Boeing, Airbus Face Critical Months Leading into 2017

Boeing and Airbus each face their own sort of challenges leading to the end of 2016, as the U.S. airframer looks to win enough ongoing 777 sales campaigns to maintain that model’s production rates and the European company scrambles to accelerate deliveries to meet its overall target of 670 and last year’s earnings tally of €4.1 billion.

During its third-quarter earnings call with analysts last Wednesday, Boeing CEO Dennis Muilenburg again raised the prospect of a decrease in 777 delivery rates in reaction to continuing market “hesitation,” notwithstanding October’s deal with Qatar Airways and that raised this year’s net order count for the existing 777-300ER from six to 16. Now building 8.3 of the twin-engine widebodies per month, Boeing has already announced a rate reduction to seven in 2017 to compensate for weakening demand for the legacy 777 as the company prepares to transition production to the new 777X.

Muilenburg said the company would need to win several more campaigns over the coming months to maintain the seven-per-month production rate, which effectively translates to a 5.5 airplane delivery rate with its plan to “fire blanks” down the line as part of its “Lean” implementation and dedicate some airplanes to 777X flight testing. He assured analysts that any further cuts would not go beyond “one or two” airplanes per month, meaning the company doesn’t intend to drop below a delivery rate of 3.5 per month in 2018.

The CEO noted that assuming a continuing delivery rate of 5.5, Boeing has already sold 85 percent of its slots for 2017 and 60 percent in 2018. “We painted a number of scenarios around that baseline for the future,” he said. “One of those scenarios would be to take that baseline plan and drop it by two aircraft a month in 2018. If we were to do that, with no additional sales, we’re already more than 90 percent sold out against that profile, that skyline, in 2018.”  

While Boeing considers the prospect of slowing production, Airbus faces pressure to complete enough airplanes in the fourth quarter to meet delivery goals for this year. The company must manage heavily “backloaded” A350 and A320 production lines as it continues to struggle to unravel kinks in its supply chain.

To meet this year’s 50-aircraft delivery goal for the A350 Airbus would have to ship 24 airplanes—nearly as many as it has delivered since Qatar Airways took the first production example in December 2014. Speaking during his company’s third-quarter earnings presentation, Airbus Group CFO Harald Wilhelm nevertheless expressed encouragement with the progress Airbus made on the A350 program during what normally proves a slow late summer/early fall period. Further challenges involve the A320neo, more than 20 of which awaited installation of their Pratt & Whitney PW1100G engines at the end of the third quarter, said Wilhelm. Although Pratt & Whitney has found a solution to the “rotor bow” problems that led to longer than acceptable restart times, PW1100G deliveries remain behind schedule, leaving Airbus with a disproportionate delivery undertaking for the fourth quarter and the prospect of further backloading next year.  

In all, Airbus plans to deliver 670 airplanes by the end of the year, including more than 200 aircraft in the fourth quarter alone, in an effort to match its 2015 year-end earnings performance of €4.1 billion. It expects the resulting improvement to offset a difficult third quarter in which it saw a 21 percent decline in adjusted earnings before interest and taxes (EBIT), from €921 million to €731 million.