Thought this was a decent and well balanced summary of the Very Large Aircraft Market...I copied the text and the graphics did not take....If anyone wants to hassle with signing up for this free article and to give credit to the author.....
www.seekingalpha.com/article/2709375-study-on-the-very-large-aircraft-market-the-battle-that-might-have-no-winner-part-3Study On The Very Large Aircraft Market: The Battle That Might Have No Winner (Part 3)
Nov. 25, 2014 5:20 AM ET | 10 comments | About: The Boeing Company (BA), Includes: EADSF, EADSY
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Summary
Boeing seems to have no strong aircraft in a $240 bn market segment.
Only a next level generation VLA can beat the Airbus A380.
The VLA market remains a challenging market for Airbus and Boeing.
In my previous article I compared the Boeing (NYSE:BA) 747-8I with the Airbus (OTCPK:EADSF) A380 and concluded that although on higher capacity configurations the Boeing 747-8I might be more fuel efficient, the Airbus A380 still is the best choice in terms of passenger comfort and profitability for airlines.
In this article I will mainly look whether there is demand for airplanes such as the Boeing 747-8I and the Airbus A380 and look at their respective order books.
In essence the Boeing 747-8I is a replacement of the Boeing 747-400 and could have a role on the market for aircraft with a capacity of 400-467 seats, while the Airbus A380-800 has a far bigger market with the A380 that stretches from 380 seats all the way to 550/555 seats. So the Boeing 747-8I and Airbus A380 definitely cannot be seen as competitors, but the Boeing 747-8I is there to keep the Boeing 747 meaningful and offer an alternative to the Airbus A380 or Boeing 777-300ER to add a little more capacity. Depending on the seating configuration the Boeing 747-8I seems to be more fuel efficient, but the Airbus A380 offers more passenger comfort in terms of seat pitch.
Boeing came up with a more efficient aircraft that has more revenue generating seats than the Boeing 747-400. The company assumed that making airplanes more efficient by developing aerodynamic efficient airplanes with fuel efficient engines with limited capacity was a better way than doing the same and significantly increasing the numbers of seats on the airplane (making a much bigger aircraft). Unless this was a sweet spot in the market the Boeing 747-8I was just a limited answer to the Airbus A380. Keeping in mind the order numbers that will be discussed later on it turns out that airlines are not very willing to buy the Boeing 747-8I, which means that Boeing did not do its homework correctly to see what airlines are looking for in the VLA segment.
The A380 on the other hand does not sell that well either, but allows for great flexibility in seating configuration and mainly has been ordered by Middle Eastern and Asian companies, which are markets that expect a rapid growth in the coming years.
Orders and deliveries
Table 13: Orders and deliveries
As can be seen orders for the Airbus A380 are over 5 times as big compared to the Boeing 747-8I. So in terms of orders the Airbus A380 is a success.
Airbus is expecting to break-even on the A380 production in 2015, assuming a production rate of 30 aircraft per year. In 2014 the production rate has been reduced to 25 aircraft per year and leaves analysts cautious about the production rate in 2015. Additionally order inflow has been low with no announced orders in 2014.
So although the Airbus A380 has bigger order numbers than the Boeing 747-8I, breaking even on the production next year remains a challenge and with limited order inflow the future does not look very bright for the A380. Additionally as time passes the A380 engine technology becomes even more obsolete, making the A380 less attractive to buy and with limited order inflow chances of a new engine for the Airbus A380 become slim, unless Airbus is willing to invest in it.
No information on break-even points for the Boeing 747-8I can be found, but with lower orders and an even lower order inflow I do not expect profits to be very high on the program. Additionally Boeing has started sales for the Boeing 777X, which probably is even more efficient than the Boeing 747-8I and carries similar number of passengers.
Jet fuel prices
VLAs are suitable at times when oil prices are low and demand for passenger transport remains significantly high.
