Richard Evans, senior consultant, who recently joined Ascend from Rolls-Royce, examines recent announcements about production rate changes at Airbus and Boeing
We have seen two production rate changes announced recently, so it seems a good time to summarise the current production outlook from Airbus and Boeing. Individual programmes will have specific drivers of change, but it is also worth reviewing how the airframers’ plans stack up against overall market numbers.
Production rates are often described as Rate 5 or Rate 10, for example, which simply refers to the number of aircraft manufactured per month. For Boeing products, the annual production is 12 times this figure. At Airbus, because of the summer holiday period, the quoted rates are maintained for 11 or 11.5 months a year. For example, Rate 10 on the A330 programme equates to an annual production of 110 aircraft.
The first announcement was made by Boeing on 2 October, when it said that it “will increase production on the 737 programme to 52 airplanes per month in 2018 in response to strong market demand from customers worldwide”. Once this increase is implemented, more than 620 airplanes per year are expected to be built under the 737 programme, “the highest rate ever”.
Boeing is currently building 42 737NGs per month, and had already said this would be increased to 47/month in 2017. The primary reason behind the latest announcement appears to be the need to create additional slots for the 737 Max. The slots are valuable because the 737 Max is running about two years behind the competing A320neo, making availability an issue in key strategic campaigns.
This means that based on production rates, Boeing will maintain a delivery advantage over Airbus in the single-aisle sector for the rest of the decade. In 2018, the implication is that Boeing will have a delivery market share of about 54%, building 620 737s versus 500 A320s. This is despite the fact that Airbus has a firm backlog of 4,721 A320s to Boeing’s backlog of 4,011 737s, giving Airbus a 54% share. Taking only firm orders, Airbus has a 59% share of the re-engined variants.
IMPLICATIONS FOR SINGLE-AISLE DELIVERIES
The increased delivery slot availability from Boeing gives it more flexibility to go out and win new customers for the 737 Max, but slots alone will not determine the eventual market share. It remains to be seen if Airbus will respond with an increased rate on the A320neo. Ascend assumes that Boeing would have switched over production entirely to 737 Max by early 2019, so the new rate is also a challenge for CFM, which will have to ramp up Leap-1B production from zero in 2016 to about 1,400 engines three years later.
A320 and 737 production rates, when combined, will mean about 1,200 deliveries in 2018/19, up from 933 last year. The chart below shows how this compares to the Flightglobal Fleet Forecas for single-aisle aircraft.
It can be seen that the combined Airbus and Boeing production closely matched the overall single-aisle forecast before the latest Boeing announcement, but it now exceeds our forecast by 5-10% – or more should Airbus also raise rates. Airbus’s own forecast for single-aisle deliveries is 22,000 over the next 20 years, which averages at 1,100 per annum. Boeing has a slightly higher forecast of about 1,250 a year.
This is arguably within the margin of error of any top-down forecast, but the implication is that there is no room for the delivery plans of the new entrants, the Bombardier CSeries, Comac C919 and Irkut MC-21. Programme delays may give greater opportunity to Airbus and Boeing here. However, it is entirely possible that aircraft retirements could be the balancing figure to enable these deliveries to happen. With a current fleet of 13,000 aircraft, growing to around 18,000 by the end of the decade, it is not difficult to imagine that a few hundred extra retirements will occur, balancing supply and demand in the process. This would have a limited impact on average retirement age and, hence, residual values.
The Flightglobal Fleet Forecast also takes the view that Airbus will win a market share of >50% against the 737, based on the current firm backlog, and we will only change this if customer orders move in favour of Boeing in the next few years.
A330 AND 777 CHALLENGE
The increased delivery slot availability from Boeing gives it more flexibility to go out and win new customers for the 737 Max, but slots alone will not determine the eventual market share. It remains to be seen if Airbus will respond with an increased rate on the A320neo. Ascend assumes that Boeing would have switched over production entirely to 737 Max by early 2019, so the new rate is also a challenge for CFM, which will have to ramp up Leap-1B production from zero in 2016 to about 1,400 engines three years later.
A320 and 737 production rates, when combined, will mean about 1,200 deliveries in 2018/19, up from 933 last year. The chart below shows how this compares to Ascend’s Flightglobal Fleet Forecast for single-aisle aircraft.
The second announcement was of Airbus reducing A330 manufacturing from Rate 10 to Rate 9 from Q4 2015. This should not have come as a major surprise given the decline in book-to-bill ratios in the last few years. Indeed, the backlog for the A330 has been declining ever since 2008, and now stands at 230, compared with 425 at the beginning of 2009.
The launch of the A330neo has been a huge positive for the overall A330 programme, and we expect the letters of intent (LoIs) signed to be converted to firm orders shortly. However, the new variant, with first delivery in December 2017, has created quite a production gap to fill.
In addition to successfully converting LoIs, Airbus would need to secure up to 150 further orders for the A330ceo in order to fill the gap before entry of the A330neo, assuming Rate 9 is continued. Our fleet forecast implies that further production rate cuts are likely, down to an eventual production of about six per month from 2019 onwards. Any delay to entry into service (EIS) or ramp-up of the A330neo will increase the challenge.
The 777 has arguably an even greater challenge to “bridge the gap” to the 777-X. EIS is not until 2020, over two years later than the A330. The current GE90-powered versions still have an impressive backlog of 275 aircraft, but that has declined from 356 at the end of 2012.
In order to maintain the current level of production, Boeing would need to win around 330 new orders (including 90 option/LoI conversions). There is no plan as yet for a 777-X freighter version (although a version of the -8 is expected in the 2020s), so the 777-200 Freighter is part of the solution to bridging that gap, but the cargo market remains in the doldrums. Hence the vast majority of additional orders must come from 777-300ERs. The Ascend forecast indicates that a production rate cut is highly likely, perhaps down to Rate 6 between 2017 and the EIS of the 777-X.
Interested in finding out more about production developments at Airbus and Boeing? View our Commercial Aircraft Values and Market Outlook webinar here.
Source: Cirium Dashboard
