Triple-Seven thoughts

First FedEx 777F Takeoff K64776-04

FedEx is the most recent customer to place a big 777F order. Who might be next?

In recent days we have looked at Boeing’s 747 and 767 programs, today we look at the 777 – the other aircraft type for which Boeing offers a freighter variant.

Regarding the 767, we concluded that although the introduction of the 787 effectively ended demand for 767 passenger aircraft, demand for the commercial freighter and military tanker variants will keep the program thriving for many years to come. Things are not as rosy for the 747-8. It is a relatively new program and there is no replacement on the horizon, but demand for the 747-8 Intercontinental, the passenger variant, never really materialized, and while the freighter variant has sold moderately well, it cannot, by itself, support the program.

The 777 program is now in the position the 767 program was in about ten years ago. That is, a replacement program (the 777X) has been launched, but serial production of the new type is still probably at least five years away. This puts both the manufacturer and its customers in an awkward position. Boeing needs to keep its 777 lines running and profitable until production of the 777X is in full swing, but customers are looking ahead, and many will prefer to wait for the new, presumably better, 777X.

What to do? If Boeing lowers its price for the 777-300ER it may get more orders, but some, perhaps even most, of those orders will be from customers who would otherwise have ordered the 777X. Cannibalizing the future to pay for the present.

Salvation for the 767 came in the form of the US Air Force’s need to replace its aging refueling tanker fleet, and FedEx’s desire to replace its aging DC/MD-10 fleet. But the US Air Force is not about to order a 777 tanker, so can Boeing hope for a surge in 777F orders to help keep its 777 line humming during the transition to 777X production? And just how many orders does Boeing really need?

Boeing this week announced that it would slow 777 production to seven units per month – 84 per year. Assuming that 777X production won’t be fully ramped up for another five years, Boeing would like to build about 420 777s over that period. Its present backlog includes about fifty 777Fs and 175 777-300ERs, a total of 225 units, leaving a need for about 200 new orders.

Of course, this is all back-of-the-envelope math. 777X production may take a little longer to ramp up. Or Boeing may decide to reduce the production rate further. But we think it is fair to say that the company would very much like another 200 orders.

The 777-300ER is a well proven aircraft, popular with carriers and lessors since its introduction in late 1990, and it is not unreasonable to expect more orders, even with its replacement on the horizon. But what about the freighter? The 777F?

The first thing to consider is that for the freighter variant of the 777, there is no replacement on the horizon. Boeing has said it expects to offer a 777X freighter eventually, but that day is a long way off. So 777 freighter orders should continue to be placed at a rate unaffected by the looming introduction of the X. Historically, that rate has been about fifteen per year, so, absent unexpected upheavals in the air freight market, Boeing might expect to book somewhere around 75 orders over the next five years – which would go a long way toward keeping the line running at a reasonable rate.

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