(click to enlarge)
Figure 13: Price development jet fuel since April 1990
Looking at the graph it can be seen that jet fuel prices have been rising since 1990, with a major drop in 2008. This trend does not bode well for the super jumbos, since fuel efficient aircraft such as the A350 and the Boeing 777X might be the better choice for airlines. In case of a decline in demand for passenger transport it will be hard to keep flights with the super jumbos profitable, but both Boeing and Airbus predict a growth in passenger transport in the coming decades.
Forecast and demand
Both Boeing and Airbus provided a forecast which could give an idea on how they expect demand to be distributed among the various types of aircraft.
Boeing:
Figure 14: Forecast demand for various categories of aircraft (Source: boeing.com)
Boeing forecasts the need for 620 VLAs or 1.7% of the total demand for aircraft, valued at $240 bn.
Airbus:
Figure 15: Forecast demand for various categories of aircraft (Source: airbus.com)
Airbus forecasts the need for 1600 VLAs or 5% of the total demand for aircraft.
As can be seen Boeing (after subtracting the demand for regional jets) expects a demand of 32,480 aircraft, which is 0.9% higher than Airbus' forecast. In the widebody segment Airbus expects high demand for VLAs whereas Boeing expects higher demand for the small and medium widebody aircraft.
The huge difference might partly be caused because different view on the model that will be used by airlines, but probably also is a result of Airbus trying to convince the market to buy the A380.
So there indeed is need for VLAs, but I do not think this demand will be as high as Airbus forecasts. In terms of value the VLA market is not a market that Boeing or Airbus want to miss out on. Until 2033 I do not expect Boeing or Airbus to come up with an all new VLA. Which leaves the Airbus A380-800 and Boeing 747-8I as the sole competitors on the VLA market.
Conclusion
Long term:
With that prospect I do think the Airbus A380 will defeat the Boeing 747-8I for the following reasons:
The Airbus A380 can still be upgraded with new engines, which might bring Airbus some extra costs. This would make the A380 an attractive aircraft on the longer term.
The Airbus A380 offers great flexibility in seating configurations.
The Boeing 747-8I does not offer the same comfort and capacity as the Airbus A380, but has the aerodynamic and propulsive efficiency the Airbus A380 needs.
Short term and future:
In the short term I think neither the Boeing 747-8I nor the Airbus A380-800 can be seen as a winner.
Airbus developed a plane for which there is demand, but the engine technology is already becoming dated, additionally Airbus is having a hard time to break even. The forecast provided by Airbus can be questioned, if Airbus's forecast is accurate more airlines would already have ordered the Airbus A380 and Airbus probably would be more willing to invest in new engine technology for an Airbus A380neo. Airbus gambled a lot of money on the A380 program; limited order inflow and a breakeven point that might shift in time does not bode well. Airbus might have learned a thing or two from the A380 that might aid when developing a next generation VLA. This VLA could be similar to the Airbus A380-800.
Boeing developed an airplane for which there is no demand, but probably could not come up with a better answer within a decade. Looking at the forecast Boeing does not have a good VLA to offer to the passenger airlines, but has a good freighter to offer to cargo airlines. All in all, Boeing remains confident about the Boeing 747-8I and has said it will continue developing and tweaking the 747-8I. Other than that I do not think Boeing has a lot to offer on the VLA market until it comes up with a next generation VLA. A next generation Boeing jumbo probably would have even higher aerodynamic and propulsive efficiency and would have a significantly higher capacity, but requires a major redesign.
I think the forecast provided by Boeing is more accurate meaning that Airbus brought a product to the market for which demand is not high as of yet, but will rise in the next decade.
Airbus is facing the challenge to keep the current Airbus A380 up to date with the newest technology, something Emirates is already pushing for. Boeing on the other hand failed to come up with a proper answer and developed an airplane that no airline wants to buy.
In the short term the VLA market has no winner, but on the longer term the prospect looks a bit brighter for the Airbus A380(neo). Competition from the mini-jumbos (Boeing 777X and Airbus A350) will be fierce.