Good deals all round that could not wait for Paris – Welcome the 787-10

By Victoria May 31, 2013 10:16

Good deals all round that could not wait for Paris – Welcome the 787-10

Well it is a super week for Boeing and Airbus – Singapore Airlines has agreed to spend $17bn for 30 A350s and 30 787-10s. Now we must all note in the first instance that this marks the launch customer of the 787-10.
Code-named 787-10X for a long time, the 787-10 offers about 50 more seats. This order means that customers of the smaller 787 might have to watch those residual values; it also means that Boeing will have to look at increasing production of the 787 beyond a planned level of 10 a month by year end. It also gives a boost to the A350-1000 program credentials. SIA agreed to order 30 additional A350-900 aircraft on top of the 40 already ordered. It also took options for 20 more A350-900 aircraft, which could be converted to the larger A350-1000. This will put Boeing in a fix as it is trying to flog SIA 777Xs. Once again we can argue strongly that John Leahy called it right with the A350-1000 idea and ran ahead of the market.
But hold on! Was this not the airline that earlier this week posted weaker than expected full year results? The order of the 787-10 pins the SIA colours to the mast of premium full service travel for the long term, and yet if the credit crisis taught us anything it is that companies who ditched business class travel on the main learned to live with it and now wonder why they should start again. I start to wonder more and more if the mighty SIA is losing direction as the Middle East carriers, Chinese carriers and low costs (among others) introduce serious alternatives on close to every SIA route.
SIA has argued that these aircraft orders offer the best in terms of intra-Asian air travel economics and on that it may well be right; the problem is that it has been boxed into this strategy and it is one that the airline probably would not have taken without the huge competitive pressures it is now under.
SIA is gambling that other carriers fixed on the low-cost market and long-haul markets alone will leave an intra-Asia premium market gap for it to fill its aircraft. It is also gambling on the APAC region showing continued strong growth over the long term. I hope they are right; I still say that this strategy must be coupled with more and deeper cost savings at SIA if it is to hold on to its top tier position.
Meanwhile Tui Travel has purchased 60 Boeing 737 MAX aircraft, with an option to buy a further 90. All good news there for Boeing; a $6bn odd list price order. It all went slightly wrong for Boeing though as Tui gave the press a bit more information than is usual when senior Tui staff started quoting “substantial” discounts led to the order and then started to get pinned down on price ranges.
Oh dear – The unspoken truth was nearly public for Boeing on this one. An order is an order and this is all good news but the comments made do indeed allude to heavy discounting at the moment for customers affected by the 787 saga. The bottom line is that the 787 saga is an opportunity to up-sell customers during the reparations talks and this is the latest example of good Boeing sales work.
We will never know the exact price paid on these Max aircraft without getting someone very drunk and strapping a recorder to them but as a related issue the order books of late tell the story – The NG is still selling fast. The Max just does not have enough of a fuel saving over the mighty 737NG to justify the additional cost and Boeing is being beaten down to reality on pricing.
Tui has an option to buy a further 60 737 Max aircraft on the same terms as the initial deal which is a great deal for the airline and a good hedge, after that it has an option to buy 30 more on terms to be determined at the time of purchase.
So a good deal all round but in the end list prices are only a rough starting point for negotiations.
It is of course no co-incidence that this order is timed to coincide with the delivery of Thomson Airways’s first 787 at Manchester Airport.

Thomson Airways will fly the aircraft from London Gatwick, Manchester, East Midlands and Glasgow airports, on long haul routes to Sanford, Florida and Cancun in Mexico, starting from 8 July 2013.

By Victoria May 31, 2013 10:16
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