Thursday, March 24, 2016

Next Round Of 787 Orders Are Simmering Until...

The 787 orders have reached a bottom lull as if it were an inverted bubble about to burst. Several noted slips of the tongue suggest more 787 orders could be announced. One customer has already spoke of more 787 orders in the makings, Norwegian Air and TUI have mentioned they need more wide bodies. China is in need of further expansion from its leading Airlines. Hainan has already filled in with 787-9 orders not noted. The Boeing 787 backlog is rapidly shrinking making a Boeing purchase more likely as it goes for producing twelve 787 a month. The "tea leaves" suggest a market ready to absorb more 787 orders during 2016. So what are the ordering stoppers and shoppers?

Ordering Stoppers:

·      Fuel Prices staying low indefinitely
·      National economy and lower currency valuations (ex: China Market)
·      Outstanding commitments with competitor manufacturer

Ordering Shoppers

·      Profitable 2016 (China/Hainan)
·      An in place working fleet expansion built on the 787 Model.
·      Threat of rising fuel prices
·      Economic soundness (Qantas)
·      Market opportunity remains open (Norwegian Air)
·      Fleet expansion (Air India) 
·      2nd tier airlines (waiting for its ship to come in) ordering has begun.

The above bullet points are the obvious items affecting both buying or not buying the 787 in 2016. Further study could go deeper into causal reasons for both situations determining the 2016 order book for the 787.

When fuel price reaches a low plateau it will trigger the pent up energy for ordering the 787. No longer can airlines wait it out using older less efficient airframes on the low fuel price tide. A constant fuel price norm will force airlines to eventually use up the used inventory of less efficient aircraft where they will be forced to buy the newer more efficient aircraft. 

Airbus has already charted this condition and is taking the opportunity with its A330-900 offering, hoping it snips at the heels of the 787 market. Airbus already sees a "flat fuel price market/fleet renewal condition" as it offers the A330NEO as its answer. If the fuel price climbs steeply, then the 787 will have its highest demand quotient.

The market is in transition from the 2015 dynamics for ordering wide bodied aircraft. The "other factor", such as reduced production backlog, hence available production slots, are ready for the market. The internal profitability factors and fleet opportunity, all contribute towards more 787 orders. The A330NEO is an example of low fuel price opportunity, and the 787 is an example of higher fuel price opportunity, and all other market conditions point towards buying the 787 first and consider other manufacturer types second. 

Market forces will return with having a 787 choice over the A350 member of aircraft. In light of constant low fuel prices there are too many compelling reasons for buying the 787 offsetting the price of fuel at bottom.