The pre-eminent Chinese
air show kicks off next Tuesday in Zhuhai, and both Boeing Co. and
rival Airbus are expected to take some new orders. What the new orders
may obscure is the difficulties both companies face in the medium
wide-body class, where Boeing’s 777 and Airbus’s current A330 are facing
some near-term issues.
First, the good news. Airbus is said to
be in talks with China Aircraft Leasing Group for as many as 100 A320
narrow-body jets in a deal worth $9 billion to $11 billion, according to
a report at Reuters. Airbus could also firm up previous commitments for
70 A320 family jets that were ordered by China Aviation Supplies Group
after Airbus agreed to build a completion center in Tianjin for the
company’s A330 planes.
Boeing has told institutional investors
that it plans to announce orders at the Zhuhai show, but it may wait
until the last day of the show, October 16, when President Obama arrives
in China for a regional summit meeting. Aircraft industry analyst and
consulting firm Leeham tells us what to watch for:
[W]hatever
deals are announced, carefully watch whether they come out of Boeing’s
huge backlog of Unidentified customers or whether these are new,
incremental deals. Boeing has more than 900 737s listed under
Unidentified. There are 25 777s in this category.
The key
here, according to Leeham, is Boeing’s current version of the 777. If
new orders simply move unidentified buyers to the confirmed column, this
is little help to Boeing’s production of the 777 while it gets to work
on the replacement 777X.
ALSO READ: Boeing Boosts Earnings Outlook as Backlog Nears $500 Billion
For
Boeing, the 777 is in many ways more important to the company than the
headline-grabbing 787 Dreamliner, and for Airbus the current A330 plays
an equally significant role. In fact, Leeham expects Airbus to produce
more medium wide-body planes than Boeing by the end of 2017 and to
maintain that lead into the early 2020s.
Boeing is currently
building about 100 777s a year (8.3 per month) and the company insists
that it needs just 40 to 60 new orders a year for the 777 in order to
maintain that rate of production. That also assumes a 100% conversion
rate of options and letters of intent to firm orders.
Airbus has
similar problems with the current version of its A330. The company has
already announced a production rate cut from 10 per month to nine per
month beginning in the fourth quarter of 2015. That could drop further
to seven or eight planes a month before the new A330neo is delivered
late in 2017 or early 2018.
By the time Boeing begins production
of the new 777X in 2020, the expected decline in production of the older
777 won’t be made up in the medium wide-body class until at least 2022.
Unless firm orders for the 777 rise and permit Boeing to build to its
current production rate, Airbus will be building more medium wide-bodies
than Boeing in 2017 and will stay on top for at least five years.
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