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A couple of weeks back I invoked Yogi Berra in saying that "it ain't over 'till it's over." Well, now that all the year-end orders results are in, we can talk a bit about what it all means, and where we're going in the coming year.
One of the big stories, I think, is that the last two years have really been unprecedented for our industry - with about 2,000 commercial airplane orders each year between Boeing and Airbus.
Another big point is that single-aisles are selling like gangbusters. The Next-Generation 737 program again set a record for sales, but the A320 is a strong competitor, and we see this as continuing to be about a 50/50 market.
But looking at the widebody market, in the below 400-seat category, once again the 767, 777, and 787 families have significantly outsold the A330/A340/A350 families. It's a continued validation of Boeing's twin-aisle strategy - which we embarked on about four or five years ago.
The decision at that time, you may remember, was to concentrate our twin-aisle focus on that below 400-seat segment, which is about 90% of our forecast widebody deliveries over the next 20 years.
For two years in a row, Boeing has garnered at least 70% of the widebody market share, once again confirming the Boeing product strategy.
And when you get into the larger airplanes, the 747 and A380, the 747 had an outstanding year with 72 orders, including the 747-8 Intercontinental order from Lufthansa, validating the need for a good replacement airplane for the 747-400 passenger airplanes. In 2006, the 747 program had its best year since 1990.
In the dedicated freighter market, Boeing had 81 orders for 777 and 747 freighters - demonstrating the robust freighter market we're experiencing.
Looking ahead, I think we're going to see continued strength in the freighter market. In fact, as I've mentioned before, the demand for new airplanes overall looks to remain strong.
Today there are about 2,500 commercial airplanes in operation that have been in service 20 years or more. In the next decade another 5,000 airplanes will reach 20 years - for a total of 7,500. Many of those airplanes are going to need to be replaced by new-technology models.
Finally, you're probably wondering what I think about how the orders "race" shaped up in 2006. I've thought a lot about this question in the past week, and the best way to put the sentiment into words is that in a competitive business like this, you win some and you lose some, and it always feels better to win. But it's more important that our customers win.
So, I don't think it's really about celebrating who had the bigger numbers. It's about the quality of the order base, including great customers across all models of our product families, and the value that those products are providing our customers.
Twin engines for the long-haul
On Monday the FAA announced that all commercial passenger airplanes, no matter how many engines, will operate under the same standards. It’s part of the agency’s release of a new Extended Twin Operations (ETOPS) rule governing long-range flights over remote areas of ocean and deserted lands, such as polar regions and deserts.
It sounds technical, but it’s actually good news for the traveling public, which I’ll explain in a moment.
This all goes back to a discussion we had previously here in the blog regarding extended operations flights. As I noted before, we have a lot of years of data and flight records showing that twin-engine airplanes are more efficient, more economical, and more reliable than three- or four-engine airplanes.
And part of the interesting news I get out of this announcement is that the rules under which airlines have been operating long-range twin-engine passenger airplanes have been so effective that the FAA has decided it makes sense for three- and four-engine jetliners to have the same operational standards.
The new rules are based on the proven track record that we’ve been working on for decades. We’ve always believed that what matters is the total reliability of the whole airplane system, not the number of engines an airplane has.
The ruling allows for the certification of long-range 777s and the 787 Dreamliner to operate on virtually any route in the world in the most efficient manner possible. And of course, extending the operating capabilities of twin-engine airplanes allows for more direct routing, and opens up more choices for airlines in terms of size and type of airplanes on long-range routes.
Twin-engine airplanes are, by definition, more efficient, weigh less, and have fewer emissions than similar sized airplanes with three and four engines. For example, the A340-600 consumes over 20% more fuel compared with the 777-300ER. Higher fuel consumption generates higher emissions.
But really, this is a victory for the traveling public. Twins on more routes will mean lower operating costs - which should mean lower fares. And it will help travelers get where they want to go with more flights to more destinations with more direct routing, and fewer connections and delays.
It should make the whole system more efficient, more reliable, and overall more convenient for passengers.
Déjà vu all over again
My thoughts exactly.
Who’da thunk it, right? One year ago we thought, no way could we see a repeat of 2005. But for a second year in a row Boeing has achieved a record for orders. It was another remarkable year not only for us but for our customers and the industry as a whole.
As Yogi would say, “You can observe a lot by watching.” And no doubt we’ll be observing many more of these rolling out of the factory next year. This is the newest model Next-Generation 737, the 737-700ER, rolling out for the first time earlier this week.
Customers have endorsed our product line across the board, from single-aisles, to mid-size widebodies, all the way up to the amazing performance of the 747 this year. The 1,044 net orders recorded in 2006 are the most this company has ever booked in a single year. It adds up to a strong, well-balanced backlog, with significant orders from customers around the globe.
And it says to me that the recovery in the aviation industry is going strong, with sustained traffic growth, increases in point-to-point travel, new routes and more frequencies, and continued demand for new fuel-efficient airplanes.
But of course at this point everyone likes to talk about the numbers. And this time every year I get asked two very difficult questions.
The first question is: What’s your prediction for 2007 orders?
And I wish I had an answer to that, because I’m tired of answering that question. (That’s another Yogi-ism, by the way.)
Anyway, the deal is that Boeing does not forecast orders. I couldn’t even if I tried. Look at the past two years. You just can’t predict stuff like this. So the best way to answer this is to say that a lot of factors are involved, and it’s impossible to forecast how the business environment will translate into order totals in 2007.
But we can say - as we said last year - that the basic industry fundamentals remain sound. In a general sense I’d expect this order cycle to continue. Keep in mind that a number of traditional North American and European carriers have not yet participated in this cycle in a big way.
And certainly demand for new airplanes continues to be strong, both for meeting growth and for replacing older airplanes with newer, more efficient models that use less fuel and offer lower overall operating costs.
So while we don’t make predictions about orders, especially in the wake of two record years, there’s every reason to believe that 2007 will be another good year.
And now the second difficult question I get asked this time each year: Who’s going to win the orders race, Boeing or Airbus?
And to that I say, check back in a few weeks. After all, it ain’t over ‘till it’s over.