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31 August 2016 · 3 min read

Boeing struggling to meet 2016 orders target

Is the 777 going the way of the A330?

Aviation Week last week published data that suggest Boeing will struggle to meet its widebody order target in 2016. It appears the American aircraft manufacture is suffering from the same phenomenon as its European rival Airbus where sales of the legacy A330 dropped sharply once the newer and more fuel efficient A330neo was an option. Boeing has only booked 8 orders for the classic 777 in 2016, due in part to the re-engined 777X which is due to enter service in December 2019. So what is happening and is this cause for concern?

Aircraft order numbers for Airbus and Boeing create striking headlines but are not generally seen as material for the stock because they fluctuate month to month. However, in 2016, the data clearly show that Boeing has only booked 18% of its targeted widebody sales for 2016 (38 out of 211). Aviation Week reports that Boeing is expecting 88 orders each for the 777 and 787, but so far they have secure only 8 and 19 respectively.

We know there are three specific issues which have negatively impacted orders this year. Firstly the completion of an expected Emirates order has been slow in coming to fruition. Secondly Turkish airlines, who it was hoped would place a Boeing order this year has been affected by the attempted military coup in Turkey. Thirdly, the large order which would recapitalize Iran Air’s fleet, provisionally including 34 Boeing widebody aircraft is facing barriers in receiving US Government approval. In addition, the low oil price is driving some airlines to keep older aircraft in service for longer. It must also be acknowledged that the current order backlog – 6815 aircraft at Airbus and 5693 at Boeing(c. 11 years of production for both) – reflects that airlines who require a new widebody in the next decade are likely to have already placed their order.

However, the lack of 777 orders is still notable. Boeing has openly admitted that it needs 40-50 orders per year in order to bridge the production gap to the 777X at the end of 2019. It therefore looks likely that Boeing’s legacy 777 programme will suffer in the same was as Airbus’ A330, where the production rate was cute from 10/month to 6/month in the space only three months, and pricing suffered in an attempt to win new orders. Both of these issues have negatively impacted Airbus’s margin. Whilst Boeing’s contract accounting obfuscates the picture on this, the impact will be seen in the cash number. As at Airbus where these issues occurred during the highly cash consumptive phase of developing the A350, Boeing will be trying to weather this storm whilst developing the 777X.

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