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July 29, 2019, © Leeham News: The 737 MAX crisis overshadows everything else right now at Boeing.

This includes forward orders, weak customers and production gaps on the 787 line, which right now is the cash flow cow at Boeing Commercial Airplanes.

Boeing’s production line for the 787 is filled through 2021, but after that, there are big gaps. Source: Leeham Co. Click on image for a crisp view.

Executives only briefly, and obliquely, touched on the 787 during the 2Q2019 earnings call last Wednesday.

This prompted LNA to examine the details of the backlog and production rates. The 787 is current being produced at a rate of 14/mo.

There are clear signs of challenges, both near- and medium-term for the 787.

Summary

• Weak customers threaten to create deferred deliveries near-term.
• There will be about 20 A330s and 777s coming off lease each year from 2021-2026 on top of retirements. Airbus and Boeing see these are replacement opportunities.
• The production back delivery stream falls off the cliff in 2022.

Discussion

Focusing on the skyline

Boeing is counting on a surge in retirements in the next decade to spur orders for the 787 and 777. A surge of lease expirations may complicate this hope by flooding the market with inexpensive airplanes. Click on image for a crisp view. Source: IBA.

“We will continue to focus on further bolstering the 787 skyline,” Dennis Muilenburg, Boeing CEO, said on the earnings call. “We believe our 787 and 777X families are perfectly positioned for that replacement wave that is coming,” which Boeing (and Airbus) see as beginning early next decade.

“As we have work to do on the skyline for…the 787, we feel confident with the production rates we have laid out. And you’ve seen with the 787 currently running at 14 a month, we’re continuing to gain efficiency on that line, and that’s allowing us to be even more competitive in the marketplace. So we’re going to be mindful about building the future skyline.”

Challenges ahead

But market intelligence and examining Boeing’s skyline data indicates there are challenges ahead.

The production line is full in 2020 and 2021, when annual production rates are 164 per year, or 14/mo. However, it drops off sharply in 2022, we—as of now—fewer than 80 firm orders are in the queue for delivery. This creates a production gap—and cash flow hole—of some 80 aircraft.

Even with converting all orders, options and LOIs to firm orders, Boeing still faces substantial production gaps from 2022. Source: Leeham Co. Click on image for a crisp view.

Things get much worse farther out in the future.

The 787 produces the second largest cash flow for Boeing Commercial Airplanes, not counting the current MAX grounding crisis; the 737 ordinarily is the greatest cash flow and profit contributor to The Boeing Co.

Skyline challenges

Customer data reviewed by LNA reveals near-term deliveries are slated for financially ailing airlines like Avianca, Etihad and Norwegian. The latter two are the biggest worry since these have the highest number of airplanes scheduled for delivery between now and the end of 2021.

Etihad has 25 787s scheduled for delivery through 2021. The carrier has been undergoing a financial restructuring, including a major makeover of its fleet with a goal of significantly downsizing. This includes 787-10s. Negotiations continue.

Norwegian is was in serious financial condition before the MAX grounding. The airline has been one of the hardest hit. Its long haul service that is beyond the reach of the 737-8 has struggled for profits. The founded and CEO stepped down this month. A new strategy has yet to take shape.

Some lessors as said to have unplaced 787s in the 2020-21 period.

Bolstering the skyline

Boeing and Emirates Airline are negotiating to revive the deal announced in 2017 for 40 787-10s. This Letter of Intent expired after Emirates canceled Airbus A380 orders in exchange for A330neos and A350s.

Boeing needs the EK deal back, given the skyline weakness and looming production gaps. Some of these airplanes might be 787-10s Etihad wants to cancel.

But it’s not this simple.

Emirates said it would likely cancel an equal number of Boeing 777Xs, which would hurt this skyline.

LNA will examine this in a future article.