Sunday Morning Boeing Read

Occasionally, Winging It stumbles upon something interesting in the written press worthy of separate attention. Today an article has reached that thought provoking standard coming clear from London England's, "The Telegraph".

Photo from Seattle Times

'It doesn't matter who is flying higher out of Airbus and Boeing – as long as they are both healthy'  by  Alan Tovey  15 JANUARY 2017 • 8:44PM

The link above proposes what is the best position whether to book orders at some enormously discounted price or build said airplane at some enormously costly venture?

World's largest airline builder becomes lost in the numbers. Are "we" big because we sell more discounted airplanes or our "we" big because we deliver a greater volume of aircraft? The two edge market sword is discussed by the Telegraph. An investor should not look at the size matters equation like its an A-380 double-deck, but should look at the over -all proposition for its airplane health.

As a tease here is one of the article quotes for your reading motivation:

"Airbus reported last week it had taken 731 orders worth $104.9bn in 2016, slightly ahead of Boeing’s 668 orders worth $94bn. (These are list prices: manufacturers offer hefty discounts to secure sales)."

Boeing's Financial Backlog Shrinkage

A little publicized topic in the financial press world is how much has the built value shrunk or increased? In Boeing's case it’s on a slide using the Book to Bill measures for determining the future health of its backlog versus the production pace. Billing or the delivered aircraft is the economic engine driving long range aspiration for any company.

The booking factor is the level of fuel in its tank for the journey. Currently Boeing delivered 115 billion in aircraft during 2016 and booked about 92-94 billion at list prices. Thus sinking the backlog by another 11 billion dollars at list prices for both orders and delivery.

Fortunately for investors the airplane industry is known for cyclic surges for booking and billings where deliveries are more constant than orders. When Boeing maintains a production and delivery pace of about 748 aircraft it must sell about 748 aircraft for backlog replacement in both number and value. This year it shrunk numerically the backlog by 80 units’ over-all. It can be a healthy numerical reduction but it could also indicate it has a thin margin for production goals from having too small of a backlog. The question is, what is the optimal backlog for an industry for assuring financial success?

At this time, Airbus has increased its single aisle backlog beyond a reasonable production capability for its division. It also has a finite duo aisle production future having a static wide bodied order book. Boeing on the other hand is rapidly reducing its backlog while generating cash from its production surge. In time Boeing will need big ticket orders in number and value recovering its lost backlog. The Boeing strategy is two-fold. Give the customer’s timely deliveries and they will order more. Secondly, inflow the cash for building an array of new aircraft for which the customer will again order more. Once again orders are the fuel for the delivery engine and Boeing is running at half tank. 

Airbus has a full tank and sluggish A350 delivery engine. It becomes complicated sorting out whose correct in this situation. Having too little or too much backlog. A smaller backlog reduces production and reduces cash inflows. An over abundant backlog becomes a customer concentric inefficiency and indicates lost financial opportunity for Airbus. 

Somewhere in the middle of all this is the optimal position for any manufacturer’s backlog and production capability. Boeing has run its backlog to optimal without having a strong forecast for orders but this can all change with orders from one airshow.

This is an opinion and does not suggest investment advice for either mega builder of aircraft. The main thing is that both builders find themselves wrestling with different problems before reaching a condition of having the perfect backlog stream of inflows and outflows in a very inconsistent booking market.  The only thing certain is the capability for delivering aircraft at a constant rate. Airbus is struggling but recovering with its production rates as its backlog grows beyond a customer's liking.

World's largest Airplane Builder Is....?

Boeing once again is the World's largest airplane maker and here is the Winging It data from the both framers, Airbus and Boeing: More comment to follow on another post. List prices used as basis.

Data wars below shows Boeing having more units and value at list delivered than  Airbus.

Fig. 1

Fig. 2: Sales Using Best Information becomes an estimate only as both framers keep actual dollar values internal to its accounting.

The F-35 May Undergo Adjunct F-18 Therapy

Everyone who follows military things knows the F-35 costs are too high and the F-18 may lack F-35's multiple attributes. That isn't a bad thing. The F-35 in military parlance, needs a "Wing Man". The F-18 is auditioning for that position. A "wing man covers another aircraft's blinds spots. In this case its money and development failures over the last years. Some think the F-18 is a mission missile that will bring down the F-35.

President elect Trump is swinging his pre-inaugural power using the F-18 as a tactic to bring down cost by suggesting a competition between the two. This is a brilliant idea where a test of the best on best settles why America should spend so much money on the F-35. The outcome of the tests should put naysayers back on the road out of D.C.

