It was an interesting week for Boeing. They have a historic backlog of plane orders, but there are questions about the likelihood all of those orders come to fruition. There’s been plenty of reasons to question the long-range health of planes like the Boeing 747-8i and the Airbus A380.
First, you had the bankruptcy of Transaero, which put a serious dent in the backlog for the 747-8i. There were roughly 20 planes on order in total between the passenger and freighter version, so a drop of 4 planes is a huge chunk. At a production rate of 1 plane per month, they’ll run out of planes to build by the end of 2016 with no new orders. Dhieren Bechal’s article contains a chart of the remaining from orders for the 747-8i:
Unsurprisingly, the US carriers are missing from this list. These planes are too big for any domestic routes and the US carriers are bulking up on planes like 777s and 787s for longer routes. With Transaero falling on the way side, I have to wonder how secure Korean Air and Arik Air are on the order book. Between the two of them, they represent about half of the remaining orders.
On the heels of Transaero dropping these orders, Delta’s CEO Richard Anderson had some pointed comments during their quarterly earnings call about softness in the wide-body market:
A glut of wide-body models coming off leases is creating an “aircraft bubble,” Chief Executive Officer Richard Anderson said Wednesday. While no deal is imminent, he said Delta repeatedly gets offers to add twin-aisle jetliners such as Boeing’s 777-200 and Airbus Group’s A330-200.
“The aircraft market is going to be ripe for Delta over the course of the next 12 to 36 months,” Anderson said on a conference call after the airline’s third-quarter earnings report. “Prices are going to get lower.”
It’s important to note that Delta’s CEO has significant bias here. As one of the primary buyers of used wide-body aircraft, they want to drive the price down. And, as one of the largest airlines in the world, they have the ability to drive down the market. His words helped spark a sell-off in Boeing’s stock. And, while there’s likely some truth to what he had to say, I think his comments go a bit further than they should have.
While neither of those stories was positive, there was news that EVA Airways (the Hello Kitty plane folks) were finalizing an order for 20 787 Dreamliners and 2 777s. I’m sure this announcement was rushed out just a bit to neutralize the dip in Boeing’s stock price.
The eb and flow of the Boeing and Airbus order books can make you a bit nuts if you spend too much time on every detail. While there’s still questions about the size of orders from airlines in some emerging markets, the bottom line is that there are plenty of orders for both Boeing and Airbus to stay healthy on right now. I’ve held onto Boeing stock for a number of years now and I’m still high on them overall.