May 2016 Schedules 14 787's For Delivery

I often do research with All Things 787 and pull data into my own work sheets. From Uresh own website Winging It has used this data for a preview look at the Month of May, 2016. It looks as if Boeing will accomplish its 12 a month pacing with Its 90 day moving average cycle if it delivers the Fourteen 787's currently in the production Queue.

Deliveries of Note:

• Unit build # 22 Air Austral, a first group production build for the 787 is now going to market 

• Unit build #404 British Airways in Storage awaiting its Zodiac seats. Is now ready for delivery.

• Unit build #419, Air China, an inaugural delivery or its first 787 with a big bow and balloons for a May Day.

 Type count for May:

·      Four 787-8's

·      Ten 787-9's

Boeing 6.02 Billion For April Sales

Boeing has accumulated 34 more aircraft orders valued at approximately 6.02 billion in April. This keeps the Boeing total book pacing ahead of Airbus, one month shy of the midpoint during 2016 and before Farnborough. I am expecting a slow month for Airplane orders for both makers in the Month of May as the Farnborough airshow draws near.

Boeing appears to be working through a large backlog for the 737 and 787 achieving a consistent flow for orders since the first of the year. The China Eastern order for both Boeing and Airbus was a noteworthy order pairing as Boeing booked 15 of the 787-9's and Airbus tallied 20 of the A-350-900 on the same purchase cycle.

The split ordering suggests the wide body market is still up for grabs as Boeing is in the dominate position while having higher production and a lower backlog than Airbus.

Boeing Data via website: 

http://www.boeing.com/commercial/#/orders-deliveries

However, in a down year for both makers, Boeing is still showing order strength at a nominal level, where the Airbus YTD has illustrated a docile single aisle order streak. The posting will be updated when more Airbus information is revealed for the month of April.

Will Delta Turn The Corner For Connor?

Recently Delta has chosen the Bombardier C Series (100 seats) over the Boeing 737-700 offering (125 seats). Then Delta made an order with Airbus for its A3210NEO (185 Seats) over the Boeing 737-900. Boeing can't win with Delta during this episodic ordering binge. Ray Connor’s relationship with Delta's CEO Ed Bastion, seems to be very solid.

King 5 News:

"Delta’s new CEO Ed Bastian shared a bit of insight in a briefing. Bastian says he's good friends with Boeing Commercial Airplanes CEO Ray Conner, and the carrier told us they would like to have a larger 737. Boeing is already investigating that, a possible replacement for the no longer produced 757, which Delta also flies in large numbers. Sometimes referred to as the "middle of the market" airplane."

If Boeing would approach a “middle of the market” aircraft it would cause an enormous ripple effect in the industry. But would they do it for just one such as Delta airline?  

The answer is that Boeing is between a rock and hard spot, as it marshals its financial resources with the following:

·      737 Max Family

·      777X

·      767 Military program

Past postings were made about the middle of the market MOM. With Delta Friendship aside, Boeing is only just "looking" at this market wedge between single aisle and duo aisle aircraft. Boeing has a "MOM plan in hand", and Delta has rebuffed Boeing while its in its hard spot. Boeing has to solve these points on the road to MOM.

·      Plant Capacity

·      Financial Resources

·      R&D resources

·      1000 airplane soft commitment book

They can or will have a plant capacity plan when Boeing announces the MOM. The financial resources will become available after the Max cash flows begins and the 777-9X's entry into service arrives. The R&D resources also becomes available when both the above mentioned airplanes progress matures from the design stage.

Finally, it is probable that Delta has made its case with Boeing referring to a unique type found in the middle of the Market for which Airbus does not have an answer. Delta may have an exclusive position as a launch customer for the MOM in numbers of 150 of this type. If this assumption is sound, then Boeing has another 850 commitments to go before it says it's so.

Everything points to 2020 in Three and a half years. There are 757 aficionados who love their aging aircraft and a 2020 announcement date fits smartly into place for achieving the four above mentioned obstacles Boeing is facing while sitting on its "Rock".