The F-18 makes a brilliant wing man. The fourth generation fighter is needed to mitigate the risk of spending so much on something unproven in its whole of concept. It can defeat all known adversaries, not withstanding any new stuff Russia and China are musing with at this time. The F-18 is a force multiplier of the F-35. The F-35 Multi Costs Fighter enhances all fourth generation fighters found in the US arsenal by making them into Multi Role Fighters. The US should not diminish the F-18 capabilities by canceling the F-35 program. President elect should know this and if he doesn't, he is missing the point.

The US will build a better F-18 by partnering with the F-35 in airspace. Most of future conflicts can be won with the F-18 on its own and it will only win all conflicts as an F-35 Wing Man. Both are needed as layers upon layers of defense are needed. The F-18 is needed to transition the US from dogfight conditions to the F-35's battle space capability while it becomes a command and control monster. The day will come where the F-35 is capable of all it has promised, but it needs a bridge getting there using a fourth generation knife during a fifth generation gun battle.

The Iconic 747 Gave Us How Many Seats?

The 747 was an over built giant that determined how many seats is needed for almost every route it flew and sometimes on routes it shouldn't fly. Its 400 seat range on four engines, sometimes didn't fill up the cabin for the fuel that was loaded, and then airlines wanted something better by going with less than 400 seats on just two engines. Then came the wide bodies. The 777 and 787 were more fitted for having less than capacity of tickets on routes that sometimes would become awkward to the financial bottom line. By having twin engine mid-bodies, the empty seat risk on having a four engine 747 was averted. First the 777 XWB and then the 787 came to the rescue, and now United Airlines will retire its 747's in 2017.

The two engine vs four engine and the 250 vs 450 seat strategy is settled. Some like it cold and some like it hot. There is a time and place for the right size and a seat number on every route, and every situation while not cramming 550 in an Airbus A-380 with so many is not the answer, and was a bad business decision because the 747 already answered how many seats is needed.

Boeing as an irritation and a stumbling block for the A-380, introduced the 747-8 on the cheap since it wasn't a clean sheet design and didn't experiment with new technology, but used the already proven and "paid for" 787 technology. The A-380 though, was a clean sheet design trying to beat a 1960's Boeing Idea, the 747.

Boeing had long researched out how many seats for a given route is best for a customer and came up with... well what they came up with was a twin engine wide body. Then United Airlines just announced its retirement of the venerable 747 during 2017. Perhaps this is the customers answer to Boeing's decision of faking out Airbus and then it stumbles into Boeing's trick of playing off the Euro's arrogance when it builds the world’s largest at something. 

Billions invested in the behemoth and so few on backlog. In fact there are more A-380 cancellations than orders over the last few years.  So many Airbus orders lost is an unintended consequence played out when introducing the 777X and the 787. Maybe Boeing research was right when planning only 250 seats taking off twice a day giving passengers a choice of when to depart and having so many choices of where to fly. The common sense of it all beats getting-on only once a day during rush hour at unprepared terminals.

The seat spot was not consulted with when conceiving the A-380 own conventional wisdom. The 747 already had explored the seat potential and then encouraged Airbus to keep up the good work when announcing once again, its 747-8i. At that moment, the A-380 was doomed as Boeing mopped up all its leftovers the Airbus clan had hoped to capture. It lost the freight concept to the 747-8F. It lost out to Boeing customers who would rather not have a double Airbus on the side. It just lost out when pushing forward with some sort of mental momentum, and now this, United retires its 747's!!!. The B team, "loves it when a plan comes together". The newly renamed A-380 relishes in its moniker, "The White Elephant". The soon to be renamed concept, "night-mare liner" reaches the Airbus bottom line as it can't complete its current backlog. 

Most books count 319 A-380's ordered and it has delivered 200 of its type. The backlog stands at 119 by most books tracking this disaster in the "making". The 747 smiles on, "Been there, seen it, and done that". It’s so 1970's, Airbus you rascal. Perhaps Airbus is a quick study since they came out with Rolex (Rolodex) knock-offs called the A-350 800, 900, 1000,1100, 2000, "getting the picture of what it looks like to grasp at straws". An American Indian customer named, "Tonto", would not trade for plastic cutlery like the A-350, kemosabe.

Wikipedia:

"Ke-mo sah-bee (/ˌkiːmoʊˈsɑːbiː/; often spelled kemo sabe or kemosabe) is the term of endearment and inventive catchphrase used by the fictional American Indian sidekick Tonto, in the American television program The Lone Ranger. ... In the 2013 film The Lone Ranger, Tonto states that it means "wrong brother" in Comanche." 

