Feb. 1, 2021, © Leeham News: Understanding the real market demand for an airplane sector is a complicated thing.
What Airbus and Boeing say the market is for an airplane sometimes is a matter of what they don’t say.
On the Jan. 27 earnings call, Boeing set the program accounting for the 777X at 350 airplanes. This number declined from 400. Simultaneously, Boeing took a whopping $6.5bn forward loss on the program. (Not all is attributed to the accounting block.)
Later in the same call, CEO David Calhoun said, “Across the total widebody market of more than 8,000 projected deliveries over the next two decades, we see replacement demand for over 1,500 large widebody airplanes which are well suited for the 777X.”
Some interpreted this to mean that Boeing expects to sell 1,500 777Xs.
Well, not really.
So, let’s unravel these numbers and what “market demand” or “replacement demand” means. Everything discussed below applies equally to Airbus or Boeing.
For starters, one must understand there are the Addressable Market and the Market Demand. These are not the same thing.
For many years, Boeing said the “market” for the prospective New Midmarket Airplane (NMA) was more than 4,000. Internally, officials viewed the market demand for an NMA as just 2,100 aircraft. With the assumption Airbus would capture half of it, this lower number explains why Boeing had so much trouble closing the business case.
Boeing initially defined the “Middle of the Market” “above the 737 and below the 787.” At the time, the 737-10 didn’t exist, so “above the 737” was above the 737-9. Below the 787 meant below the 787-8. Boeing further defined the MOM sector as up to 5,000nm.
When defined by these parameters, these airplanes are well within the MOM sector: A321, 737-900ER/9, 757-200/300, the A300/A310 (there were then a few left) with the 767-200/300ER and A330-200 on the periphery. This is the “addressable market.”
However, some new airplanes were already addressing this market. The A321neo was solidly within this sector. According to an LNA analysis, only 35% of the 787-8’s routes were more than 5,000nm. Airbus promoted the A330-800 covering the top end. But nobody outside of Airbus (and few if any inside) truly believed this.
And Boeing stepped on its own petard with the launch of the 737-10. While not flexible on the range (3,300nm), its capacity fit right across the A321neo. Most routes were much less than 4,500nm-5,000nm as the NMA evolved, anyway.
So, now you came down to the actual “market demand” for the two-member NMA-6 and NMA-7 family. The NMA, instead of being a 757 replacement, evolved into a 767 replacement. Boeing narrowed its addressable market by conceiving an airplane to replace the A310 (almost nil) and the remaining 767-200s/300s.
Airbus did the same thing with the A380 and the A330neo.
It’s well known Airbus for some 20 years claimed the market demand for the Very Large Aircraft (400 seats and up) was anywhere from 1,200 to 1,700 over 20 years, including freighters. Boeing hooted at the forecast. Others, more objective than Boeing, had their doubts. A 2002 study called the Shadow Report (funded by Boeing but using independent consultants) famously predicted Airbus would sell no more than 400 A380s over the program’s life.
Despite the public forecast, internally, Airbus thought it would sell only 500 A380s, including freighters. Airbus dropped the cargo version. By the time Airbus announced the program’s termination with the last delivery this year, only 251 were sold.
An Airbus official said some 15 years into the program that the public forecast was the “addressable market.” He declined to say what Airbus internally believed the actual market demand was. The addressable market included every airplane with 400 seats or more, including the rare A330-300 and Boeing 777-300ER configured this way.
It was still an optimistic forecast. There were only about 150 747-8s/8Fs order on top of the 251 A380s.
Airbus publicly claimed demand for 1,000-1,200 A330neos. Two former Rolls-Royce people (RR supplies the engines) predicted only about 400 would be sold. Internally, Airbus put the number at 500 when the program was launched. The public number, it turns out, was once more the addressable market.
Calhoun’s earnings call comment that there is a replacement demand for 1,500 very large widebody airplanes must be taken with a degree of skepticism, given the realities described above.
First, Calhoun doesn’t define “very large widebodies.” The old VLA description was 400 seats and above. But Boeing dumped this category a few years ago in its Current Market Outlook forecast when it became clear the 747-8 was done for.
Boeing described the 777-9, nominally a 425-seat airplane that fell into the VLA description, as a “medium-sized” widebody.
Before the pandemic-related fleet grounding, there were 507 747s of all makes and models in service. Although the final few A380s were yet to be delivered, add about 250 to the 747 total. This equals ~750 “very large widebodies.” Add a handful of A330-300s and 777-300ERs configured with more than 400 seats. You still can’t get anywhere near Calhoun’s 1,500 replacement number.
The 777-8 is stillborn. The 777-8F remains a concept. These airplanes are “medium-sized” widebodies—the size of the 777-300ER and the A350-1000. This is the “heart of the market” for the medium widebody. And so far, only about 35 777-8s have been ordered. There are no freighters—this program hasn’t been launched. Sales of the A350-1000 stalled at less than 170.
The aggregate number remains far less than Calhoun’s 1,500.
Furthermore, airlines are replacing 747s with A350s and 787s.
When Boeing launched the 777X, its public forecast sales figure for this airplane alone was 1,200—a figure repeated by GE Aviation, supplier of the giant engines for the aircraft.
At best, this was the addressable market.
In reality, internally, Boeing saw the demand for the X at between 700-800. When times were still good in the airline business, LNA believed the real market to be only about 500. Now, with COVID—and more capable airplanes like the A321LR/XLR, 737-8, A330neo in addition to the 787 and A350—Boeing may be lucky to have 400 sales.
Boeing’s announcement that its accounting block for the 777X was reduced from 400 to 350—over the program’s life—is a reflection of the new realities. The block can be increased, of course. The block can also be decreased.
I can’t see where Calhoun came up with his number (recognizing, of course, that it probably emanated from Boeing Commercial in Seattle). At best, it’s an “addressable market” forecast. But 1,500 for “very large widebodies”?
This sounds an awful lot like Airbus’ fantasy forecast for the A380.