- Confidence and positive feedback on a Boeing 797 make Boeing 767 passenger variant relaunch redundant.
- Boeing 767 could have made sense for a small set of customers and would merely be there for Boeing to fill gaps in production where needed.
- Opening passenger variant production would be too much of a hassle with limited benefits, effort can better be put in attracting customers for the freighter and tanker variants.
With Boeing (NYSE:BA) exploring opportunities for a new passenger jet that would replace the Boeing 767, there has been a renewed focus on the middle of the commercial aircraft market, a market space between the single aisle aircraft that Boeing and Airbus offer and the wide body aircraft. Unsurprising, the development of all-new aircraft is costly and not totally risk-free. That is one of the reasons why alternatives to an all-new design have been considered as well.
Source: Airline Reporter
In Febuary, AeroAnalysis released its assessment on the Boeing 797, the aircraft that should serve as a Boeing 757/767 replacement, and alternative developments including MAX’ed variants of existing aircraft and the Boeing 767 itself. The findings have been compiled in 82-page report stretching from sales potential to cost efficiency and development costs. Seeking Alpha readers are given a discount code (25OFF) to obtain the report, which is somewhat out of the scope of what I think should be on the regular platform. Alternatively, you can join the AeroAnalysis Marketplace service to obtain the report at no costs!
In this article, I want to have a look at some of the most important reasons the Boeing 767 has been ruled out.
Low capital costs not sufficient
Basically what would make the case for a production revival would be the fact that a Boeing 767-300ER would have a low price tag which could result in beneficial overall costs. In aircraft operations there are 2 major cost components, each having smaller components. The first big component is the acquisition or lease rate and the second cost component is the costs of actually operating the aircraft. In the aerospace industry, we’re often looking for aircraft with high fuel efficiency but it is very important to understand that a very fuel efficient aircraft with a high price tag does not necessarily make for the most cost efficient solution. In the same way, the cheapest acquisition is not always most efficient either. Our detailed findings show that low capital costs for the Boeing 767 would not result in any significant cost advantage over alternative developments.
One of our key findings in the detailed report was that the Boeing 767 production revival sounds good and looks good on paper, but there is a very limited appeal from a cost perspective. Still, for some airlines the Boeing 767 could have made sense. Those airlines would be airlines with low utilization rates on their fleet and possibly low-cost carriers could be interested in the aircraft as well. It is important to understand that there certainly are airlines for which the aircraft would make sense, but for the majority of the airlines it would not… not even at steeper discounts. Given that there are other options available to airlines, reviving the Boeing 767 production is not necessary and likely not even possible in a way that drives values to Boeing.
Big carriers are liking the Boeing 797
Some of you might recall that a few months ago, I pointed out that reviving the production would make sense. Boeing now says it doesn’t plan to do so. Does it mean I was completely wrong there? No. What I mentioned is that production revival was no given and that it would require at least one big customer to commit. Worldwide, we are seeing that airlines are more interested in the Boeing 797 than in a Boeing 767 production revival. Delta Air Lines (DAL) and United Airlines (UAL) both are very positive towards a Boeing 797, which means that they are likely not interested in the Boeing 767 and to bridge the years until the replacement aircraft becomes available there are other possibilities. With big airlines being optimistic on the prospects of a Boeing 797 and the availability of other temporary solutions there is no need for Boeing to restart production of the Boeing 767 passenger variants.
Filling the gaps
The only reason for Boeing to relaunch production of the passenger variants is the backlog on the Boeing 767 program, where it does not yet have the orders to fill the available slots. It is likely that Boeing will continue selling the freighters and possibly even try selling tanker aircraft, which are likely to have more value to Boeing.
Our extensive study has shown that low capital costs are not offsetting the higher fuel burn costs of the Boeing 767 compared to a possible Boeing 797 development and with airlines having other temporary solutions to their availability and being optimistic on the Boeing 797, Boeing is unlikely to be able to make a business case since a business case relying on low-cost carriers and charter airlines would be shaky at best with pressure on sales prices and sales potential and would not be worth the effort getting the supply chain aligned.
In recent months, we have seen some airlines being optimistic on the prospects of a Boeing 797 and we think that this is also the development that Boeing will pursue. I view Boeing's decision not to restart production of passenger variants as a sign that the Boeing 797 is coming along nicely with compression in the development timeline and is being well-received by airlines and lessors.
This article was written by
Dhierin-Perkash Bechai is an aerospace, defense and airline analyst.Dhierin runs the investing group The Aerospace Forum, whose goal is to discover investment opportunities in the aerospace, defense and airline industry. With a background in aerospace engineering, he provides analysis of a complex industry with significant growth prospects, and offers context to developments as they occur, describing how they might affect investment theses. His investing ideas are driven by data informed analysis. The investing group also provides direct access to data analytics monitors. Learn more.
Analyst’s Disclosure: I am/we are long BA, DAL. 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.
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