Airbus has underestimated Boeing at every turn with its own air of incompetence. Meanwhile back at the Boeing ranch, United Airlines will receive more 787-9's this year and the 747 makes room on the flight line by retiring. Having your seats in a row before you build something, is more important than just being big.  

"Winging IT" Scrapbook Redux

Going back almost four years is an exciting adventure. The Earth Wind and Fire edition is poetic and so seventies, it has become a classic assembly of metaphors put to music coming from a Chicago theme.

Redux: May 13, 2013

787 Returns On Investment Earth Wind and Fire Edition

Who Let The Bears In The 787 Room??

Perspective is the operational word for 2017. A point of view is for the coming of a wide bodied order downturn. This perspective have sent the 787 bulls to pasture. Forbes reports that the 787 market may enter a diminished order season going forward. They are correct on several fronts.

By Hassan Ali on Apr 20, 2016 at 12:54 pm EST

·      Elongated time for low fuel prices.

·      Scarcity of long range routes

·      Making other under preforming financial investments within the micro markets

The fuel price commodity has troubled the immense expansion for buying wide-bodied aircraft when a customer can purchase and refurbish the last generation aircraft such as the 767 or the A-330 instead of buying the 787. Those older frames have life and can make money before they must land or before falling out of the sky from aging. The airlines can fly the cheaper way consuming low fuel prices without using an immense capital outlay for its fleet. The debt servicing is considerably less for older and prior generation aircraft than a 787. Secondly having its largest operational cost reduced, coming from low fuel prices, is an opportunity for airlines to mop up profits during this cheap fuel period. How long the low fuel cost remain is how long the wide bodied bear market will last.

Airlines who rushed to fill long range legacy routes and newly created routes because of the aircraft's extended range capabilities, are now in thin company with having few remaining opportunities. After Boeing has delivered 500 of its 787's, the long range route availability disappeared shrinking opportunities. As exampled by "Etihad", who has already gathered up the Gold nuggets laying on the ground found in the market place. It still has a huge backlog of undelivered wide bodied aircraft and is considering deferrals when managing its impending inventory. The collective mindset from prognosticators, "the market is slowing but will come to stop by 2020". 

The reality of that position is very apparent, but does not take into consideration other innovative decision making from the airlines. One condition exists from the above paragraph's comment. The age of the newly renovated prior generation aircraft will have to retire close to the time the time fuel prices begin to rise, and demand will then return with a full force for hundreds of wide-body orders.

Forbes Quote: "Etihad has 61 outstanding 787 orders, the highest total for any carrier. Etihad has been investing heavily in other airlines, which have continued to lost money.  “We hear the ‘D-word’ (deferral) surfacing with Etihad’s order for 787s,” 

Hamilton writes:

"The second and third biggest customers are Aeroflot with 22 orders and Norwegian with 19. Hamilton says Aeroflot raises questions and Norwegian is engaged in very rapid expansion Some other customers are from troubled areas of the world."

Some airlines have taken aggressive investment schemes when buying out weaker performing airlines or ancillary businesses in hopes of expanding its market share. At this time that strategy is back firing in the current slowing of the market. This condition is sopping up hundreds of millions of investment dollars and weakens any airline's financial ability for making new aircraft acquisitions. Once again, "Etihad is a good example as it has mopped up investments for its "other" ventures costing millions where it has not produced the desired outcome of profitability coming from those types of investments.  The "micro market" with this definition, is a market composed of different airlines who is a customer of the giant manufacturers such as Boeing or Airbus. The macro market is a Boeing Manufacturer who represents a worldwide supplier for all airlines.      

Many airlines are now taking a more cautious approach towards buying wide bodies at this time due to low fuel pricing, opportunity, and financial resources. The trend line for both Boeing and Airbus "wide bodies" is going flat and will recover after 2020 which is a little more optimistic than the Forbes article. The premise coming from that opinion is the wide bodied market stalls in 2020. 

Winging It is looking at other aspects in play, where older equipment which is being worked during this fuel price down-turn period will begin to be retired by 2020, and the lack of availability of prior generation aircraft will cause the purchase prices on that class of aircraft to increase. A market condition will exist forcing airlines to change its business strategy where the 787 comes back into prominence. The market pressures causes a different business model which would include buying new 787 types of aircraft after 2020 and beyond.

Over the next three years Boeing will too have market pressures coming to them in a macro sort of way. The will (must) address the MOM issue once for all and the sooner the better. Boeing needs a complete family of aircraft it has divorced from so long ago when it dropped the 757 and the 787-300.

Having a MOM model line in place will fill the demand for the next ten years regardless of the micro market antics. It will become a replacement aircraft for all those aging and renovated prior generation aircraft after 2020. 

