Wednesday, October 28, 2015

Kenya Airways finally taking last 2 787 on order

After being placed in storage for months, due to the expiration of the Export-Import Bank's charter and unable to line up other financing, Kenya Airways will be finally taking delivery of the 2 787-8s that had been built.  the aircraft will be delivered today with flyaway scheduled for Oct. 30th.

The Ex-Im bank fiasco kept the two aircraft in limbo while the carrier struggled to find alternate sources of financing the delivery payments to Boeing which would have been provided by the bank.  Politics kept the re-authorization of the charter stuck in committee until a large majority of Congress said enough is enough and used a little known and little used procedure to get the re-authorization out of committee and to the full House floor where it was approved last night.  The bill still has to be approved by the Senate before being signed into law.

I do suspect that Kenya should be able to get short term bridge financing until the Senate passes the re-authorization.

speaking of 787 deliveries, it appears that a 787-9 for KLM won't be delivered until December or maybe even later according to sources.  ZB234 (LN356, PH-BHA) has been expected to be delivered in mid November.  An interesting twist is that a sister ship, ZB235 (LN 368, PH-BHC) appears, for now, to be holding to its delivery schedule of mid November.  This development may indicate there these is some issue with ZB234 allowing ZB235 to jump in front of the delivery schedule. However this is all preliminary and ZB235's delivery may also be delayed.

Wednesday, October 21, 2015

Boeing reports earnings, says rate of deferred production costs is slowing; 787 order drive heads into final quarter

Boeing reported very strong 3rd quarter earnings despite increasing deferred production cost related to the 787 program.  The good news is the costs are coming at a decreasing rate.  Boeing reported that total deferred production costs increased by $577mm (down from $790 mm reported for 2Q15) to $28.3bn (up from $27.7bn reported in 2Q15).  Boeing anticipates that deferred production costs will start to decrease once the rate break to 12 occurs in the 1st quarter of next year.  Along with the increase in rate Boeign anticipates further margin increases as 787 production is increasingly made up of the 787-9 and (later on) the 787-10.  787-9 deliveries already make up the majority of 787 deliveries as over 60% of the total 787-8 order book has been delivered.  However, this doesn't mean that Boeing has given up in reducing 787-8 production costs.  Over the last 230 -8 deliveries, production costs on the -8 have been reduced by 40%.  Production costs on the first 50 -9s have decreased a dramatic 30%.  Boeing is still insisting that it will be cashflow positive on the 787 in the 4th quarter (meaning that they will start taking more money then they are spending to assemble and deliver each 787.  Lastly, Boeing continues to beat up their 787 suppliers in order to wring out additional production efficiencies and cost savings.  They expect to see a step down in supplier pricing during 2016 which will aid in reducing production costs.

Boeing's drive to finish out the 2015 787 sales campaign hits the 4th quarter and it does appear that Boeing is lining up order to announce prior to year end.  Already some potential orders are coming to light: 24 787-10 for Eva Airways which is a coup for Boeing as it was being evaluated against the A350-900 by the airline.  The airline has confirmed it's intention to order the aircraft along with 2 777-300ER.  This order still has to be finalized.  A rumor that had just surfaced today is Air China's intention to order 15 Roll Royce powered 787-10.  The carrier already has 15 787-9 on order the first of which will be delivered next year.  There's no word on when this order will be made public but I wouldn't be surprised if it's part of the huge 300 air frame order China intends to finalize with Boeing.  There are two other Chinese orders that are on the books.  One is a 24 frame order from Hainan for the 787-9 that is currently booked as unidentified.  The first 6 aircraft of this order will be delivered next year in addition to 2 787-9 that will be leased from ALC.  Xiamen Airlines is probably behind the 6 787-9 also listed as unidentified.  They'll take delivery of their first aircraft also in 2016.

One order that was anticipated to be made was Emirates choice for their new twin engine aircraft to replace the 777-200 in their fleet.  Tim Clark did say that they have all the information they need but anticipate making a final decision in 2016.  Lastly, we're still waiting for Boeing to firm up Garuda Indonesia's 30 x 787-9 MoU announced earlier this year at the Paris Air Show.

787 Full Production Table

Monday, October 12, 2015

Possible resolution on Ex-Im bank can free Kenya 787 for delivery

The Ex-IM bank reauthorization fiasco might now have a resolution coming in the next few weeks.  The expiration of the bank’s charter has put a crimp in deliveries of some Boeing jets to customers, notably two 787s to Kenya Airways.  Those two airplanes are in storage at Everett.  It was rumored that the carrier was working to find alternative delivery financing but I think it’s safe to say that it probably hasn’t happened.

Last week, a bi-partisan group of Congressmen were able to use what is called a discharge petition in order to get the legislation out of House Financial Services Committee that is led by a Republican who doesn’t want to see the Ex-Em Bank’s charter renewed.  I gathering 218 signatures for the discharge petition, the bipartisan group now has forced a vote that will be taken within the next three weeks.  Still the reauthorization also needs to get past the Senate so I don’t think Boeing will be removing the covers of those two 787s for Kenya just yet.

