Two key developments to watch for in 2018

Two key developments to watch for in 2018

2018 will be an interesting year for commercial aviation – here are a couple developments worth keeping in mind as the year progresses.

Boeing will likely re-launch passenger version of 767

There have been rumors for a few months now that a major airline is looking to purchase 50-100 planes to replace their ageing mid-range, higher capacity airframes. A late October Puget Sound Business Journal article said Boeing is assessing whether it’s feasible for their employees and their suppliers to deliver against a large order like that, and a follow-up report earlier this month confirmed it was looking “more likely than ever.”

Boeing stopped production of the passenger version of the middle market aircraft in 2014, but has continued producing the popular freighter version (767F) and the KC-46 Pegasus, a 767-based aerial refueling tanker for the US military. The order would require them to steadily ramp up production from the current two jets a month to four by January 2021.

In November, the Wall Street Journal reported that United is behind the potential deal – they have 51 767s and 77 757s that need replacing over the next few years. Right now, there is no obvious replacement for the middle of the market jet – there is a gap between Airbus’ A321 and Boeing’s 787.  The 787s have longer range and higher capacity than necessary, and the A321s/ Boeing 737-900s don’t have enough of either. Boeing’s 797 is meant to address this gap, but it is still in a concept phase and it’ll be years before it launches (at a high cost, no doubt). This could be a serious competitive advantage for Boeing over their European rival. A few other airlines that operate 767s and 757s and don’t have retirement plans for them yet could be interested in purchasing some.

The base fuselage of the relaunched version would likely be based on the 767F (thus a -300), it’ll likely be an Extended Range version featuring longer, raked wingtips (the aforementioned article said they’ll be made from composite materials) and state-of-the-art avionics, likely from the 767-400ER. It would make sense to offer a new engine option as well, which would increase fuel efficiency. Passengers can expect the interiors to be outfitted like any new plane, with specific features varying depending on what routes United and potentially others would deploy them on.

Ultimately this comes down to Boeing’s ability to deliver at an acceptable price point. The acquisition cost of a new 767 would be 40% lower than a 787-8, the next smallest twin-aisle alternative, likely a major driver in the United’s decision to explore this with Boeing. I suspect they will restart the program.

Airbus will continue manufacturing A380s – at a loss

Its been a slow, agonizing decline for the A380, and we’re not even close to death yet – Airbus wants to continue manufacturing the plane well into the next decade despite not receiving a new order in 2 years.

Two weeks ago, Reuters reported that Airbus is slowing production of the A380 to just 6 aircraft per year – that’s half a frame per month! – but they won’t cut the program all together because they believe – well, they’re hoping – there will be a rebound in demand.

Airbus expected Emirates to finalize an order of 36 new A380s at the Dubai Airshow earlier this month and were surprised when Emirates used the show to instead announce an order for 40 Boeing 787s. The Dubai-based airline is the largest operator of the A380 by a mile, and they reportedly want Airbus to continue building the plane for another 10 years. Discussions for the 36 A380s are on-going. But relying on one airline is a gamble for Airbus, even if they are sure demand for the superjumbo will bounce back. The costs alone could forgo any longer-term strategic plan.

Airbus declared the program profitable in 2015 but that did not include the USD20B in R&D costs. This year, they delivered 14 planes. Airbus Chief Operating Officer Fabrice Bregier had previously said their breakeven point is 20 planes a year but that they’re working to lower that as much as possible. Dropping to 6 planes  means the program will be in the red for the foreseeable future.

Bregier – a champion of the A380 – is leaving early next year, and CEO Tom Enders will be exiting in 2019. His replacement will likely be the head of Airbus helicopters, Guillaume Faury. He has argued for a fresh start in the 2020s, perhaps indicating he won’t tolerate loss-making programs on his balance sheet.

For now, though, I think Airbus will slow production even further and continue trying to sell the planes, never ceasing to give-in to the fact they may have made a strategic blunder in building a four-engine hub-to-hub superjumbo.

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