They could pull in another 500 units committed from its varied customers currently flying the 757. It also could pull in a commitment from a customers like Ryan Air or Norwegian Air. Having a complementary model to its existing fleet and current order books synergizes those fleets. It is feasible that Boeing has a commitment book in secret and already exists a solidification for a 1000 unit announcement. 

A MOM would be a hybrid type from coming from the Max and connecting the 787 commonality for a 4-5 thousand range aircraft. The Atlantic Ocean market would be perfect for a MOM. The Pacific basin is too vast for a MOM trans-crossing it, but it could easily become a regional flyer in that basin making an optimal fit. 

The MOM is four years off or not at all. Boeing will have its bullet point ducks in-a-row by the year 2020, and by making Boeing whole it will make Delta happy.

Is Boeing Ready For A 787 Market Pause

Boeing's, Dennis Muilenburg, has surveyed the airplane making business and states, it has taken necessary steps towards any economic downturn within the markets before it happens, and Boeing continues with a robust production schedule for its aircraft. Central to this, is managing its backlog while using market pricing for its order stimulation.

Boeing confident Dreamliner rate increase will hold, even in downturn

“The decisions we’ve made to ramp up 737 to 47 a month, 52 a month, and then 57 a month and the ramp-ups we have planned for 787 all take into context these historical factors,” Muilenburg said. “If we were to see deferrals and cancellations begin to creep up, we wouldn’t change our plans. We’ve in fact designed our plans to envelope those historical averages.”

Central to this quote is the many years prior to this pronouncement Boeing realized its backlog was the key to managing not only its cash position, but its market position as well, and it then at the time Boeing demanded a backlog reduction to achieve its long range goals. Boeing has positioned itself for managing cash flow through its production output and it is affecting the market through a more flexible backlog, motivating customers to place orders. The A350 is being anxiously watched on the production floor by its customers.

Having a flexible backlog with a robust capacity allows Boeing some power brokering its ways forward. The Boeing five year plan has completed pushing Boeing ahead of Airbus' through its own 787 family of aircraft. If you order an Airbus class aircraft from its single aisle to duo aisle there is a longer wait for the majority of its aircraft. Boeing established a flexible backlog during the last five years where Boeing is producing forty-two 737 a month and another twelve 787 a month, surpassing the Airbus A350 production capability. Eventually, Boeing will produce fifty-seven 737 a month and up to fourteen 787 a month in the next four years. Having a backlog supporting that productivity is what Muilenburg is seeking. A stable Boeing cash flow also offers accommodations for its customers own five year plans.

The past Boeing problem was the expensive start-up for so few 787's a month coupled with a huge backlog of over 1,100 787's in 2011. They had an inflexible backlog as potential customers sought out the A350's having easy delivery slots clear back in 2011. Having a production condition which accommodates any customer's financial plans within a five year buying program, sell airplanes. Boeing was out there with a 7-10 year window for its potential customers and that condition hurt Boeing’s market plan.

Boeing needed cash, and production was the means for that cash. It began ramping up the 737 production rate matching the Airbus single aisle production rates five years ago. Boeing’s production commitment has finally paid-off as the 787 program has reached a maturation point of making its worth of twelve 787's a month and another forty-two 737's a month. The wild card was the 777 program as it made about nine 777 a month. The 747 production became a value added to Boeing's portfolio. The 767 has transitioned to freighter and military mode with a combined backlog of fifty freight and 179 KC-46 totaling about 229, 767.

The long range production planning allows for some seasonality within its marketing program. The seasonality factors refine projections using history and making fairly accurate outcomes by assuming where and when the orders will come. 

Muilenburg has those projection in hand and sees if Boeing maintains its due diligence producing aircraft it will expand its sales over time. This is where prognosticators and Bloggers earn their keep. The industry sense is that Airbus will have its moments as well as Boeing will too. The latest example is the split order with China Eastern for 15 787 and then 20 more A350's. Splitting the order is an historic leverage of both Boeing and Airbus as both have needs for more orders from its respective programs. China Eastern had no bias only to the best dollar value and how it would fit into its plans.

