Boeing sees more 787 cancellations, still upbeat
SEOUL/BEIJING (Reuters) - Boeing Co (BA.N) stands to lose more orders for its 787 Dreamliner as airlines balk at delayed delivery dates, but the order book remains firm and demand for the fuel-efficient plane is likely to pick up, a Boeing executive said on Tuesday.
"Frankly, as we look forward, we expect to see the Dreamliner order base increase, we expect to see more orders, we expect to see more cancellations, especially as we go through mitigation with our customers," Boeing Marketing Vice President Randy Tinseth told reporters in Seoul.
The Dreamliner is a light-weight, carbon-composite widebody that promises greater fuel savings and passenger comfort. It represents a huge leap in technology for the aviation industry, but the plane is also three years behind its original schedule because of kinks in the sprawling global supply chain.
Boeing still has more than 800 orders for the Dreamliner on its books. It made first delivery of the craft to All Nippon Airways (9202.T) last month.
Tinseth spoke a day after China Eastern (600115.SS) (0670.HK) scrapped orders for 24 Dreamliners. Instead, the carrier ordered 45 new Boeing 737 narrowbodies as well as 15 Airbus EAD.PA A330s, which is a direct competitor to the Dreamliner.
China Eastern's purchase of A330s could add even more pressure on Boeing to ramp up production of the 787, which lists at $185 million.
"The A330 has a proven and outstanding operational track record. More than 700 orders since 787 (program) launch are a clear customer vote," Airbus spokesman Stefan Schaffrath said via email.
Analysts said that with China Eastern's cancellation, other Chinese airlines may also decide to cancel Dreamliner orders as they reassess the long-haul market.
"There is a good chance that other Chinese airlines will also cancel their 787 orders because most of the time they will act together," said Kelvin Lau, an analyst at Daiwa Securities.
"This indicates that China Eastern is taking a bearish view on long-haul and believes the recovery in the United States and Europe won't come soon, so they don't want to invest so much on big planes for long-haul," he said.
Shares of Boeing were up 2.1 percent at $63.09 at midday Tuesday on the New York Stock Exchange.
IMPACT ON THE BACKLOG
Many in the industry believe the supply chain problems that plagued Boeing's development of the 787 could also slow production of the aircraft.
Boeing aims to increase the production rate from two a month to 10 a month by the end of 2013, but some analysts believe that is overly ambitious.
Boeing's Tinseth on Tuesday reaffirmed that production goal, saying the company would "slowly but consistently increase the rate until the end of 2013."
One aerospace analyst, Robert Stallard of RBC Capital Markets, said cancellations by China Eastern could present a pricing benefit for Boeing.
"Boeing probably priced these 787s to China quite aggressively," Stallard said in a research note on Monday. "If they are now able to resell some or all of these forgone slots for a better price, that would be positive for program margins."
Other aviation analysts said Chinese airlines were more likely to reconsider their Dreamliner orders than many rivals elsewhere, because they had a more aggressive growth profile and were more sensitive to any downgrade to global growth.
Australia's Qantas Airways (QAN.AX), struggling to revive profitability on its long-haul network, said on Tuesday it remained fully committed to its orders for 50 Dreamliners. Air New Zealand also said it was not reconsidering its orders.
Korean Air Lines (003490.KS) said it would introduce 10 orders for the 787-9 Dreamliner from 2016 "as planned."
In Beijing, Boeing China said there was no sign of further cancellations of Chinese orders.
"The other committed Chinese airlines remain committed to the 787," Boeing said in a statement. "The 787 is the right choice for these airlines' international expansion for a number of reasons, including unmatched passenger experience, fuel efficiency and environmental performance."
Among Chinese airlines, China Southern (600029.SS) has 10 Dreamliners on order, Air China (601111.SS) 15, Hainan Airlines (600221.SS) 10, and Xiamen Air 6. Hong Kong Airlines in March signed a preliminary deal to buy 32 of the aircraft.
Boeing said the 24 787s cancelled by China Eastern were part of a deal with China's government for the purchase of 60 787s.
Globally for 2011, Boeing has seen 26 net cancellations for the Dreamliner, excluding China Eastern's decision. (Additional reporting by Kyle Peterson in CHICAGO, Tim Hepher in PARIS, Michael Smith in SYDNEY, Mantik Kusjanto in WELLINGTON and Alison Leung in HONG KONG; Writing by Mark Bendeich; editing by John Wallace)
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