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Gotta wear shades
There's some good stuff to take away from Boeing's third quarter earnings report today. And continuing good news perhaps for the local sunglasses business, too. I'll explain that in a minute.
But first, what the Boeing 3Q report essentially says about our commercial airplanes business is that the outlook remains strong.
We delivered 62 airplanes during a quarter in which we had to shut down production during a strike. That's compared to the 3Q of 2004 in which we delivered 67 airplanes. A lot of people have been asking exactly what impact the strike had on production. The answer is we had to defer 21 deliveries during the third quarter and will see a few more airplanes affected in the fourth quarter.
On the orders front, we saw 199 net orders this past quarter. Our total net orders through the end of the third quarter were 616 airplanes, a phenomenal number. That's three times as many orders as we had for the first nine months of 2004. You can see the updated orders and deliveries numbers on the Boeing Website.
So, you can't deny we've seen a lot of momentum this year. The 787 program has been winning a number of key customers. Since launch, we've captured 295 orders and commitments for Dreamliners from 24 customers - with Air New Zealand announcing two more just yesterday. There is continued strong interest as well in our 737 and 777 families.
This is all happening in the backdrop of a very mixed airline business climate. In some parts of the globe, mushrooming economies and increased travel are spurring airlines to expand or renew their fleets. But we've also seen how higher fuel prices are playing havoc with profits, especially here in the U.S.
Given that, Boeing forecasts a year-end total of approximately 290 airplane deliveries for 2005. That's up from the 285 deliveries in 2004, but lower than our previous guidance of 320 deliveries, due essentially to the production stoppage last month.
For 2006 deliveries, our forecast remains an increase to about 395 airplane deliveries, with deliveries in 2007 expected to be above the 2006 level.
We've been through a stormy period in the commercial airplanes market. Now the skies are clearing. So here in Seattle we're feeling a kind of cautious optimism. The kind you might expect you'd have in an often rainy town that nonetheless sells more sunglasses per capita than any other major city in the U.S.
Makes me think of the hit song from back in the '80s: "The Future's So Bright, I Gotta Wear Shades." I wouldn't necessarily go that far yet, but I'm keeping the sunglasses handy, for sure.
Investing in the future
I get a lot of questions when I'm out traveling around. Many times those questions begin with what you might call a "leading statement." Such as: "Airbus has developed more new and derivative airplanes than Boeing over the past 15 years." Or: "Boeing has not been investing in the future."
That perception has been changing recently, but it still persists. So, not surprisingly, when someone starts with a leading statement like that, I have to set the record straight before I answer their question.
Boeing has always invested in the future. And we continue to develop airplanes for the ever-changing needs of our customers. We do that by incorporating the latest breakthroughs in technology when they bring more value to our customers. And that goes for both derivative and all-new airplanes.
That said, has Airbus out-developed us? No. You might be surprised to know that Boeing and Airbus have each developed and launched the same number of airplanes (all-new and major derivatives) since 1989.
Now, it's important to recognize that "launch aid" from European governments allowed Airbus to rapidly develop the core of its airplane family over the last 30 years. And they are still reaping the benefits of risk-free government money today. But the real story of what happened in the last 15 years or so is often misunderstood.
Boeing and Airbus have each developed and launched six new or derivative airplanes in the past 15 years. The dates shown reflect the year each model entered into service.
With the delivery of the first A380 in late 2006, it will have been 13 years between new airplane deliveries for Airbus. Coincidentally, with the delivery of the first 787 in 2008, it will be 13 years between new deliveries for Boeing as well. The previous all-new Boeing airplane being the 777, first delivered in 1995.
Airbus likes to boast about how much more money than Boeing they spend on R & D (Research and Development). But occasionally you see commentary from industry experts that puts a different spin on that.
"If the A380 costs Airbus the mid-market then it's the biggest misinvestment in aerospace history since Concorde," said Richard Aboulafia of the US consultancy Teal Group. "The way the market's changing makes this look more like a science fair project every day."
"Launch aid" has certainly helped the other guys develop airplanes. But maybe they aren't investing all that money very effectively.
China and the next 20 years
I recently returned from almost two weeks in China. And as always when I travel, I got to talk with a lot of people about the aviation industry. While we were there, my colleague Randy Tinseth and I presented the 20 year airplane forecast for the China market.
Since our Chinese language capabilities are next to non-existent, our colleague from the Boeing Beijing office, Marianne Wu, translated for us at many of our events. We began in Beijing for the Aviation Expo China 2005, followed by a number of events in Shanghai, Guangzhou, and Shenzhen. Then we returned to Beijing to speak at the 2nd Annual China Aviation Conference.
One of the key points we made is that China's incredible economic growth will transform that region into the fastest growing air travel market in the world. Because of this, we're projecting that during the next 20 years China will remain the largest market for new commercial airplane deliveries outside of the United States.
As a matter of fact, we're forecasting that the commercial airplane fleet in China will nearly quadruple! China will need more than 2,600 new airplanes between now and 2024. As part of that growth, we think China's fleet mix will shift a bit over the next 20 years: regional jets and twin-aisle aircraft will increase their proportions, while 747-size and larger airplanes will decrease theirs.
The reason for this is simple. We've seen this trend elsewhere: increased frequencies and nonstops will be flown on smaller airplanes. And that trend will continue.