Finally, Boeing needs to react during 2017 as if the fuel prices "never" increase or financial cycles will swing as often as recessions occur. The routes found in the middle of the market are so numerous it would be near impossible to keep up and fill them all even during a soft economy. The wide-body segment has a very sensitive risk exposure going forward where the slightest change in that market can immediately affect it for some time going forward. The MOM position is more risk adverse than the Wide Bodied class. Take a few market risks (enumerated by the above bullet points) off the table and then a robust buying spree begins again for the wide bodied aircraft segment after 2020.

Boeing 787 2016 Numbers With January Update

Boeing has posted its numbers for all of its commercial types and this “Winging It” segment features summary 787 score card with Boeing data. Earlier on January 1, 2017 a similar post charted a pre Boeing 787 summary as a guess on what the 787 book would look like, however with Boeing's reveal of 2016 here is the updated summary for the 787 program starting in 2017 and closing 2016.

Fig. 1

Pay As You Go F-35

Ever wonder how many F-35's are delivered in total? "Winging It" has and it has come down to a very convoluted and confused process. The military would rather not have everyone know how many F-35's are flying at any one time but there is a back door going through appropriations or contract signings in which an interested party could surmise the flying count and mark the progress of the F-35 program as a whole. 

Below is the Low Rate Initial Production (LRIP) contracts and count basis by the year, where assumption makes the case for flying copies of the F-35 (A,B,C versions).

Winging It Table from various sources:

Fig. 1

The notation comes with several assumptions applied to the end count of 2016. One assumption asserts Lockheed continues building the F-35 without ever stopping for contract approvals. This is done with stop gap payments from the government to Lockheed for the reason of maintaining an efficient program where a stoppage would cost the government billions more to restart the program. With the Government own cost estimations imposed on Lockheed. LRIP 9 was a force on the contract by the US Government. It is difficult to actually know the 2016 production count with LRIP contract uncertainty in play.

However, when LRIP 9 was signed the table assumes that those units proposed have been built and delivered. LRIP 10, is another story and is the biggest LRIP bundle to date having 90 coming from all types. It is certain Lockheed has not as of yet delivered any of those LRIP 10's. It should be the last LRIP contract before high rate production begins for the F-35.

Waiting on Airbus Before Commenting On Its Use of Whiteout

Boeing unleashed a barrage of numbers today. The key numbers are the order book value and the Delivery Book Values. Before mentioning those numbers it is important to note...

Winging It calculations*:

668 net orders (92B)

748 Deliveries (116B)

*List prices are used where actual prices for each purchase in not available at this time. Typically the actual price can be up to 50% of list prices and is used by both Boeing and Airbus. Using list prices for calculation makes it an apple to apple comparison.

The billions in deliveries concern stockholders today and the orders today concern stock holders of the future.

Winging It is working out those numbers with a grand chart of both categories using Airbus as a comparison.

The net delivery billions and units numbers will determine the world's largest manufacturer of aircraft and once again it seems to be Boeing all the way.

Not withstanding a generous application of white out Airbus can hope to breach the Boeing bragging rights.

Fox news tends to cipher a $98B billion delivery total.
Winging It came up with 116B using available List Prices".

The order in dollars totals are also a guesstimate and Winging IT will provide its usual list price "estimation". The main thing is that estimations are in play until final exclusive income statements are revealed by both giants. "White out" will follow soon after each will compare to one another. Numbers will change according to promotional information needs of each other. A whole staff meeting will occur making out how one loses and the other wins in the game of World's largest. Boeing has Airbus in the bragging jail house at this time as it cannot and will not come close to Boeing's delivery quantity of 748 units. 

Boeing delivered enough of its high priced wide bodies to bury Airbus in the 2016 round of value. Both had respectable and close single aisle numbers, but the wide body arena is where Airbus lags and will continue to lag for some time into the future.  Airbus will not breach fifty A-350's during 2016. Boeing exceeds with 137 units of its 787's during 2016.  That number gives Boeing an almost 22 billion dollar advantage over Airbus' paltry $10 billion delivery of its A350 during 2016. That extra 22 incremental billion Boeing has over Airbus will show up somewhere in the book-keeping department. The big question can Boeing keep this up for the next five years?

If orders continue to trickle forth from Boeing customers it will drain the Airbus back-log before the A350- delivers its first five hundred A-350's. Airbus has a dismal wide body order book in the last three years coming after the initial order surge when the A-350 was first announced.

The Boeing four corner offense from basketwork fame in the past century was dominate as the single aisle competition can only manage a tit for tat game going forward. The wide bodied market place is slowing and it will hurt future aspirations for both Airbus and Boeing has going forward. Boeing can and will milk the clock until fuel prices rise.