Thursday, March 10, 2016

Emirates The Game Changer

Somewhere halfway between Boeing and Airbus is Tim Clark of Emirates. He is the real game changer as he mulls over the 787 vs the A350 and spins another plate called the A380NEO. Even though a behemoth, the A380NEO has not been offered as of yet, it may come. Clark has another 65 A380's yet to be delivered, as it is more than halfway through its A380 order book. Some of those early delivered A380's for Emirates are approaching a fleet renewal status during the next five to ten years.

Image result for Emirates Tim Clark

Clark wants to buy more A380's in a NEO package. Airbus does not want to build an A380NEO unless enough demand is made. Tim Clark and Emirates can change the game for Airbus, but can it change the game for Boeing? The current consideration is for more 787-9's and 10's against the A350's and that has a history from Emirates when it canceled 70 A350's. I can't second guess the Clark strategy, even if having any insider tip (I don't), but can use history to infer a preference. The A350-1000 or 8000 is further behind the A350-900 it had already cancelled. Therefore making, the A350-900 or any other WB twin engine from Airbus less likely.

Boeing has finally achieved a smaller production backlog with its 787 than the current A350 backlog, while Boeing is building more 787 each month than Airbus can produce. Boeing needs 787 orders at this time and will price its 787 at a lower cost while matching its need for new sales. Airbus would have a difficult time pricing the A350 low enough until its own productivity increases in three more years. Boeing, in three more years may have a 450 unit, 787 backlog, unless more orders are booked in the interim period. Prices are offered with Boeing's premium customers and will have a special place for any block orders. Boeing will be producing the 787-10 efficiently when an order from Emirates could be assimilated. In this case, Boeing has the marketing high ground and it aims to use it.

Clark has a finite career duration, which may reach an end before he can convince Airbus to gamble its resources on an A380 NEO program. The backlog of classic 380's is shrinking, while its ordering members are keeping an eye out for an opportunity of any booked cancellations, even before they roll off the production floor.   The A380 NEO will go forward if Clark can change Airbus' game, if not, more Boeing 787's will be ordered. An Emirate A350 order suggest the A380 NEO will come to Clark as part of the package. Tim Clark is obsessed with the A380 model and will use the A350 to get it. However, having a "no" A380 NEO order becomes an Emirates/Boeing 787 order.

Recapping Airbus: ...  is counting on its A380. There are 65, A380's in Emirates' backlog. This also represents a significant quantity of all undelivered A380's. Airbus has about 139, A380's in the backlog making Emirates about a 47% backlog stakeholder. This is the lever Clark is pulling and using for a tantalizing 200-A380 unit order. It may convert 25 of its A380 classic backlog into new NEO orders and then add about 175 NEO's to its order book, making it the 200 A380’s Clark wants. This would cost Airbus developing a new program for the world's largest aircraft for which Emirates would be its only customer at this time. If that is the case, the A380 program cannot hide its failure from the NEO program. There are not enough profitable routes existing for this aircraft, a long held Boeing contention. 

The game changing Clark may not succeed in getting his A380's as it may break Airbus' financial back to complete his dream. In which case Boeing may see another 100 787=9's and 787-10's coming its way via the Emirate order book.