Monday, October 13, 2014

The Max Attacks The Future As 50 More Are Ordered

The "Max" or the 737, where the MAX gains fifty in an order today as announced with Indonesian Airlines,  "Garuda". This opens up a new classification for ordering that has been around for a long time. A current customer bridge order. Garuda, a long time Boeing operative, has reached near the end of its order book with only a remaining four 737 NG's to deliver. The Boeing sales team is counting the order slack from prior orders to bridge with any new orders, by refreshing its order books with the Max. In Garuda's case, by the time this latets order was signed for, they trimmed four from the backlog and added it to this new Max order. New orders equal 46 Max,  plus four prior orders converted Max, equaling a total of fifty.

Boeing measures prior orders remaining, airline company growth, and fleet renewal factors as it would launch a campaign with an offer where Garuda  should not refuse. Even though an order sometimes takes years in the making, Boeing would need to start further back on Garuda's delivery Que in months, before the order is complete. Garuda came through and established its fleet renewal needs with its expanding fleet needs, ordering 50 Max.  A continuity bridge is established for the single aisle type. These are the little details that are always under consideration when an airline orders, as Boeing stays focused on a customer needs. Its a commonly occurring type of order when linking existing prior orders with a new order as a "Current Customer Bridge Order". This completes a trickle down effect going to the ultimate customer, the passenger.

Passengers have gained an appreciation, expectation and familiarity for an aircraft such as the 737. The airline is positioned, trained and  managed for that type of aircraft with a certain knowledge of what it will produce for its profits. The sales team must assure those customer expectations will expand with an all new 737 MAX where it will exceed those established company bench marks with a significant change. Garuda plans that a profit will occur in greater abundance, where a certain amount of that profit can be dedicated for financing follow-on deliveries from this new order. The win/win result is increased customer appeal, tickets and expanding routes.

Boeing sales has made significant headway with the Max, and is closing in on the NEO from Airbus. Something has happened in the market where the MAX is getting more sales legs and is moving at an awesome rate of sales. Boeing has gained 722 in number, with 737 sales types this year. What has not been added to the order book is in the Billions of US dollars. Ryan Air has not yet booked its 100-737, Nor has Garuda 50 been added to the Boeing 737 book on its web site (soon). Just those two un-booked numbers would bring the single aisle order book for Boeing to 872 for the year. There are several others hanging orders for finalization with Boeing. In all, it is safe to predict 1000+ 737's ordered this year. Even though Airbus has not stopped working in the market place, it too will add more orders before year-end.

However, Boeing continues to eat away Airbus' NEO margin lead over the MAX. There are so many moving parts to a placed order. So many its not practical to list them all on this blog. If a company had a 100 point check list for its own business model, where one column was Boeing and the other was Airbus, Boeing in 2014 is winning that check list battle with more checks gaining a buy summary.

Of course items on a proverbial list would include a matrix with: fuel, seat numbers, maintenance cost, and so forth. Boeing is winning the internals checking by going down the list, including capital outlay at purchase.

The NEO rush  during Airbus announcement year where place holders from dedicated Airbus' customers. The second year since the Airbus announcement is Boeing's first year, actually started about 14 months after the NEO  launch announcement. It was at an obvious order disadvantage. However, Boeing has a striking change in the balance of who ordered what. Lately its been MAX upon Max. Customers have read the MAX white paper and really like what it will do for its own business plan. Even dedicated Neo customers are reading the reports, since they are having to compete with that pesky MAX as it expands its base.

Boeing used to consider itself fortunate to break the 1000 order barrier, in a given year for all its types combined. Now the 737 may reach that number by itself this year. As two and a half months remain with significant un-booked orders to be added.

Congratulation to Garuda, its a note worthy Bridge to the future for both the airline and Boeing. Its a battle for the best value and the 737 MAX  is gaining value over the NEO in this market.