Boeing's 787 Dreamliner faces new
challenge: slow sales
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[May 16, 2016]
By Alwyn Scott
SEATTLE (Reuters) - Boeing Co's <BA.N>
high-tech 787 Dreamliner has had its share of trouble, from early
production delays to batteries that smoked and burned, grounding the
worldwide fleet for months in 2013.
The logo of Dow Jones Industrial Average stock market index listed
company Boeing (BA) is seen in Los Angeles, California, United States,
April 22, 2016. REUTERS/Lucy Nicholson
Now the company's flagship plane is facing a new challenge:
slowing sales. Boeing needs to sell dozens of 787s to help recover
nearly $30 billion it has spent on production and not yet accounted
for in its earnings. But the industry is in a sales slump. Sales of
Boeing and Airbus wide body jets have fallen 51 percent since 2013,
and some analysts and investors predict that without more 787 sales
in the near term, Boeing will have to take a sizable charge to write
off some of the 787's deferred costs. (Graphic:
The 787 remains popular. Its lightweight composite airframe and new
engines cut airline fuel costs as much as 20 percent compared to a
conventional, aluminum plane. It can fly longer routes than previous
jets its size, and offers passengers large windows, less noise and a
more comfortable cabin environment.
Boeing has sold 1,154 so far, making it the fastest-selling wide
body plane when it came to market. However, the tally falls short of
the 1,300 planes Boeing is using as the basis of deferring the
charges in its accounting.
Many airlines stocked up on 787s before the 2008-2009 financial
crisis and do not need to order more now. Airbus's cheaper A330 has
also chipped away at 787 sales and low fuel prices have allowed
airlines to keep flying older, less efficient planes.
"Airlines are coming back to us and saying they would like to extend
their leases for two or three years" on older planes, said Aengus
Kelly, chief executive of AerCap Holdings <AER.N>, which has the
world's largest leased wide body fleet. "That's a direct result of
low oil," he told Reuters.
Boeing has not commented on a report earlier this year that the
Securities and Exchange Commission is looking into its accounting
for 787 costs, but says it stands behind its numbers.
"Our accounting is compliant with GAAP," Chief Financial Officer
Greg Smith said last month, referring to generally accepted
The 787 conundrum has made some investors wary of Boeing stock,
which has fallen more than 8 percent this year while the aerospace
and defense index climbed more than 5 percent. Short sales of Boeing
are at a record high. The stock closed down 1.7 percent at $132.09
Boeing needs to book orders for about 120 this year to hit its
target of selling roughly as many as it builds. So far it has sold a
net total of 12, including a recent order from China Eastern
"Would we ever order the 787 again? Sure," said an executive with a
leasing company that has 787s in its portfolio. "Will we order it
this year? Not a chance." There are simply too many wide body jets
for the demand right now, he said.
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AerCap had more than 80 Dreamliners to lease and has placed all but
a handful. It would buy more "if the price is right," Kelly said.
"But if it isn't right, I wouldn't bother."
Boeing spokesman Paul Bergman said that the company had "a healthy
sales pipeline this year." It also expects to "recover 787 deferred
costs in the current accounting quantity of 1,300 planes," Bergman
Another big order still could arrive from China or elsewhere. Kelly
met with China's four largest airlines recently and said low oil
prices had not dented their long-term interest in the 787. Chinese
airlines have so far ordered 56 of the jets.
While its sales force tries to defend the 787's prices in the
market, Boeing is working to make the aircraft less expensive to
build. It has worked on taking out expensive materials such as
titanium and is cutting its overall airplane division workforce by
about 10 percent this year.
Those moves would help improve the return on each 787, which reached
break even late last year, Boeing said. It also gives scope to
discount the jet to win sales.
Boeing says it is not cutting prices significantly to sell more
aircraft, since that would undercut the company's goal of lifting
profit margins to "mid-teens" by the end of the decade from about 10
percent this year.
"We are not going to chase market share for market share's sake,"
Chief Executive Dennis Muilenburg told Boeing's annual analyst
conference on Wednesday.
But industry experts said the company is being more aggressive in
sales. Ken Raff, executive director at the Seabury Group consulting
firm said that if an airline wanted to buy 787s, "this would not be
a bad time to try and do a deal."
(Additional reporting by Tim Hepher and Siva Govindasamy; Editing by
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