Wednesday, August 23, 2017

The Great Boeing 787 Pause.



Early on after announcing the 787 Boeing Program, it booked hundreds of 787 numbers. In fact it has booked about 1,278 mid wide body aircraft since first announcing the 787 offering. It then established itself as the leading widebody manufacturer with its 787 production. The important number at this time is the number of delivered 787 and its place in the airline industry market. Below is a summary recap supporting this contribution of entering into a Market pause for medium wide body aircraft during 2017.

Boeing 787 Program Summary August 23, 2017

Boeing is nearing a 50-50 split of 787 Booked to  undelivered in backlog as the above chart reveals a 46% delivered and 54% undelivered. More importantly there are almost 600 787 flying in the airline market today and Boeing should reach that mark by the first part of October 2017. The 582 flying represents a market dominance for this type of aircraft when Airbus just reached the 100 A-350's delivered.

A second point of interest is the backlog for both makers of this class of airplane. The class must meet this criteria: 
  • Mostly composite, 
  • Mostly new technology and 
  • Mostly exclusive engine progress for that type...
 for which both the 787 and A-350 meet these arbitrary points in common.

The A-330 NEO is not part of this recap since it is not composite nor has started significant delivery.

Airbus has booked 848 A-350's and has delivered 100 thus making a backlog for 748 of its medium wide body aircraft. Boeing 's backlog has slipped under the Airbus count by about 50 units in this comparison.

In total the market has about 700 of this type of medium widebody aircraft flying the world routes. This would not include the 767,777 or the A-330's currently flying in this comparison, but does affect the market saturation for this class of medium wide body. 

To further count a number for older medium wide body would enforce the concept that the market has reached somewhat a saturation for medium wide body class of airplane until the airline business plans change or market expansion occurs. The other point is higher fuel prices will install demand for the medium widebody types. The price of fuel has just started a small climb in price, causing airline customer's to carefully watch this indices with its own airline growth.

The chart above suggest a market filling with Boeing's 787's where airbus cannot not compete with airplanes in service at this time. Airbus may "max" out at 10 A-350's built a month within three years where while Boeing can sustain building 12 a per month for its 787 production pace, unless it books greater numbers during the remainder of 2017. It has already booked a net 78 of its 787 this year with more orders hanging.

This brings the comment to the famous book to bill ratio of "1". A definition of book to bill is for every 787 purchased one 787 is delivered in the same accounting period of a year.  However, a moving analysis at this moment has a slight delivery edge (82) over Boeing's 787 booked (78) during 2017. The snapshot book to bill ratio is .95 YTD.  An almost perfect 1 for infinity and beyond. 

As the year comes to a close that ratio will likely dip into the .7's as orders are predicted to be a hit and miss proposition at this time. There are only four more months in 2017 to obtain enough orders (50 needed) to keep pace with its production delivery pace. Boeing would like but will not obtain a "1" book to bill ratio by years end.

This pursuit of a book to bill of "1"  for the 787's also saturates the market place with more 787's by year's end. In two years at this pace of about 140 units a year delivered, Boeing will reach the lofty heights of 850 units flying in the 787 market place, which would be currently equivalent to the the A-350 orders for its A-350 family of aircraft.

When the 787-10 starts delivery, the whole dynamic changes as it will fill a segment where the 787-8 and 787-9 does not occupy. Airbus has its A-350-1000 entering the market stream for which the 777 already occupies. The A-350-1000 goes on long legged routes which is a thin market at this time. When the 777X enters the work place, the A-350-1000 will be so yesterday, even when done in plastic. The 777X is not a 787-10 market replacement. 

The 777X family has out sold the A-350-1000 as Airbus has only booked 212 of its type, and the Boeing 777X has 326 on order from its customers. Boeing neatly bracketed Airbus with its combination of long haul or high density aircraft. The 787-9 shades its performance over the A-350-900 and the 787-10 undercuts the A-350-1000 with its short segment capability. While the 777X has an over-arching flight plan hovering in a strike formation on the A-350 family of aircraft going over its top end.

The above chart goes back to the 1 to 1 book to bill rate with another slant. Look at deliveries to date and then look at the total backlog to date. The backlog is 1.17 over the delivery total exceeding a book to bill ratio of "1". This will erode to a under "1" ratio in time. Boeing will need more sales as the market evolves. It has positioned itself well with that evolution of the market. It has opportunity with rising fuel prices and fleet renewal, as the cheaper classic wide body age out in operation. 

Expansions of fleet will depend on an airline business model taking advantage of new wide body efficiency. In the near term, the driving force for buying wide body would be a fleet replacement need. Sales have slowed for both makers as airlines are doing just fine with classic airplanes flying on lower fuel and air frame prices.