Almost three years to the day when Lufthansa finalised a deal for up to 40 Boeing 747-8 Intercontinental’s, Korean Air becomes a new customer for the type – and in doing so may have quashed any notion of the passenger jet being culled from the Boeing portfolio.
Earlier this year, Boeing issued a statement declaring that “it is worthy of investment and will be a great airplane for our cargo and passenger customers.”
Korean Air tells me that the deal is valued at around $1.5bn and will complement the airline’s previous order for up to seven 747-8F’s, the first of which is scheduled for delivery a little under two years from now.
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Korean Air plans to deploy the 747-8I’s on routes to Europe as well as North America and says that it will “fill the void between our 300 and 550-seat aircraft in our future fleet.”
Despite the program being pushed into a forward loss position, 747-8 VP and General Manager Mo Yahyavi was particularly upbeat about future prospects for both passenger and freighter models and had even talked up the possibility of increasing production to match anticipated demand.
“My worry is how am I going to be able to respond to that increased rate – when the up-tick cycle comes, everyone wants airplanes, so we’ve got to be ready for that.
We’re constantly talking to customers when they want to talk. But yes, I’m very busy these days,” Yahyavi told me recently.
And it seems his patience has paid off with this new order in the bag once the contract ink has dried.
Korean Air becomes only the second carrier so far that will operate both Airbus A380′s and 747-8I’s. The market for both these large passenger jets is small and continues to contract as the growth in frequencies usurps the need for bigger airplanes.
While the 747-8 is still reeling from cost overruns and technical challenges, its financial position is still much better than that of the bigger A380 – only last month EADS confessed that the airplane was “still a matter of concern” and that both “industrial and financial reviews” would take place to assess the loss-making program that has thus far sapped over $26bn from EADS and taxpayers.
Image courtesy of Boeing
Korean Air appears to have plugged a gap in its fleet between the 777-300ER and A380. With Airbus having a product void beneath the A380 and above the A350, Korean Air has yet to consider the A350XWB given its existing commitment to taking 787′s.
Now that this deal is sealed, the question is not whether Boeing pushes on and decides to increase production rates on the 747 line, particularly as the bulk of 747-8 orders are for the freighter model amidst the worst environment seen in the cargo market for the last fifty years – the challenge probably isn’t even about getting the program executed on time – the real litmus test is whether there will be new customers for the 747-8 Intercontinental.
Considering the type has newer engines and many design and aerodynamic features lifted from the 777 and 787, it’s clear the 747-8 has been given a boost to soldier on, particularly as Boeing VP Marketing Randy Tinseth noted on his blog that the 747-8I had reached the 90% design release stage.
So just who will be next, and when?
First 747-8F is scheduled to fly mid January, weather permitting… and the second one about a month later… all seems on schedule as far as I know…
AND 787 in possibly one week or two from today;s date, possibly, weather permitting and, and, and, (cross your fingers)…
45. keesje | December 7th, 2009 at 22:39
May I inform you that you are correct. And if I may, let me inform you that for the purpose of discussions in this niche upper market segment, total units will count towards reducing that initial R&D. And, like I pointed out, Boeing has the higher order rate. What’s more, Boeing achieved that with a freighter. Isn’t that nice!?
On the Intercontinental, my feelings are as per the short time when the Airbus A340-600 was outselling the Boeing 777-300ER. Of course, feelings don’t sell 200-tonne-plus heaps of several million parts – especially when crafted so beautifully as a 747. So as you can understand, I’m really looking forward to the flight test of the Freighter Jumbo.
By the way, while we’re at it, what really is the bottleneck in the A380 production system currently? Is it still wires? Weight? The market maybe? We all know the SOB joint, and supplier issues (read poor supply chain oversight) put the brakes on the 787.
United buys smaller aircraft.
http://finance.yahoo.com/news/United-Invests-in-Future-prnews-2547784775.html?x=0&.v=1
QUOTE
“United expects to take delivery of the aircraft between 2016 and 2019; at the same time it will retire its international Boeing 747s and 767s. These 50 new aircraft will reduce the average seat count by about 19 percent compared to the aircraft they will replace, and by about 10 percent when averaged over the entire international fleet.
…
The new aircraft will open up new revenue opportunities for United as the smaller size, longer range, and lower operating costs of these aircraft allow the company to profitably serve a broader range of international destinations.” (emphasis added)
By the way, I posted another entry in my blog.
http://wp.me/piMZI-00
Vero Venia, the planned production rate for the A380 was actually at 48 planes per year. This is verifiable.
55. jacobin777 | December 8th, 2009 at 19:46
The planned production rate is not important. Which is important is the market demand. Is the market claiming 40 aircraft per year, or whatever the rate is, or is it claiming only about a dozen per year.