In the above example it is not who has the better airplane moreover who made the best deal, and it seems that China Eastern did that when not knowing how it will turn out in the long run. Boeing has entered into a new 787 age. All those buying the 787 are now measuring how well its decisions were for buying the first aircraft. As it now stands there are new margins on balance sheets point towards a 20% better margin with its 787's in operation. Even Air India has found room for a recovery with its government and the use of the 787's even though they advertise their own incompetence operating the 787. They are beginning to get its arms around the 787 with improved operational execution for its 787. They can't live with it or without the 787 at this time and that time is changing finally.   

Boeing 787 Month Ending April 2016 Progressions.

April is ending today with Boeing meeting its projected guidance. The new significant addition is the China Eastern order for 15 787-9's as it now stands with net totals consisting of forty 787 delivered YTD and a Net of 12 787 ordered during 2016 YTD. 

See below Fig 1

Fig 1:

The Ninety Day Moving average includes a partial period of 10 a month rate while a later month rate moves to Twelve 787 a month. However, Boeing achieved a lumpy build rate during this period where March jumped to thirteen units and April dropped to ten units during April. The overall result is an eleven unit a month pace during the last Ninety days, which is spot on for this period of time and Boeing guidance.

Fig. 2

A quick look at the program recap demonstrates a stable backlog and 403 787's in the marketplace. This bodes well for both Boeing cash flows and market position for its customers, as the backlog position becomes equally critical for the customer's wait time priority as with its competitive pricing priority. 

Fig.3

The strength of 787-9 deliveries and the smaller 787-8 backlog (138) are the key numbers below. The 787-9 has taken over the program during this period of time and should become known as, "The Era of the 787-9".

Fig. 4

The program WIP and Delivery metric for the 787, below, illustrates a similar WIP inventory (47) than the prior month (45). This is an indicator of better space available in the process as fewer 787's remain parked outdoors after initial assembly, and more production efficiency is gained as units flow smoother  through the factory flow. The current percentage of 787-8's WIP is 43% of the inventory, and where the 787-9's equals about 57% of the WIP inventory.

Fig.5

And the 400th Dreamliner goes to... (updated)

Boeing opens the envelope please and announces its 400th Dreamliner. A 787-9 to Etihad Scoot from Everett, WA Charleston,SC delivery center on April 26, 2016.  It all started in September 2011, and five years later the 787 has flooded the airways. Giving a clear perspective with the Airbus A350, it has only delivered about 20 in over 15 months of production. Problems though harassing Airbus have slowed its delivery pace. It’s a supplier problem.

Boeing had supplier problems as well as technical issues almost stopping the 787 during its initial first two years of production. I am certain Airbus can resolve its issues as it does not indicate any technical problems. However, Qatar is upset over the Airbus A350 production woes stemming from suppliers and they may be all that is wrong as Qatar did not delve deeper into its displeasure of Airbus. It remains about 72 more A350's to go before it completes its order with Airbus. Qatar had 80 A350 ordered to start with as its largest A350 order holder.

Back to the 400th, it is a significant mid-term capstone for the 787 program where the 787 in numbers are flying everyday stealing a march into the marketplace with its advanced aircraft. The follow on effect could advance the MAX program with its customers as the 787 and 737 are a family of aircraft, which can progress an airlines staffing with the Boeing equipment. 

If the Max does perform as advertised when it enters into market, it will close the gap has over Boeing in the single aisle market. Boeing got to four hundred 787 delivered, and it will go to five hundred in play shortly after the first of 2017. Where Airbus may have only fifty in service by 2017.

The 787 GE Pip II Engine Ices.

