Wednesday, January 20, 2016

Boeing Starts Off New Year With an Old Plane

First order report of the new year shows China leading the way.

Boeing says its new 777X widebody jetliner, expected to begin production in 2018 and enter service in 2020, "will be the largest and most efficient twin-engine jet in the world, unmatched in every aspect of performance."

A competitor to Airbus' A350, 777X could help Boeing to reverse a three-year trend of second-place finishes to its rival. And yet, while the new 777X isn't exactly "bombing" as a product, it's not necessarily setting fire to the tarmac, either.

Last year, Boeing reported that orders for its "original recipe" 777 airliner outsold orders for the upgraded 777X nearly 2-to-1, with 38 orders for the former recorded over the course of the year -- versus just 20 orders for 777Xes. Now, here in the early innings of 2016, it's already looking like last year's news may be this year's, too.

Second verse, same as the first

Boeing opened up the new year last Thursday, issuing its first update on plane orders through mid-January. As detailed in the report, Boeing has sold a total of six planes in these first two weeks -- all 777s, and more specifically, all 777s that are not 777Xes. The entire flight of six jetliners is going to Chinese carrier Air China, which, as of this moment, holds the honor of being Boeing's only airplane buyer of 2016.

Now, there's little point in following our usual practice today, and going through a rundown of Boeing's gross orders, cancellations, and resulting net orders. Right now, those scores read "6-0-6," because Air China's 777s are literally all there is to report. So today, we'll do something a little different.

When better isn't better enough

And really, the more interesting story may be Air China's decision to buy "plane vanilla" 777s rather than fancy new 777Xes anyway. Priced at $400 million, Boeing's biggest, newest 777X airliner (the 777-9X) costs 18% more than the $340 million 777-300ER's that Air China elected to buy. But this added cost buys only 7% more room for passengers (425 on the 777-9X versus 396 on the 737-300ER), and only 3% better range (7,600 nautical miles, versus 7,370).

Weighing the 777X's limited advantages against the added cost of this new-and-improved model, Air China may well have decided that the 777-300ER is "good enough" for its purposes -- and priced better than the newer version.

Timing is everything

Of course, another reason Air China may have chosen to buy 777-300ERs rather than 777-9Xes is can. As in, it can today.

To support the rapid growth of China's air travel industry, Air China wants its new planes to begin being delivered as early as this year. Even if the value proposition on the 777 wasn't already better than on the 777X, Air China may have chosen to buy original recipe 777s for the simple reason that those planes are available for delivery now, and not four years from now.

The big picture

Price, timing, plane specifications -- it's hard to say which of these factors was dispositive in Air China's decision to buy 777s rather than 777Xs. All we know for certain is that in the first weeks of 2016, we're seeing a continuation of the trend seen in 2015 -- old version 777s outselling new version 777Xes.

For the time being, that probably suits Boeing just fine, as it needs to keep its 777 production lines busy building old version aircraft until it's ready to ramp up production of the new and improved version. Longer term, though, we're going to want to see a clear trend of customers buying 777Xes in preference to 777s, as proof that the new plane is the "hit" Boeing needs it to be.

(Rich Smith - The Motley Fool)

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