If the demand is only over one dozen of VLA per year then both manufacturers are in deep trouble.
VLA is about the market, it’s not about the aircraft.
Today, we still do not know yet what the trend is for the VLA market. But I think we will know a little bit more in two or three years.
Vero Venia, the planned production does affect a multitude of items-including (but not limited to)
1)Delivery rates.
2)Payments-which Airbus needs for cash flow
3)Financing for R&D/manufacturing.
#3 is IMHO is the most important. I doubt EADS/Airbus would have gotten additional financing (yes, a lot of investment on the A380 came from Airbus/EADS via cash flow, etc.) if investors knew what the delivery rate of the A380 would be. Airbus stated 4/month…even if it say 40/year I think many financiers would be fine-but with 10-15 (or lets just say even 20) deliveries/year? I doubt it. The ROI would be way too long.
The hubris at Airbus is deafening. They belittled any attempt by Boeing to rework the venerable 747. Yet since Boeing introduced the 747-8 in Nov 2005, it has outsold the A380 110 to 72. That is 110 airframes that the A380 will never build and many analysts now say that the breakeven point on the A380 is well over 600 airframes. What a waste of taxpayer money.
57. jacobin777 | December 9th, 2009 at 20:16
You’re right with all the points you mentioned. But, those are only the consequences of something more fundamental that is the understanding of the market.
The planned production level has impacts on the three points you mentioned. That’s right.
But don’t forget that the planned production level should be based firstly by the perceived market demand.
You just don’t plan to produce more than the market can absorb.
It’s much simpler than you think. Don’t get caught by complex reasoning at this stage. The basic concept is simply matching the offer to the demand. Don’t go further.
I love simple things, it’s said in my post here http://wp.me/piMZI-sS
So, normally you build a certain amount of aircraft as direct function of the demand unless you’re not interested by making money out of your products.
I concede that it’s a difficult task to understand the market especially in a fast changing environment like the one we are in today. But you can find many hints out there if you open your eyes.
The gap between the planned production level and the actual demand is clearly the manifestation of misunderstanding about the market.
Read the market and the market reads you loud and clear.
Again, that is only my opinion.
On a similar subject, back in July I posted my “Crystal Balls”: http://wp.me/piMZI-bv
Boeing has always believed that the VLA market ‘does not justify the an all new VLA – much less two.’ Thus their derivative approach for their 21st century VLA. Obviously, this has to be an outstanding effort. Hence my faith in the product.
Now, while I would rather see Boeing win, there are a few issues that get in the way of either Boeing or Airbus being right about the VLA market.
Firstly, Airbus has screwed up the A380 so badly, we can not make judgements on whether A380 orders are slow because of the Airbus A380′s current state of affairs or market demand. Only once Airbus has fixed A380 production will we know – and by then, the 747-8 will be a very strong factor.
The other thing is the ‘global recession’ – and over-hyped at that too – has severely damaged economies that may have been able to support it – and by extension, the airlines that may have required it.
And here again, Boeing strategy about not being able to predict the future, and offering a ‘low risk solution’ gives it an edge whether it is right or wrong.
I do think Boeing’s right.
60. Paulo M (Johannesburg, RSA) | December 10th, 2009 at 19:23 “Firstly, Airbus has screwed up the A380 so badly, we can not make judgements on whether A380 orders are slow because of the Airbus A380’s current state of affairs or market demand.”
Indeed, we have to wait two or three more years to see if the VLA market grows or shrinks.
Everybody hopes that in 2013, after 5 years of A380 production, there won’t be any industrialization problem anymore.
The first interesting point is both Airbus and Boeing will be delivering VLAs at that time.
The second interesting point is that both the 787 and the A350XWB will also be in production by then.
The third interesting point is that other new aircraft (CSeries, etc) will enter into the market during the same period too. Think about possible A320 and 737 re-engining!
There will be a fierce funding competition between those new aircraft.
2010 to 2015 will be a very interesting period. Too many new aircraft are entering the market in a too short period. Airlines will have much difficulty to absorb all those deliveries. It’s too much for the aviation industry, I think at least one aircraft program will meet severe turbulence.
The word you have to retain is “mothball“. It is possible that some programs will be mothballed in the coming five years.
Too much is too much.
Vero Venia :
You might be correct in your analysis of “perceived demand” but I think Airbus seriously missed the mark on that end as well. Sales of the venerable B747 was starting to tail-off as well. If you look at Airbus old GMF, they were well off in the North American market, as well as some other markets. Making a $10-$15 (now probably $25 billion) investment isn’t a laughing matter. If I was an EADS shareholder and bondholder, I wouldn’t be a happy camper.
We’re basically going TENTH of year of A380 sales (the A380 was officially offered in 2001)-200? Sorry, that’s just a POOR market forecast.