Waiting until the press storm ceases on the GE engine icing found on half the flying 787 flying has been a tedious read. I found one article that articulated the problem where the other 99% of the articles were touting the FAA pronouncement. 

Ainonline photo 2012  GEnex 1B-Pip II


However, the fix was in before the FAA declared the urgency to fix. Boeing had already pushed GE towards making the engine flaw safe. As is understood by Winging IT, engine icing occurs with the PIP II GE 787 engines, because of fan blade clearance from its engine housing by about a 1/10th of an inch around its circumference. The fix already started before FAA issued its latest engine demand had been installed on about fifty aircraft. 

Photo by Aviexmax:  Note the black and silver fan blade almost touches inside diameter wall. FAA directive increases housing diameter by fractions of an inch, allowing a larger blade tip to wall gap which will prevent any known icing.

It is presumed, this fix is for widening the tolerance by greater than 1/10th of an inch, mitigates any future icing situations. The current internal procedure is for the pilot to administer thrust increases every five minutes and blasting out any ice build up until the "Blade Gap" is open. The technical fix is for making a larger gap which would diminish performance somewhat, but eliminate the occurrence of ice buildup entirely.

The fear is an obvious potential for a two engine shutdown placing a real and imminent danger under certain conditions. Even one occurrence of a two engine 787 shutdown from icing, is catastrophic for everyone, so the FAA has pushed out an "all hands on deck" call (bulletin)  for fixing this problem. Everyone is now aware, and every aviation 787 customer with PIPII engines is demanded by the FAA for making a remedial fix by expanding the blade gap from the engine wall at a prescribed safe distance. The time slot for this level of urgency is about 120 days from now. This time allotment for a fix suggests the 787/GE engine is sound, but has a critical weakness under random conditions which raises the risk bar too high for the flying public.

The solution can be completed by two methods. 

·      The ready solution is mounting at least one PIP I engine type out of two engines on a 787.

·      The second solution requires grinding down the engine opening casement to recommended "fix" diameter, giving the blade clearance and ample space for not allowing any ice build-up.

The "fix" will affect overall fuel performance by a small margin. The problem could have not been prevented from the usual testing regimen, but any future engine development will of course test specifically for this condition when finding the optimal performance package for this type of design. The FAA's due diligence after an incidence is what matters for all the people using, building and designing aviation as it advances. Thank you FAA!!

The F-22 and F-35 Currency

First there was the F-22 Rapture and then came the F-35 Lightning II. Sounds like a plan G-man. However, as often as G-man plans don't hold together, the F-22 (the world's most advanced fighter at the time and some say it’s far better than expected) have too few flying in number. The total comes too only 186 in service. Each has a cost of a troubled Littoral combat ship. The sentiment is not to send the F-22 into conflict unless absolutely necessary and only upon the survival of this nation.

However, a funny thing happened. A few of the F-22 did get away to a combat zone (Iraq/Syria), and surgically lay waste to battlefields. With a few in airshows and military exercises, a honing of the pilot's skills was mastered for what the F-22 offered. The pilots had just to learn what and how the fighter fit its role. The engineers at home had to "adjust" its systems. The maintainers crafted its F-22 skill set. The F-22 became an aircraft the US could not live without. It is stealthy, it is fast and it is powerful!

Then came the F-35 as it was scheduled to fill all the military's roles in all fields. Army, Navy and Marines had skin in the game. There were not enough F-22, but there certainly would be enough F-35's. The government woke up to the fact that a much slower F-35 and a less maneuverable fighter may have to fight in a war while not playing stand-off duty from a hundred miles out. It may have to get in there and go dirty with somebody in the near future. Some nations may have the F-35's number. Add 3 and 5 together and it's an 8, and it is somebody's lucky number.

