Saturday, December 12, 2015

Becoming Exclusive, A Market Strategy

Often the industry looks at size and numbers as the benchmark for market dominance. The number of aircraft in backlog is a driving impressionable quantum. However, after looking at the insatiable growth of market backlog, that factor begins to lose luster after it falls out of relevancy with customer plans. How can an Airline place an order with a seven year wait? It needs money for that order, if all goals are met in the high risk of market change over time.

An airline also knows it can convert orders to the next latest models during a seven-ten year backlog of waiting for its intended order. Many Boeing 737NG orders were converted to 737 MAX under this condition. The order placement so many years out, did not take into account an accurate estimation the Max announcement would occur.

Airbus has raced ahead of Boeing on single aisle orders placed in 2015. Airbus is also proclaiming a sixty per month build rate for its A320 NEO by 2020. Boeing will try fifty-two a month produced by 2018. So yes, Boeing is keenly aware that "Backlog Matters". It is not a glamorous number thrown around customers as some kind of dominating number in the market place. It makes customers reconsider, reconstruct, and renew its own five year planning in the most awkward manner. Customers can't always adjust while its providers goes seven years out on a wait list. The condition described above, pulls in, too much risk into an airline's "plan". Airbus has an incredible desire for selling aircraft and being the world's largest everything, even at the expense of its customers. Airlines may fail out and experience an opportunity loss from a long term wait. Company "A" (Airbus Customer) may have to wait too long for an aircraft delivery while extended time waiting will not fit its own business plan or can it adjust from market changes. Because of this exposure from more time passing, a just-in-time delivery goes out the Airline window.

Boeing, naturally is company "B" where they are openly seeking a production balance driven by customer opportunity. Boeing realizes it must maintain a manageable backlog even at the expense of losing PR points of not having the World's Largest Airplane Backlog (WLABL). Boeing gave market guidance many months earlier, it would have an approximate 755 units placed on order for 2015. Airbus by comparison has already achieved over 1006 aircraft ordered during 2015.

Image result for Boeing 737 Production Floor
737 NG Production Floor Renton, WA

Boeing has already recognized a market nullification has emerged for the single aisle market. Market nullification is a term defining that either mega manufacturer does not have a significant edge over the other from product advantage of a customer's operations, other than providing timely delivery into a customer's  own business plans. In other words the defining a "choice metric" comes from a customer's own operational situation rather than the supplier's product having some market edge. The duopoly has nullified itself into a customer's operational decision tree of what would be more convenient for "Our Airline". The checklist for the operator becomes: commonality of fleet, delivery time, and market conditions. These are all out of control of the manufacturer, since they have nullified themselves through achieving many goals of commonality, excessive backlog and dynamic market conditions. The market belongs to the manufacturer's customers not the manufacturer.

Airbus went big in 2015 where Boeing went small with its order book. The advantage over time will benefit Boeing if it tunes its production capacity towards its customer as an exclusive relationship. Boeing is closing in on a position of: "When do need it and how many?" Airbus is pulling away with its single aisle just like popular restaurants have an excessive wait time for a table on Friday night. Boeing must adjust its backlog making an exclusive partnership with its customer, and not look over its shoulders at the Airbus bloviating. It must make the relationship with its customers, by containing a functional production queue. If Boeing can sell more airplanes it must expand its production first to meet customer demand in the sales process, as it will sell more airplanes from a commitment of productivity not the slight differences found in it products with its competitor. It is this blog's belief Boeing has done just that, taking on a responsible mantle of taking on more orders when able to do so within a sensible delivery time for its customer.