Reports of an early demise for the Boeing 747-8 may be slightly exaggerated, but the programme faces a hard road ahead with little room to manoeuvre.
The 747-8, launched eight years ago as a re-engined and 5.5m (18ft) stretch of the base widebody, enters 2014 clinging to survival at a reduced production rate of 1.5 per month.
Boeing slowed the 747-8 assembly line twice in 2013, which reduced annual output from 24 to 18. But one major supplier worries the programme has still not hit the bottom.
“We are, in fact, putting plans together in terms of what may happen with a reduction and a further reduction in the 747,” Jeffry Frisby, chief executive of aerostructures firm Triumph, told analysts on a 29 January earnings teleconference call.
By acquiring Vought in 2010, Triumph inherited a significant work package on the 747-8, including major portions of the empennage, fuselage and tail section.
The programme’s troubles have already cost Triumph dearly. Frisby acknowledged during the earnings call that it expects to deliver future 747-8 shipsets with a profit margin of 0-2%.
Cutting production of the 747-8 further beyond 1.5 per month, however, would cause financial ripples all through Boeing’s supply chain, Frisby says.
“There's a contractual trigger point with lower rates,” he says, “but I don't think anybody wants to go there.”
Supplier agreements often include penalties if the airframer takes rates lower than a certain level. Based on Frisby’s comments, that threshold appears to be the 1.5 per month rate on the 747-8.
“We certainly don't see that happening any time in the near future because it's certainly expensive for everyone to do that – not just [for] us but Boeing as well,” Frisby says.
There was a moment in the depths of its development struggles with the 747-8 when Boeing seemed to entertain the idea of eliminating the passenger-carrying 747-8 Intercontinental variant altogether. Boeing CEO James McNerney acknowledged in 2009 that the company may need to “work with our customers to come up with another answer”.
Five years later, by the end of 2013, Boeing had delivered a total of 17 747-8Is and 47 747-8 Freighters to eight airlines and eight VIP customers. It has 55 orders still in the backlog – enough to keep production if not humming, then at least ticking over for more than three years, if current rates are maintained.
Boeing has also recently fixed several of the key issues that remained outstanding on early examples. A 747-8F delivered to Cathay Pacific in late December was the first of the type to feature General Electric GEnx-2B engines with a performance improvement package (PIP) that should boost fuel efficiency by 1.8%.
The PIP was followed by two more improvements in early 2014. The first was a flight management computer software upgrade which, like the PIP, is available on passenger and freighter models.
For the 747-8I, Boeing also reactivated the horizontal stabiliser tank fuel system, which was switched off until Boeing fixed a concern about a possible flutter condition with the tank filled.
Whatever doubts McNerney may have had once, he now seems committed to keeping the programme going for as long as possible.
“It remains a niche airplane for us,” McNerney said on a 29 January earnings call. “But I think cargo is the thing that will keep it going for a long time on top of a good group of Intercontinental folks too.”
Five airlines have ordered 40 747-8Is, of which nearly half are claimed by launch customer Lufthansa. But even the German flag carrier has raised doubts about the long-term viability of the passenger model, with chief executive Christoph Franz reportedly musing whether its 747-8Is could be replaced by the 777-9X early in the next decade.
Boeing's launch last November of the 777X family – including the 400-seat 777-9X, with up to 8,500nm (15,800km) range – creates an internal threat to the 467-seat, 8,000nm-range 747-8I.
“Why would you buy one if you can get a 777-9X if you wait a few years?” asks the Teal Group’s aerospace analyst Richard Aboulafia, speaking on 5 February at the Pacific Northwest Aerospace Alliance conference in Lynnwood, near Seattle.
Unfortunately, perhaps, that leaves only the cargo market to keep the 45-year-old Boeing production line going.
On 5 February IATA reported that air cargo demand in 2013 grew by 1.4%. In most other years that level of growth would seem disastrous, but cargo demand has been stagnant or declining for four of the five previous years before 2013.
“That’s actually good from a couple of years where we saw no growth,” says Boeing vice-president of marketing Randy Tinseth. “We do expect that as the world economy comes around and trade begins again, the cargo market will slowly and consistently improve. That’s true for our 777F as well as our 747-8 Freighters.”
Some analysts, however, are not so sure. The 747-8F may be the only freighter model of its size on the market, but it is increasingly facing competition from an unexpected source, says Steve Rimmer, chief executive at Guggenheim Aviation Partners.
The US lessor once had four 747-8Fs in its orderbook, but withdrew from the programme in 2011.
Rimmer says the air cargo market is changing rapidly. The trend for just-in-time logistics had until recently fuelled growth in air cargo demand – especially for dedicated, widebody freighters such as the 747-8F.
Now, however, the Emirates Airline fleet of passenger 777-300ERs is proving to be surprisingly effective at competing with a dedicated freighter fleet, Rimmer says.
“If you operate the 777-300ER like Emirates operates it you have got a regional freighter in the belly of every flight,” Rimmer says. “And guess what – you don’t fly it once a week to one location. Emirates built its business model like a Southwest [Airlines] business model: frequency, frequency, frequency. All of a sudden your just-in-time supply chain can get comfortable with going in the belly of a passenger airplane.”
There is also likely to be more competitive pressure on the 747-8F from the 777F, Rimmer says. Boeing is introducing the 777-9X in 2020, which may reduce market interest in buying passenger-carrying 777-300ERs in the final years of production. Boeing may seek to fill production slots with a greater volume of 777Fs, Rimmer says.
If market conditions seem pessimistic, the 747-8 programme’s survival for at least another decade may depend on Boeing’s non-economic interests, according to Aboulafia.
In September, the US Air Force revived a programme to replace the Boeing VC-25 fleet – which is also designated Air Force One when the US president is aboard. The VC-25s are two 747-200s that the USAF acquired in 1987 with a 30-year lifespan. The USAF plans to deliver a replacement “not later than” 2021, according to a solicitation document issued on 9 September.
That procurement notice calls for buying a four-engined commercial aircraft. Excluding Russian models, that leaves only the Airbus A380 and the 747-8, and Airbus has already declined to compete for the contract. Airbus representatives did not attend an “industry day” with the USAF in December, according to a roster of attendees released by the service.
That leaves only the 747-8 as an option to replace the VC-25 fleet, if Boeing can keep the programme in production through the end of this decade.
Aboulafia is betting that Boeing will do everything possible to make sure the 747-8 is available to meet the USAF’s requirement for the Air Force One replacement. Having its aircraft as Air Force One is a “matter of prestige” for Boeing, he says.
Ultimately, however, the 747-8 will not survive beyond the end of this decade, given uncertain demand for the cargo model and a lack of interest for the passenger-carrying version.
“Our base assumption is that it goes away early in the next decade,” Aboulafia says.