Both the domestic and international airlines of China will be expanding their networks. And more than 60% of the airplanes needed for international travel will be in the 200-400 seat twin-aisle category. Boeing has the perfect combination of airplanes to complement this in the 787 and 777.
These intermediate twin-aisle airplanes as well as single-aisles will be the fastest-growing market segments in China. On the other hand, the market for very large aircraft will be very small.
Let's break it down a bit. In Chinese domestic travel, almost 80% of the demand will be for single-aisle airplanes - a category in which the Next-Generation 737 is the most efficient, reliable, and lowest cost airplane. We see deliveries to Chinese airlines over the next 20 years of 293 regional jets (90 seats and below) and 1,678 other single-aisle airplanes. These airplanes will make up 47% of China's delivery dollars.
22% of China's deliveries will be intermediate-sized twin-aisles (568 airplanes). But those deliveries will amount to 44% of the delivery dollars over the next 20 years. 88% of China's delivery dollars will be from the single-aisle and twin-aisle segments combined.
Only 3% of deliveries (73 airplanes) will be of the 747-size and larger category. These airplanes make up the remaining 9% of the delivery dollars for China.
We covered a lot of facts and figures during the trip. But I know this won't be the last time we talk about (or visit) China. And by the way, the Chinese are doing their own airplanes forecasting now, and theirs closely aligns with what we've been saying.
As always, it was pleasure to visit. We saw a lot of enthusiasm in all of our sessions. In fact, I'm told we had one of the largest audiences of government officials ever in attendance at the CAAC (Civil Aviation Administration of China) presentation.
It's hard to believe, but my first trip to China was more than 20 years ago. It was back in 1984 during a 767 sales campaign. Like me, Boeing has a long history with China and its rapidly-growing aviation industry. We've been working together with China for 33 years in a mutually beneficial partnership. And I have a feeling that with the growing 787 program, it's sure to continue for many more years.
So Airbus has officially launched the A350. Nobody should be at all surprised. Well, maybe there is one surprising aspect to all this. The fact that it took them so long to respond to the 787.
I suppose 23 airlines signing up for 273 Dreamliners finally got their attention.
But now that they've woken up, they still haven't got it right. I say that because, despite the four or five times they've changed this airplane over the last nine months, the A350 still falls short.
Is this really an "all-new" airplane? I don't think so. At its heart, the A350 is still an A330 derivative. That's why the A350-800, for instance, is less efficient than the 787-8 in fuel consumption, and falls short in maintenance, passenger comfort, and cabin environment.
In comparison with the 777-200ER, the A350-900 is 12% smaller (by at least 20 seats), has less range, and less cabin appeal. And side-by-side with the 787-9, the Airbus offering has less range, a less appealing cabin environment, and higher fuel consumption and operating costs.
Airbus does have one thing right. The A350 is an endorsement of Boeing's philosophy of using efficient twin-engines for long-range flight. The problem for Airbus is, by adopting our approach, they're abandoning their own deep, long-held, but mistaken, view - that four engines were required for long-haul routes. Now, their strategy is in disarray. 4 engines for too long, you might say!
But the real test here is the marketplace. And as I mentioned, as of this week, Boeing has orders and commitments for 273 Dreamliners from 23 customers. 191 of those orders (from 18 customers) came in after Airbus first detailed the A350 last December 10. The response to the 787 is like nothing we've ever seen so early in a program.
The bottom line is, the A350, as a derivative, basically obsoletes the A330 and the A340. It leaves Airbus with just two derivative airplanes with 240-280 seats, while still falling short of what Boeing has to offer.
We offer four sizes of 787 and 777 airplanes between 200 and 400 seats, with twin-engine reliability and efficiency. We've got the choices airlines want for flexibility and performance. And our airplanes are the preference of passengers around the world. In other words, we're providing what airlines and passengers want.
Now, you'll also be hearing a lot about subsidies and launch aid in connection with the A350, and rightfully so. It's interesting that Airbus executives have said for months that they don't need launch aid to develop the A350. Yet their announcement yesterday amounts to Airbus partner governments committing to launch aid once again. And you know what? That's no surprise either.
Sometimes there's a story that's just too fun not to mention. For instance, the debut this past weekend of one incredible-looking airplane.
When you live in this part of the world you're never very far from salmon. So it's no surprise that Seattle-based Alaska Airlines would promote our region's famous fish by turning one of its 737-400s into the world's largest king salmon. Alaska has come up with the catchy title of "Salmon-Thirty-Salmon" for this critter.
The remarkable paint scheme underscores Alaska Airlines' long history of transporting Alaska seafood. This year they'll fly more than 30 million pounds of the stuff. And despite the challenges the airline industry is facing, Alaska Airlines sees great opportunities here. They're making some major investments to expand their cargo operations.
In fact, seafood demand is driving the carrier to increase its air cargo fleet by more than 50%. Part of that investment will involve retrofitting several 737-400s to freight configurations.
Still, I can't help coming back to that giant flying salmon. At Boeing, we know something about painting airplanes. But this is one amazing job. According to Alaska, it took a team of 30 painters in Everett, Washington, 24 days to complete the work.
The "Salmon-Thirty-Salmon" will be swimming out to a variety of West Coast destinations and some other points such as Denver, Chicago and Dallas/Fort Worth. Part of the goal, of course, is to promote wild Alaska seafood. But I also happen to think it does a nice job of promoting another fine product of the Northwest.