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Airbus, Boeing Under Pressure to Sell Older Jets at Air Show

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As Boeing Co. and Airbus Group SE ramp up production of a handful of new jetliners, both are facing the challenge of selling older planes to sustain cash flow and profits until the new models start reaching customers.

On Monday, the Paris Air Show, the aerospace industry’s oldest and largest sales extravaganza for new and advanced models, kicks off with pressure on the two top airline suppliers to book deals for their uncomplicated, twin-aisle moneymakers, the Boeing 777 and Airbus A330.

Toulouse-based Airbus and Chicago-based Boeing booked more than $134 billion in deals two years ago and $115.5 billion, for almost 700 jets, last year at the Farnborough Air Show, which alternates with Paris each year to hosting the industry’s biggest event. Plane makers are poised to book deals for 800 aircraft overall at this year’s gathering, said Tom Captain, the top aerospace-industry executive at advisory firm Deloitte LLP.

Airbus President Fabrice BrĂ©gier said selling current A330s is a priority, and filling its order books will be crucial to filling a multiyear gap that the ramp-up of newer models is expected to create. “I think we will increase the confidence that we will stay at ‘rate six,'” or six a month, he said discussing monthly production levels.

Airbus is planning to ramp down production of the A330 widebody. It now expects to build only six of the jets a month, rather than 10, starting next year. Analysts say more cuts may be needed.

Meantime, Boeing is trying to avoid throttling back on 777 output. The company is designing the successor 777X, a 350- to 400-seat update with enormous carbon-fiber composite wings. The first of two models is due in 2020. Boeing so far has 296 orders from six customers.

But Boeing expects to build the new 777X slowly, while a new competing Airbus jet is coming in 2017. That leaves sales teams looking for 200 to 300 orders for current-generation 777s for delivery stretching well past 2020, to avoid output slumping, according to Boeing global sales chief John Wojick.

Boeing is sold out in 2015 and 2016, but has sold only “57% or 58%” of the 777 jets it plans to build in 2017, said Randy Tinseth, the commercial unit’s marketing vice president. And it has orders for a fraction of planned 2018 and 2019 output. Boeing needs between 40 and 60 orders each year to keep the 777 line running at its current pace.

Some analysts are skeptical Boeing can maintain current production levels. That could raise alarms from investors, who have come to look at Boeing’s cash flow as a key measure of its financial performance.

Despite that skepticism, Boeing President Dennis Muilenburg said last month that Boeing confidence in building a ” bridge” between older and newer model production “is actually increasing.”

Even if the two plane makers succeed in selling extra planes, it could come at a cost to profits. “The end-of-line A330 and 777 will be heavily discounted,” said Rami Myerson, a London-based aerospace stocks analyst at Investec.

In 2012, near the height of the current 777’s popularity, Boeing was charging, on average, $145 million for its most popular model of the plane, according to consultancy Avitas. Mr. Wojick, Boeing’s top salesman, said the company hasn’t had to “deeply discount” the model to win the 25 orders it has racked up so far this year.

“As we get farther and farther out in the delivery stream, we’ll do what we can, obviously, to keep the line full,” he said.

To spur sales, Boeing has promised a 2% reduction in fuel consumption by the third quarter of 2016 through a host of small engineering tweaks. It is also expanding the cabin to fit 10 to 14 more economy class seats, which could cut per seat operating costs by up to 5%.

There also are new opportunities for Boeing, including a rebounding airfreight market. Emirates Airline, the biggest 777 operator, also said it may buy between 10 and 15 more of the longest-range passenger model for its fleet.

Unlike the two, older wide-bodies, newer models from Airbus and Boeing are sold out for years. Airbus is boosting monthly output of its A320 single-aisle to 50 from 42. Boeing, meanwhile, has boosted production of its competing 737 jet to 52 a month from 2018, up from the current 42. Both are exploring further increases.

Source… Airbus, Boeing Under Pressure to Sell Older Jets at Air Show

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