Flight International reveals that Boeing has issued new list prices for its 787 series. Faced with a three year delay in service entry for all that means for cash flow and profitability of the programme, the company is clearly regretting cut price deals done to try to keep the A350 at bay. With the order book for the type virtually full for the next ten years, it must be clear to Boeing that they could be making a lot more money on the aircraft than they are and, with the delay and production diffoiculties having pushed up their costs, they have traded too much volume for yield per aircraft. Perhaps this is something the airlines understand better than manufacturers but in times gone by Boeing were seemingly more commercially shrewd than they have been recently. Has something gone awry in their management's thinking one wonders?
The decision to spread the production of the 787 amongst numerous geographically far flung suppliers has cost Boeing dear.Initially it must have looked as if the cost benefits of doing this outweighed the costs of logistics and managing the integration of the programme. The integration though has not been well controlled . There have been problems of oversight of each of the producers and once the programme started to slip the producers were likely to be left with the nightmare of having incurred their setup costs and then having their income deferred.
The initial list price for a 787-8 in August 1995 say Flight was $125-135million. Regardless of this, volume deals with key customers are said to have been cut as low as $80-85 million. In 1995 the -8 capacity for delivery in 2008 was looking like a good baseline buy. As we have said before, three years further down the track the -8 is beginning to look on the small side and the -9 is looking a better proposition for many. The initial list price for this version in May 2006 was $178.5- $188 million. Interestingly Boeing is now also considering a -10 6,500 mile 310 seater (3 classes),presumably to counter in the A350 capacity advantage.Emirates and Cathay in particular have long said that the 787 capacity does not go high enough.(They would also like to see stretched A380s). Flight also mentions Boeing's keeness to slot some higher priced new orders into the delivery schedule ahead of existing lower priced aircraft. This would help raise the average yield per aircraft and cash flow.
For the strategists and planners of airlines who have not yet ordered their fleet expansion aircraft or replacements for 767s, early 777s and A330s, the rise in price of the 787 raises some interesting questions. A new customer for a -8 could se themselves paying $100 million per aircraft than a competitor on the same route. This is a huge difference to cover during the course of a 10 year frontline life and makes it very difficult for a new customer to match the ticket prices of an original one paying a much lower price per aircraft. This will make the possibility of completely refurbishing existing aircraft for a further ten years life very attractive .It also means that if Airbus can keep the price of new A330- 200s and -300s down they could do very well as by now they will have covered most of their original development costs. Purchase of more of these at a relatively low capital cost compared with a newly priced 787 could be worthwhile attractive despite their 20% higher fuel costs and projected engineering savings.
For anyone not in a hurry, this could in John William's words be a time for doing very little but living with what you've got, buying a bit more of it on the used aircraft market if necessary, and seeing how the scene unfolds while others prove in real time by trial and error at their, not your,expense which formula and aircraft works best.In time the discounts will come back again.
