Cash cows at Airbus and Boeing
Eyes are on Boeing over the prospect of a 777X.
Chatter doesn’t cease about the prospect of an Airbus A330neo.
Boeing is in no hurry to proceed with the “7X” and an A330neo is unlikely any time soon, if at all.
There simply is no pressing need for Boeing to proceed immediately with this program. Aside from the fact Boeing hasn’t decided what the airplane will be, officials within the company are convinced they have time to wait. Airbus’ development of the A350 is running into delays, with EIS of the A350-900 now projected for the second half of 2014 (vs mid-year). People not associated with Boeing we talk to expect a further slip of 3-6 months.
The more the -900 slips, the more the -1000 slips, as does the threat to the 777-300ER–or goes the Boeing thinking. The design freeze of the -1000 remains in the distance, and Boeing believes it can afford to wait until design freeze occurs.
Whereas Jim Albaugh, former CEO of Boeing Commercial Airplanes, wanted to take the 7X to the Board of Directors by the end of this year, we now expect the Authority to Offer request to move back by a year or maybe slightly more.
This means the 777-300ER, which has become Boeing’s headlining cash cow, can continue cash at prodigious rates. (The 737NG is also a cash cow, but margins are smaller although on much higher volumes.)
The 777 program far exceeded Boeing’s expectations when launched. Today, sales have reached 1,231 (current backlog at July 31, 349). Following the recent 6% price hike, the 777-300ER now lists for $315m. Even if one assumes discounts of 40% and a true sales price of $189m, the cost of building the airplane is much less. We believe it to be comfortably in the $130m-$150m range. With Lean manufacturing techniques now fully implemented on the line, we believe the cost is likely at the low in of this estimate if not lower.
Why should Boeing mess with a winning formula like this if it doesn’t have to?
Production is moving to a record 8.3/mo and Boeing would like to take it higher if the supply chain can feed it. At a rate of 8.3/mo, this is 42 months of production absent new orders–which, of course, will come.
Boeing, of course, will never reveal its cost of building aircraft.
Like the 777, sales of the A330 have far exceeded Airbus expectations. Sales have now hit 1,215 with a backlog through July of 318. Production is 10/mo.
Airbus currently has a list price of $231.1m for the A330-300, which is in the 777-200 category, and $208.6m for the A330-200, which is a notch smaller than the 777-200.
Airbus shows deep discounts on sales. Like Boeing, Airbus won’t actually say how much it sells the airplanes for–or what its costs are–but in May Airbus showed a comparison between the A330-300 and 787-9 to a group of international journalists and used a lease rate of $900,000 in cost comparisons.
At a lease rate factor of 1%, this rate suggests an aircraft sold for $90m. For a blue-chip airline like Lufthansa, the least rate factor is more in the area of 0.75%-0.82%. Rounding this to 0.80%, this would imply a sales price of about $108m.
Several years ago, we’re became aware of A330-200 sales prices in the $70m-$80m range and launch customer pricing for the A330-200F even lower than that. And these were not money-losing deals at the economics at the time.
Since then, Airbus has become more efficient in production, offset by inflation, but we believe margins have more than kept pace.
Airbus’ ability to sharply cut price on the A330 and still make money is how it expects to continue to compete with the 787. Willing to invest in Performance Improvement Packages (largely borne by the engine makers in any event) further enhances the value of the A330.
This is why investing in an A330neo is unlikely any time in the foreseeable future. Adding GEnx or Trent 1000 or Trent XWB engines to the airplane is far more complex than re-engining the A320. These engines are much heavier. Boeing uses iron blocks weighing more than 17,000 each in place of engines on the 787 while these are in open storage at Everett. The XWB engine is probably heavier still. Re-engining the A330 would require costly work to the engine mounts, the wings and center wing box. The stress factors might even require strengthening the fuselage center area. A center-line main gear might be required, further adding to the cost and engineering.
The A330-200 now has a range of some 7,000nm and the A330-300, with improvements announced at the Farnborough Air Show, will have a range of some 6,000nm. If airlines can acquire these airplanes for $90m or less, compared with prices being offered by Boeing for the 787 that are $30m or more higher, why mess with this winning formula?
Airbus expects to sell the A330 into the 2020 decade.