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Randy Tinseth

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Blue Skies Inside and Out: ISTAT Americas 2018


You usually can’t go wrong visiting San Diego in March. The skies are blue, the sun shines bright, and the temperature is a balmy 70 F. I had a good trip there this week, and not just because I got some California sun. (The sky blue photo was snapped during our lunch on the deck of the Marriott Marquis as a seagull flew by.)

I was in town for the ISTAT Americas conference, a great annual gathering of those who run and manage airlines and those who build, appraise, finance and trade airplanes. For two days, we talked shop, comparing notes on market forecasts, and debating the valuation and viability of current and future airplanes.

I came away feeling very good about where commercial aviation is today and where it’s headed in the coming years. There was wide agreement among the presenters and panelists that our industry – known historically for pronounced peaks and deep troughs – is in a much better place.

Commercial aviation has seen eight years of steady and above-trend growth. The airline sector, which has long struggled with financial losses, has achieved unprecedented levels of profitably. At the same time, the airlines and the lessors have healthy balance sheets. Airplane supply is in line with growing demand. The cargo market is back in a big way. And as my colleague Tim Myers at Boeing Capital Corporation shared, there is robust financing because airplanes aren’t a niche asset anymore, and innovation in funding is driving more players into the market.

Simply put, the skies inside the conference hall were just as blue as those on the outside. (Now, I do live in Seattle and gray skies are never far from my mind. More on that later.) And it sure didn’t hurt that we announced that Hawaiian Airlines has decided to switch to the market-leading 787 Dreamliner for its future flagship airplane.

For my part, I presented Boeing’s view of the market. We saw a very strong 2017 as airlines flew a record 4.1 billion passenger trips with record load factors of 81.2 percent and industry net profits of $35 billion (with nearly half of that generated in North America).

Courtesy of ISTAT

At Boeing, thanks to our awesome team, we also had a great 2017, delivering a record 763 commercial jets, including 49 percent of the industry’s large single-aisle airplanes and 60 percent on the twin-aisle side.

For 2018, our teams are working toward another industry record as we target between 810 to 815 airplane deliveries.

Meanwhile, our market analysis team projects another healthy year for the airline business with 4.3 billion passenger trips, roughly an 81 percent load factor, 6 percent growth in revenue passenger kilometers, and $38 billion in industry profits.

Over the long-term, our Current Market Outlook continues to project global demand for more than 41,000 airplanes valued at $6 trillion through 2036. While the jet market is large and lucrative, I pointed out that we shouldn’t overlook the 20-year market for all commercial services, which is valued at $8.5 trillion. (See my last post on this topic)

After discussing the market, I shared updates on Boeing’s family of airplanes.

At last year’s ISTAT Americas conference, I introduced the concept of a 737 MAX 10 airplane, a longer version of our upgraded 737. I explained then that it would be the most profitable single-aisle jet in the industry with the same capacity as our competitor but with lower per seat costs and more range. I was delighted to share that a year later the MAX 10 program has more than 400 orders and commitments from 18 customers.

About 40 percent of those MAX 10 deals are incremental business. The rest are conversions of previous orders for the MAX 8 and MAX 9 variants, showing the flexibility of our MAX family.

Overall, the MAX family is quite active. The MAX 7 is about to fly for the first time, the first MAX 9 is about to be delivered, the MAX 10 has reached firm design configuration, and more than 80 MAX 8s are performing well in service around the world. In fact, we’re seeing the MAX 8s deliver on the promise of greater range for our customers. I’ll dive deeper into this topic later this month.

Our widebody collection is also performing well. We now have nearly 650 787 Dreamliners – about 350 787-8s and 300 787-9s – flying around the world. And we are just weeks away from delivering the first 787-10 Dreamliner, which will have the lowest operating costs of any widebody airplane in service.

I shared one slide that really shows how the 787 is winning in the market when it comes to new generation widebody jets. The Dreamliner family has nearly 1,300 orders, while the A350 and A330neo families combine for 1,055 orders.

Beneath the total numbers, I think what is really compelling is the comparison on repeat customers. The 787 family has 485 repeat orders from 33 customers. The A350 family, relaunched in 2006, has 99 repeat orders from 5 customers. The A330neo, launched in 2014, has no repeat customers so far.

I also shared a quick update on the 777 family, the world’s most popular twin-aisle that is just shy of 2,000 orders. The current generation 777s continue to perform well. In fact, reliability in the fleet has been climbing in recent months, reaching a staggering 99.5 percent average. Meanwhile, development and production continue on the new 777X, which will set a new benchmark for fuel efficiency when it enters service in 2020.

As you can imagine, there was a lot of discussion and speculation about an airplane that we have not launched yet: the NMA or New Mid-market Airplane. Our NMA team remains focused on building a solid business case including understanding market opportunities, reducing program risk, and working through design tradeoffs.

I can tell you that we’re notionally looking at two airplanes with 220-270 seats and range of up to 5,000 nautical miles. We see a global market for about 4,000 airplanes in the NMA class. At the conference, it was good to hear my colleagues from the leasing community and engine manufacturers share a similar outlook on the addressable market demand of 3,500 to 4,000 jets.

We’ll see what the future holds. Speaking of which, amidst the seemingly endless blue skies in front of us, most of the presenters had a tough time forecasting where and when the storm clouds might appear, if they will at all.

I think one presenter put it well that our industry has reached such a scale as to dampen the effects of normal volatility. Another agreed, saying that we can probably weather any one issue like a sudden spike in fuel prices or a downturn in emerging markets. The question will be whether we can manage through a slew of exogenous shocks in a worst case scenario.  

Aside from the fact that I live in Seattle, a big part of my job is to look beyond the horizon. So, my team and I am are always thinking about the possibility of gray skies creeping back into the forecast.  But, today and as we look forward, the themes of steady growth, balance and disciplined management remain. And, we continue to be in a very good place with a large and diverse backlog and new products like the 787-10 and 777X right around the corner.  

Simply, the view is pretty darn good.

2 comment on “Blue Skies Inside and Out: ISTAT Americas 2018

  • Albert Nissim
    March 12, 2018 | 1:53 pm

    "Pretty darn good" Well I know the view is pretty and I hope it will be good…but I hope also that there will not be too many holes to darn…or patch. Great Going Boeing!

  • Andrew Boydston
    March 20, 2018 | 9:26 pm

    The outlook may be accurate but the internal numbers within that outlook are what's at stake. The competitive products must capture market segments in a robust manner and for Boeing having an all-new offering is key to keeping leverage on the marketplace within the outlook total numbers. An NMA offering will be key in solidifying or giving synergy to its family of aircraft.

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