Not in the matter of sheer numbers, mind you. In fact, from the perspective of plain (or plane?) mathematics, nothing much changed about Boeing’s order book at all. One week ago, Boeing was telling investors it had booked 127 gross plane orders, suffered 16 cancellations, and thus ended up with a “net” order book of 111 commercial aircraft — 10 more than Airbus. These net orders include:
66 single-aisle 737s
two dozen “Dreamliner” Boeing 787s
17 “triple-sevens” ( 777s)
three 747 jumbo jets
one single solitary order for a 767 widebody
Look very closely, though, and you’ll notice a small change from what we saw last week. Ten of the Dreamliners are missing — and they’ve been replaced by an equal number of 777-300ER jets.
Check your sources
Boeing’s move, incidentally, was confirmed in passing when United Airlines reported earnings yesterday. Therein, America’s most-loathed airline observed it had recently switched out 10 Dreamliner orders for 10 units of Boeing’s 777-ER “for delivery beginning in 2016.” United says that the 777s “will provide attractive upgauge and range opportunities to the company at competitive economics.” Separately, United noted that the switch to 777s will “achieve longer-term network needs without increasing its outlook for capacity or gross capital expenditures over the next several years.”
Taken together, these two statements lead us to an interesting conclusion. Consider: According to Boeing’s published price list, the 787-8 and -9 aircraft that United uses in its fleet cost $218 million and $257 million, respectively. These aircraft carry 219 seats and 252 seats, also respectively. In contrast, the 777-300ER aircraft that United is subbing in carry a list price of $330 million, and can carry 365 passengers.
Now, Boeing is not in the habit of revealing the prices its customers pay for aircraft — ever. But if United was able to snag its 777 aircraft at a “competitive” price, and what’s more, at a price that doesn’t increase United’s “gross capital expenditures” from what it had planned to pay for the smaller 787s, then this strongly suggests that Boeing is selling the 777s for a price similar to what had already been negotiated for the 787s. And if we’re parsing the language of United’s comments correctly, this means that the airline just got a discount of 22% to 33% off Boeing’s already habitually discounted plane prices.
The upshot for investors
Suffice it to say that this is not going to be great news for Boeing’s profit margins, which had already taken a 60-basis-point hit in this week’s earnings release.
Granted, for an airplane maker that sold 1,380 jet planes last year (before cancellations), weak margins on a mere 10-plane sale are not a disaster that’s going to sink the airship. Granted, too, one of the reasons Boeing’s profit margins have been sinking is because it’s been having such difficulty making a profit on the 787 — and now it will be making 10 fewer of them.
But even so, the long and the short of this story is that Boeing almost certainly just agreed to accept millions of dollars less revenue for 10 of its plane sales than it otherwise might have expected to make. And that’s hardly good news for Boeing.