Now we come to the main point of this opinion. The government didn't destroy the F-22 tooling, its production capacity or its internal ability for making the F-22. It kept everything F-22 as an insurance policy. At the end of the F-22 production run, the G-men and women sought preserving program viability in the file case. They got it all and guess what? The F-22 review has come out of the file and is now up for assignment like an Air Reserve Force. The US government has learned many lessons since F-22 production ceased. New weapons, systems, and a lean build technique are available that were not available at the close of the F-22 production run. The always improving bug has bit the F-22 program. Congress is looking at building 197 more F-22's in the next decade. The study is a cash based feasibility report. How much would it cost if the US Government opens the F-22 production and what could be enhanced coming from the F-35 program transferred the F-22 capability?

Important currency questions. The F-22 plowed the way for the F-35 and now the F-35 can give back to the F-22 if it reopens its production. The F-22 could do all the best of the F-35 capability in an F-22 shell. The R&D is almost complete enough through the F-35 and by the time the F-22 starts a production rerun, technology transfer back to the F-22 would be a great currency move. The F-22 was scheduled for a 750 fleet of aircraft, but money constraints had reduced it to only 186 fighters. That is a mere shadow of the original vision. Military forces around the world have made strides towards the level of the F-22 as the F-35 stumbles along. The confidence for F-35 fighters slumps to inferiority fighter rather than superiority fighter. Money has run out long ago for the F-35 vision and now congress is calling for an F-22 lifeline on its question. Can the military show this nation it has air superiority chops in close combat with the F-35? 

The problem arises when the assumption for air battles will be all stand-off battles. What if the adversary does not achieve a high level of stand-off capability or does not have satellites in space. It will fight with what it has. A very capable close-in dog fighter where the F-35 lacks and the F-22 exceeds. It now comes to the mind of many a planner the US needs the two layers of capabilities. A fighter for close encounters better the F-16 and a miracle worker coordinating the battle air space. The US needs a left hook (F-22) and a hard right Jab (F-22). The only problem at this time is money.

The budget builders of the military need to convene on how important is the F-22 since it started service and how long can it wait for the F-35 to reach Initial Operational Capability (IOC) maturation? Every talking head says the Marines have IOC and the Air Force will have IOC by years end, and the Navy is coming along just fine.

The problems for the F-35 are legion at this time. The program is moving forward at a rate where for every solution accomplished within the program is overcome by new advancing problems coming from the next block of R&D phases when it has identified a new set of problems. This will continue to infinity and beyond. The F-35 needs to demonstrate a block point eliminating all open issues and not straggle the program like a Napoleonic Retreat from Russia.

If Congress does decide on the F-22, for two hundred more for production, as it was always planned from the file cabinet, then it will take 300 F-35's out from 2,400 it now plans. The question for all strategist is... Do you want 300 more F-35's or two hundred more F-22's? A second question for the producers... can you deliver the F-35 up to its initial vision when the project was first initiated?

My own answers are steeped in a bitter bias for the F-22. It needs about 400 in supply to use often in theater. Having a 186 unit fleet of F-22’s suggest it should only be used as a last result because of the few numbers available. Every frame counts. IF those frames are lost in combat, then the nation is in grave risk. Having double the number with upgraded technology will keep this country at an advantage for defending itself. Many may say the F-35 could do it all but the F-22 can do it at this time at a fast and stealthy pace.

Merrill Lynch's Pit Party

Holly Batman, it's a cow, Robin. Merrill Lynch proclaimed Boeing's $29 billion money pit, a pit too deep for its 787 program. The analyst have decided a little money here, and a little money there has become real money. Its analysis of a pit too deep will be impossible for Boeing to climb out of during the current block of 1300 787's going to market. Hence, it gives a downgrade. All this means is Boeing is at risk for achieving a goal of profitability within its 787 program. The limited scope view has consumed many bullet points leading too few remaining bullet points to do otherwise but downgrade Boeing's 787 program results. Thus making Boeing stock a "Bear" risk predicated on things not unforeseen, but only on things foreseen.

Things Foreseen comes from The 787 Money Pit:

·      Not enough sales for overcoming the 787 Money Pit remain on the book. 

·      The 1300 787's is a profit no go.

