Intense A330/B787 Competition Could Impact Values

June 11, 2018

“Strategic” Discounting Sees Boeing Target A330neo

The B787-9 remains the most desirable of widebodies in terms of suitability for asset based financing, slightly ahead of the A350-900, and therefore attracts one of the highest of AVACs Aircraft Ratings at an A—but recent competition with Airbus over its A330neo is possibly seeing lower net pricing that, if sustained, could potentially affect values of the A330neo but much more notably, the B787-9.

The values of new B787-9 have been steadily climbing in recent years such that a newly delivered aircraft powered by the latest engine variants, based on the assumption of an immediate sale to a third party as a single unit, is now considered to have a value of just under $145 million. This compares with less than $135 million when entering service four years ago. After the debacle with the B787-8, the B787-9 has proved itself even if some variants of the Rolls-Royce engine have failed to live up to expectations. The B787-9 is however, passed its first flush of success and while delivery rates are high, the backlog is not as strong as Boeing would wish it to be.

The arrival of the A330-900 provides the potential for further order diversion. Notably, earlier in 2018, Airbus announced that the MTOW (Maximum Take-Off Weight) of both the A330-800 and -900 would increase to 251 tonnes. The orders for the A330ceo and A330neo have continued to rise even with the arrival of the B787 in ever greater numbers. Boeing may have thought that the B787 would see the demise of the A330 – just as the A330-200 saw the end of the B767 production – but this has not been the case. Indeed, by promoting the A330 as a medium haul people carrier with longer haul capability when needed, sales of the A330 have been sustained. When introduced in 1994 the A330-300 had a MTOW of 212 tonnes, this has been gradually increasing over the years such that the higher weight is now 251 tonnes. The recognition by Airbus that seeking to offer twin engined aircraft for medium range operations versus four engines for long haul, was fundamentally flawed allowed the A330 to just as much flourish as the A340 withered. The 251 tonne weight will be available in 2020 and will feature on both the -800 (no sales yet) and the -900. This means that the A330-900 will be able to fly 7,200 nautical miles compared to the 235 tonne A330-300 which was able to fly only 5,700 nautical miles. The A330-800 now has a range of 8,150 nautical miles with the higher 251 tonne MTOW. The A330neo features a twist in the wing to improve performance as well as a composite sharklet. The new engines are essential to the A330neo but in terms of overall design, the A330 is still based on a 30 year old design versus the all new B787. The B787 does have certain fuel efficiency advantages.

This increase in range has significant implications as the range of the B787-9 is 7,635 nautical miles. Most operators do not need absolute range and as such there are many medium to long haul routes for which the A330-900 is now worthy of consideration. The increase in MTOW of the A330-900 means that there is better payload/range allowing more cargo to be carried when carrying a full passenger load over relatively long sectors. Europe to the Americas and Asia to Europe is now very much the prime markets for the A330. Airbus can therefore promote the A330-900 for the medium haul routes with the A350 being used on longer haul sectors. The relative proximity of the range of the A330-900 to that of the B787-9 presents Boeing with a serious challenge for those airlines seeking an aircraft that does not need to be used on long haul services. Until the arrival of the higher weight A330neos, airlines with lesser range requirements had little option but to order the B787 or A350 but now have an alternative. Boeing is also conscious that the success of the A330ceo could be followed by similar fortunes for the A330neo and this in turn could impact demand for its new B797 currently under consideration. The issue for Boeing goes beyond reasonably similar – though far from identical performance, but also encompasses the issue of price. The value of a new B787-9 is some $30 million greater than that of the A330-900 – $145 million versus $115 million. Orders for widebodies have been notably sluggish of late and both Airbus and Boeing are needing to secure new orders.

With the launch of the 251 tonne version Boeing has had to respond and the response appears to have been in the form of discounts. American has recently cancelled orders for the A330 and instead placed orders for the B787. The change was perhaps inevitable as the B787 added to an existing fleet while the A330neo would have added a new type. Hawaiian also cancelled the only remaining A330-800 order and instead ordered the B787. Despite the seeming advantage that Boeing held on both occasions, the issue of price was still of importance to customers. There has been speculation that the price of the B787-9 for some recent strategic customers was therefore more likely to be around $110-15 million – perhaps even lower. With American and Hawaiian being domestic customers there was also perhaps a need for attractive pricing to be offered. Such a low price is seemingly designed to prevent the A330neo from flourishing given that the type is close to entering service with a stagnant orderbook of 214. Boeing is concerned that with so many B767s, B777-200/-200ERs and A330s ready for replacement in the coming years, that it will be the cheaper A330neo that operators will look to rather than the premium priced B787. The problem for used values is if such deep discounting will become the norm going forward. There have been a number of occasions in the past when such strategic discounting has been sufficiently isolated to prevent widespread reductions in the values of the wider fleet – the sale of A319s to easyJet for example – but there will a concern if this becomes more widespread. There are a number of sales campaigns being fought today and if Boeing continues to compete on price alone when pitted against the A330neo then this has the potential to impact values of used B787-9s and indeed the A330neo as well as the A350-900. There is however, an expectation that the American order was a somewhat isolated event but the precedent has been set and potential customers will be all too aware of the opportunities that the issues facing Boeing will present when negotiating pricing.

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