The Boeing (NYSE:BA) 777X was officially launched during the Dubai Airshow in November 2013 and should enter service in 2020. The aircraft should strengthen Boeing's strong position in the long range wide body market. In order to determine the future success of an airplane, one can look at the airplane characteristics, but looking at the demand (i.e.,is there demand for this airplane at this particular time?) is also important.
The demand for an airplane depends on the success of the entire airplane family, competitors, end of life cycles of current fleet members and economic growth. In this article, I will not focus on the Boeing 777X as a product (airplane characteristics), but I will be addressing how the other factors that determine the demand for an airplane will impact that for the Boeing 777X.
Boeing's 777X series is the third generation of Boeing 777 aircraft. For Boeing and the airlines, it actually has never been a question of if there should be a third generation of 777 aircraft, but when. Airlines were and still are very willing to buy the 777X, but in 2012 Boeing delayed the development of the 777X to prevent interference with the highly successful Boeing 777-300ER.
Orders and Value
The launch of the Boeing 777X has been the best in the history of commercial jets with 259 orders and commitments worth over $95 billion. So it is needless to say that the Boeing 777X will have a bright future.
One of the reasons for the early success of the Boeing 777X is the success of the entire 777 family, especially that of the 777-200ER and 777-300ER model. The passenger airplanes of the 777 family have gathered 1350 total orders, of which 272 are unfilled. The number of unfilled orders for the entire family is 380. With a delivery rate of 100 airplanes per year and minimal order inflow for the 777, Boeing will have filled all orders by 2018, leaving a 2 year gap between the introduction of the 777X and the last deliveries of the second generation 777 models (the 777X will enter service in 2020).
So while the Boeing 777X is a big success because of the earlier generation 777, that same success is causing Boeing to have a 2 year gap since it slowed down development back in 2012 to "profit" from the success of the 777-300ER. In order to bridge the 2 year gap, Boeing is looking for customers to buy the second generation model and get rid off their old triples or Airbus models.
Looking at Boeing's backlog for the 777 and the product rate, the 777X is the right plane, but not at the right time.
The Boeing 777X itself has no competitors at all. The Airbus A350-1000 can carry a similar number of passengers (compared to the 777-8X), but falls short when it comes to range. The 777 family is facing competition from the 787 family and the A350 family. The 777-300ER faces competition from the A350-1000, therefore it was important for Boeing to come up with the 777X series. Airlines now have the opportunity to buy a more fuel efficient 777 to replace the current 777-300ER instead of purchasing an A350-1000.
The Airbus A350-1000 will enter service in 2017, while the Boeing 777-8X will enter service 3 years later. I don't think it is valid to say that the 777-8X enters service too late to compete with the A350-1000 since the 777-8X is not a direct competitor of the A350-1000, but the 777X could certainly have eaten away some of the market share of the Airbus A350.
Boeing predicts that from 2013 until 2030, there is need for 3300 new medium wide body airplanes to replace older aircraft and for fleet expansion. This basically means that the airplanes that are being ordered now will be the planes that will be in the fleet in 2030. One could say that compared to the A350, the 777X has a slight disadvantage, since the Airbus A350 enters service earlier (the Airbus A350 will have earlier market presence). On the other hand, by 2030 a lot of first and second generation Boeing 777s will need replacement, meaning that the orders for the 777X will grow due to phasing out of the older 777s.
The Boeing 777X definitely will be a big seller, so it is the right plane. But I am not too sure about the timing. In the longer term, the timing is not that big of a problem. But the 777X comes a bit too late to directly compete with the A350. The service entry of the 777X is almost 3 years later than that of the A350-1000 and 6 years later than the A350-900. Since the Boeing 777X is not a direct competitor for the A350 this is not that big of a deal, but an earlier service entry could have given the 777X even more orders. Also looking at the orders for the current generation models that are drying up, it would have been better for Boeing if it would have brought the 777X into service 1 or 2 years earlier, thereby closing the 2 year gap. The Boeing 777X - the right airplane, but not in the ideal time spot.
Figure 1: 1 Year Change Boeing (Source: CNNmoney.com)
Boeing's stock has risen by 63% in 1 year. Despite the fact that I think Boeing should have let the 777X make its appearance 1-2 years earlier, the potential of the 777X is huge. Replacement of the older 777s and the need for fleet expansion will make the order numbers grow even further in the coming years, giving Boeing a solid order book. Aided by orders for the 777X and the 737MAX, this stock could cruise even higher.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.