·      Boeing expansion programs for other aircraft types does tie Boeing's financial hands.

·      Boeing sales for the 787 program has permanently flattened. 

·      Airbus has absorbed the remaining wide body market before Boeing achieved its 787 sales goals.

Things unforeseen may yet to occur:

·      The market's natural expansion expands Boeing's 787 sales portfolio by 500-787's in ten years.

·      Boeing will manufacture its way out of the 787 Money Pit by upping monthly production.

·      There will be no show stopping glitches on its succession of programs (737 Max, 777X).

·      The A350 is way overrated and it loses more orders.

·      Boeing pricing is allowed to increase over the A350 order slowdown. 

The truth is somewhere in between the foreseen and unforeseen. A stock market strategy may exist for first waiting and then seeing when to sell from one’s own market position, and then buy again when the light at the end of the money pit is turned on. Currently Merrill Lynch sees the lights have been turned off in the 787 Money pit. 

As always it becomes a risk and an investor should use best information at the time of any financial decision. However, there are both positive and negative points for Boeing stock related to the 787 program at this time. The Merrill Lynch rating states an obvious stock condition while using its best information for its conclusions of the Boeing stock valuation. It does not include a rating based on unforeseen conditions as would a Winging It assumption is often made.

Parts N Stuff Delay Airbus in Pursuit of Boeing

Remember when Boeing had parts issues then battery issues and so forth. Well Karma comes around as a self-predicting outcome even for Airbus as it houses 24 NEO's and a half dozen A350's within its vast holdings in Europe. The tight dogfight between Boeing and Airbus suggest Boeing will once again out deliver Airbus during 2016.  The parts bin and technological development has stumbled Airbus into a P&W standoff for single aisle A320's as newly run A320's sit idle awaiting its PW engine upgrades.

The ticking clock will build its parking lot into a massive headache. Boeing lined up its unfinished 787's outside on Paine Field until moving some into Change Incorporation and Re-work warehousing. They have just cleared the last of those obstinate first builds from the rain swept tarmac since 2011. Five years later Airbus becomes a lady in waiting and waiting for seats, parts and engines.

It will skew the Airbus cash flow and dash another year for its hopes of becoming the world's largest airplane maker. Two different continents two different results tests the respective airplane makers on how they handle the hick-ups. Boeing has cleared its forest of problems from the last decade. Airbus has just entered into the "issue zone" during a time of critical order making for both giants. Any delay with delivery can handicap Airbus during this year and it has already during the first four months of 2016  made it impossible to catch-up with Boeing as it has already hit its stride of twelve 787 a month production pace. Next time Boeing increases single aisle production, it will be at a 47 airplane a month rate.

Boeing has made it the key talking point of its strategy making more airplanes than its competitor. It realized during 2010 the NG series needed a production change since it was losing sales to Airbus from a pure backlog point of view. They sought a level of backlog that would benefit the customer ordering pattern within a customer's five year plan. Both the 737 and 787 backlog fell outside this five year window causing the wait time to be a critical part for gaining additional sales.

Airbus has already begun a reaction with Boeing's production onslaught and has set its production goals upward meeting the demand within a relative time frame for its customers. The problem for Airbus that its own supply chain is having teething woes, not the Aircraft. The critical moment is 2016. Airbus needs to sort out game changers like seats and other critical parts in order to compete with a fully operational Boeing production stream. 

The production forecast is as important as the ordering forecast as it will give opportunity for its customers if delivery matches market demand. This is a long held observation in the dynamics of production and sales relationship. Henry Ford first mass production of its automobile made production the key selling point for its Ford motor car. A customer didn't have to wait and it could own a car meeting a superior standard in a short amount of time.

Boeing referred back to the industrial age early in the 20th century. Build it just in time, creating cash flows and advancing efficiency at a higher rate than its competitor. Airbus is struggling at this time five years after Boeing struggled and now the comparison will be if Airbus recovers faster than Boeing did during the next five years.