A Negative Trend For The Boeing 777

| About: The Boeing (BA)
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Summary

Order inflow for the Boeing 777 Classic trailed the multi-year average.

Order inflow for 2015 was far below my expectations.

The Boeing 777F might have cannibalized orders for the Boeing 747-8F.

The Boeing (NYSE:BA) 777 production gap has been the main subject in some of my articles. I concluded that between 40-60 orders, depending on the scenario are needed annually to close this gap. Since then, some variables have changed. In this article, I will not have a look at this gap in particular, but will have a look at the trends, prior to and after the 777X launch.

A Negative Trend for the Boeing 777

Order trend

Order inflow per type Boeing 777 Classic and Boeing 777X

Figure 1: Order trend Boeing 777 and Boeing 777X since 2010 (Source: www.AeroAnalysis.net)

Figure 1 clearly shows that order inflow for the classic Boeing 777 has been lacking since the Boeing 777X has been launched. From 2000 until 2012, Boeing was able to receive 75 order per year on average. Looking at the years 2010-2012, Boeing was actually able to receive those 75 orders per year. However, as soon as the Boeing 777X was launched order inflow declined sharply.

In the years 2013-2015, order inflow has dropped to 52 on average, this would be sufficient to close the gap according to my prior calculations. However, this was a back-of-the-envelope calculation that does not take into account the fact that orders need to be placed at least one year before production actually starts.

2015 was a make or break year for the program and that is also where I made a mistake, assuming that Boeing would be able to secure at least 50 orders. Halfway through 2015, Boeing secured 25 orders for the Boeing 777 Classic, but ended the year with just 38 orders. It probably is also at this point that Boeing fully understood that a program rate cut would be necessary.

Order inflow per type Boeing 777 Classic and Boeing 777X

Figure 2: Order inflow per type (Source: AeroAnalysis)

What is worrisome is the order composition in the recent years (as shown in Figure 2). While Boeing did offer significant discounts and introduced a performance improvement package for the Boeing 777, it seemed to have very little impact on the order inflow. What can also be seen is that order inflow for the Boeing 777-300ER declined sharply in 2015, whereas the importance of the Boeing 777F grew.

Although order inflow for the 777F is more than welcome, there is a risk associated to that: The Boeing 747-8 and Boeing 777 are both active in more or less the same market segment, which means that orders for the Boeing 777F might have cannibalized orders for the Boeing 747-8. Additionally, cargo market recovery has been weak, meaning that there may only be so many airlines willing to buy the Boeing 777F to keep the 777 backlog afloat.

Boeing possibly did everything in their power to sell the Boeing 777-300ER and Boeing 777F, but it was not enough. Order inflow for the 777F has been rising, but it is the question of how many of these aircraft the slowly recovering market can absorb. Order inflow for the Boeing 777-300ER has been quite good in 2013 and 2014, but was mediocre in 2015.

Conclusion

  • The launch of the Boeing 777X directly affected order inflow for the current Boeing 777 family, making orders drop below the multi-year average.
  • Share of the Boeing 777-300ER in the order inflow strongly declined in 2015.
  • Boeing saw solid order inflow for the 777 freighter, but this might have cost the Boeing 747-8 and it is also the question how many freighters Boeing can still sell in a market segment that is showing brittle recovery.

In the end, Boeing was not able to seduce enough airlines with discounts and performance improvements. A better move would have been to fill the gap using combi-deals where customers would order the 777X as well as the Boeing 777-300ER. Airbus (OTCPK:EADSF) proposed such a combi-deal to Delta Air Lines (NYSE:DAL) in 2014 and it made them win the order eventually. Boeing probably has focused too much on selling the Boeing 777X, while it could have secured some orders for the current Boeing 777 simultaneously.

Disclosure: I am/we are long BA.

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.