In other 787 news, Air France, which has been in deep financial turmoil, is talking about canceling part of their 787 order quite possibly the early deliveries which are expected to start late next year.  Indeed, L/N 500, a 787-9 that is being leased to Air France from AerCap is on the firing order.  Air France/KLM ordered a total of 25 787s and have a leasing agreement from AerCap for a further 12 aircraft.  Air France is to get 13 787 from Boeing with another 3 from AerCap.  The remainder are to go to KLM which, it seems, is unaffected by troubles at the parent company. The management group recently converted 6 787-9 of their 25 aircraft order to 6 787-10 though it’s not clear to which carrier the -10s will be delivered.  Given that the first 787-9 for Air France is a year from delivery it stands to reason that some of the long lead items for that aircraft and other near term 787 deliveries are already on production.  It may cost Air France more than it’s worth to cancel the order but the jury is out on that.  Interestingly, the A350-900 order remains intact, perhaps some home country favoritism playing out in this drama?  We may see Boeing sales people chasing Air France management down the street trying to rip their clothes off if the carrier goes ahead with any cancellation.

Oman Air took delivery of the first of 6 787-8 that it had ordered.  The carrier is expected to take delivery of one more this year but it seems that they won’t receive any more next year.

This week, ZD002 for Air Austral should be pulled outside of the EMC as it starts to finish up re-work and change incorporation ahead of its delivery.  It will spend about two and half weeks at the EMC before being towed to the flightline.  ZD001 (L/N 15) will takes its place inside the EMC after ZD002 is pulled outside.  Strangely, ZD006 (L/N 14) will be taken back from the EMC to the storage runway at the end of this month.

Lastly,  there are a number of number of C-1 flights coming up (about 9) over the next two weeks and I do think Boeing should be able to deliver at least 8 more 787s this month possibly 10 more depending on the Ex-Im reauthorization situation.  Boeing has already delivered 2 aircraft this month.

Thursday, October 1, 2015

787 deliveries continue to exceed guidance. 3rd quarter 2015 787 deliveries stand at 37

Monthly 787 Deliveries by Model
Deliveries of 787 continue to exceed factory output for the third month in a row as Boeing shipped 11 787s to customers versus 10 rollouts from the plants in Everett and North Charleston.  For the 3rd quarter which just ended, Boeing has delivered 37 787s versus rolling out 31 aircraft.  This means the delivery backlog is shrinking which is very good news for Boeing.  The overall program efficiency is 0.91 (10 aircraft completed versus 11 delivered).  Everett's efficiency ratio is 0.67 (6 787s rolled out versus 9 delivered).   North Charleston didn't do as well as they had an efficiency of 2 (4 roll outs versus only 2 deliveries).  Of the 17 787s that are currently complete, 8 were built in Charleston (including the 2 Kenya Airways jets).  That's a large number compared to the monthly output from Charleston.  This output has increased due to the phase out of the Everett surge line which is currently producing only 1 per month.  I don't know the reason for the slow down in the Charleston delivery rate but it could be related to customer readiness to take delivery of the aircraft.  Also one cannot help notice that a few 787s have been flown to Everett and were (or will be) delivered from that facility.

Boeing has delivered 329 to date since program deliveries began 4 years ago.  This number includes 54 787-9 and 275 787-8. 2015 year to date deliveries stand at 101.  Boeing has said that they plan to deliver over 120 787s this year and I believe they can achieve over 130 this year.  Over 60% of the total 787-8 order book has been delivered while over 10% of the total 787-9 order book has been turned over to customers.  What is noticeable is that since June the number of 787-9 delivered has either equal or exceeded the number of 787-8 delivered.  I expect this trend to continue for quite a while since most of the -8s have been delivered, of course this is barring any large -8 orders that Boeing books over the next few years.

Notable 787s that were delivered included ZB412 (LN 345, JA873A) a 787-9 for ANA otherwise known as the "Star Wars jet."  ZB362 (LN 346, G-ZBKA) for British Airways.  This is the carriers first of 22 -9s.  They should have over 16 in the fleet a year from now.  ZA685 (LN 343, B-2763) is the 6th and last 787-8 for Xiamen Airlines. ZA225 (LN 344, VH-VKL) is the last 787-8 for Jetstar.  All future 787 for QANTAS will now be delivered directly to that carrier.

Even though this is preliminary, I expect that Boeing can deliver up to 14 787s but this number includes the 2 Kenya Airways jests which I list as "In Storage."  Some notable deliveries planned for October include the first 787-8 to Oman Air, 2 787-8s to Qatar Airways, 2 787s to Scoot (one -8 and one -9) and two more 787-9s to British Airways.  If Congress can resolve the Ex-Im Bank issue (October 2015 might be the last chance to do this until 2017) then the two Kenya Airways 787-8s can also be delivered.

Lastly, word though an article by Flightglobal, indicates that Emirates won't make a decision on the 787-10 vs. the A350-900 until next year.  So we can now forget about any major Emirates orders coming from the Dubai Airshow next month.

787 Full Production Table