        Its main aim is to be the price point which customers are offered a capability of ‘almost an A320’
        When they do buy the 737-8, they pay more
        Well thats how lawnmowers are sold.!

        • I don’t think you spend the millions to certify an aircraft add a variant to your line etc just for marketing reasons.

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