DLAKF - Boeing And Airbus Win Big Wide Body Airplane Orders

2023-03-06 09:30:49 ET

Summary

• Lufthansa ordered Airbus A350 and Boeing 787 airplanes.
• The airline group will significantly reduce specific fuel consumption.
• Order for Airbus A350-1000 could cast doubt on the future of Boeing 777-9 order.

During the pandemic, we saw airlines making significant cuts to their fleets, and looking at it now, I believe many airlines would have wished they had not made those cuts as demand for air travel has rebounded strongly, and jet makers cannot build aircraft fast enough. Initially, we saw the airplane orders to position for the future primarily in the single-aisle segment, but more recently this has shifted to the wide body segment as well as international air travel is expected to be largely recovered by 2024 and also on the wide body programs we are seeing the impact of supply chain constraints. Somewhat counterintuitively, this creates an appealing backdrop to acquire additional wide body aircraft as I explain in this report. Recent examples of wide body orders include the mixed order from Air India and the order from United Airlines ( UAL ) for the Boeing 787 as well as additional Boeing 737 MAX aircraft.

Neither of these orders is subject to this report. Instead, I will be discussing the most recent order from Lufthansa ( DLAKF ) which included Boeing ( BA ) as well as Airbus ( EADSF ) airplanes.

Airbus vs. Boeing: Which Stock Performed Better?

While especially in the last few months we have been looking at Boeing as if it performed remarkably well, the reality is that Airbus showed roughly similar stock price performance. Obviously, you can select any timeframe you would like. Measured from the all-time highs, Boeing stock is trading down around 50% while Airbus trades down 15%. So, Airbus has been able to retain value better than Boeing, but the reality is that over a one-year timeframe, Boeing did not do as exceptionally well as one might think, and you really wouldn't have missed out with either of the names.

Lufthansa Order News: Boeing and Airbus Win

On the second of March 2023, prior to the release of its 2022 financial results , Lufthansa announced that it placed orders for 10 Airbus A350-1000s, five Airbus A350-900s and seven Boeing 787-9s. The list price of the order is around $7.5 billion, but actual market value is closer to $3.5 billion.

Data from the evoX Airplane Sales Monitor shows that Lufthansa placed a total of 57 orders for the Boeing 787 and Airbus A350 since 2015. The newly announced orders will be added to that total and restore the balance between Boeing and Airbus for the orders placed in recent years. Since 2015, 25 Airbus A350s airplanes were ordered compared to 32 orders for the Boeing 787. With the newest orders, the totals will be more balanced: 40 orders for the Airbus A350 and 39 for the Boeing 787.

Currently, Lufthansa already has 21 Airbus A350-900 in its fleet configured with 293 and 295 seats. In October 2022, Lufthansa announced that it would be upgrading its cabin product, dubbed Lufthansa Allegris. With this cabin product, the Airbus A350-900 seating would come down to 267 seats. So for Lufthansa, it made sense to look at the bigger Airbus A350-1000. The Airbus A350-1000 would allow Lufthansa to maintain the 295 seating but with the Lufthansa Allegris cabin product. So, the choice for the Airbus A350-1000 makes a lot of sense and allows for the deployment on premium heavy routes as well.

For a long time, the Boeing 787 was not in the picture for Lufthansa. However, with delays on the Boeing 777X program, for which Lufthansa is a customer, extending and several customers walking away from their ordered Boeing Dreamliner aircraft, the opportunity presented itself for Lufthansa to acquire Dreamliner aircraft at attractive terms. In March 2019, the board approved the purchase of 20 Boeing 787-9 airplanes, with options for another 20. In 2021, the airline bought another five aircraft, followed by another seven in 2022. These likely are all opportunistic purchases that Lufthansa took on as customers walked away from their orders.

With the selection of the Airbus A350-1000, investors are wondering whether Lufthansa will ever take delivery of the 20 Boeing 777-9 airplanes that it ordered in 2013. I would say that in order for the Airbus A350-1000 to be considered a swap for the Boeing 777-9, it would require a change in mindset for Lufthansa on what size of airplane they want in their fleet because the Boeing 777-9 and Airbus A350-1000 are not really comparable when it comes to size. The Airbus A350-1000 with a 58.3 meter cabin length has a two class seating of 369 seats while the Boeing 777-9 offers 414-426 seats at an approximate cabin length of around 61 meters as I discussed in a previous report . So, one would say that these aircraft are not comparable. However, I do have to argue against my own point here since Airbus has introduced a new production standard which pushes the seating capacity closer to that of the Boeing 777-9. In the end, however, the Boeing 777-9 remains a bigger aircraft which could be better suited to replace the quad jets in the Lufthansa fleet. So, I wouldn't quite say that the Airbus A350-1000 rules out Lufthansa ever taking delivery of the Boeing 777-9s, but it could very well change their mindset on how many Boeing 777-9s they might require in the future.

As the deliveries have been sliding from first deliveries expected in 2020 to 2027 now and with the desired launch of the new cabin product ordering the Airbus A350-1000 makes a lot of sense. Overall, the order for the Airbus A350 as well as the Boeing 787 might also be related to ongoing delays in deliveries, which allow Lufthansa to buy more aircraft and render discounts on those purchases.

How Much Does A Boeing 777-9 Cost?

The Boeing 777-9 currently has a list price of $442.2 million, but the actual market value is expected to be closer to $185 million.

Conclusion: Lufthansa Utilizes The Boeing-Airbus Duopoly

Looking at the order, it can be concluded that the order makes a lot of sense. Lufthansa has some very old models still active in its fleet, and the airline can capitalize on delays in the wide body delivery schedules by purchasing aircraft at a higher-than-usual discount, making the long-term investment even more rewarding. I believe that both aircraft families have a place in the Lufthansa Group fleet. Maybe most interesting or exciting is the choice for the Airbus A350-1000. With the eye on a new cabin product, the Airbus A350-1000 offers a very robust platform to maintain capacity compared to the Airbus A350-900 while adopting a more high standard cabin product. Lufthansa Allegris for instance offers floor-to-ceiling walls, which is something that I only have seen on one other airline.

While I don't expect there to be any direct consequences for the Boeing 777-9, the big question is whether Lufthansa will still see a major role for the Boeing 777-9 in the future. Maybe part of the role that the Boeing 777-9 could also be done by the Airbus A350-1000. So, in some way you could say that the delivery delays on the Boeing 777X program have resulted in orders for the Boeing 787, but it also allowed entry for the Airbus A350-1000 into the fleet and Airbus has been developing the Airbus A350 to accommodate more passengers getting closer to the Boeing 777X capacity.

For Boeing as well as Airbus, the orders are good news as both manufacturers are targeting higher production rates on their key wide body programs. Orders like these, while seemingly, small layer into skyline from which a production schedule can be generated. Once supply chain issues dissolve, we should see production rates improve significantly.

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