As sales slow, analyst says it’s time to cut the Boeing 787-8

By David Wren, The Post and Courier

NORTH CHARLESTON, South Carolina — As Dreamliner sales face headwinds and Boeing Co. continues to chip away at $30 billion in deferred program costs, an aerospace expert says it’s looking more certain that the 787-8 model eventually will be scrapped in favor of its newer and bigger siblings.

Boeing, which builds the 787 in North Charleston and Everett, hasn’t announced any plans to do away with its original Dreamliner model.

“While we always expected the majority of 787 orders to be for the 787-9, both the -8 and -10 are important members of the Dreamliner family that meet specific needs and missions for our customers,” company spokeswoman Lori Gunter said.

But Scott Hamilton, editor of aviation newsletter Leeham News and Comment, says it makes sense to ditch the 787-8 in favor of the more popular, more efficient — and more profitable – 787-9 and 787-10 models.

Boeing needs to increase the profit margin on each aircraft sold to pay down the deferred costs, which include production and tooling charges, Hamilton said.

“One way to do this is by shifting emphasis to the 787-9 and 787-10 and essentially dropping the costly 787-8,” he said. “Boeing openly discusses shifts to the 787-9/10 but denies it’s dropping the 787-8. But the fact is, there are just a handful of 787-8s scheduled for delivery from 2020.”

Boeing announced 58 Dreamliner orders in 2016, down from 71 a year earlier, and low fuel prices have airlines delaying purchases of the wide-bodies that have list prices of $224 million and up.

Of the 700 Dreamliners on Boeing’s order book at the beginning of this year, just 94 are for the “Dash 8.” And several of those orders are “sketchy,” according to Uresh Sheth, who tracks Dreamliner production on the “All Things 787” website.

“I can see the number of 787-8 deliveries in future years dropping into the single digits,” Sheth said on his website. “Boeing will need to execute on the 787-9 and 787-10 as they will form the backbone and the cash cow of the 787 program in the years to come …”

Delta Air Lines last month canceled 18 787-8 orders that it inherited from its Northwest Airlines acquisition to bring the order book for that model down to 94. Hamilton identifies another 33 iffy orders for the 787-8 from four airlines on a “watch list” due to their spotty financial histories and other concerns.

Boeing has shifted nearly all 787-8 work to Everett so the North Charleston campus can focus on integrating the new 787-10 into production. Of the 27 Dash 8s scheduled for delivery this year, Sheth said, just one — to be turned over to American Airlines in February — will be built in North Charleston.

“It’s a combination of Everett’s greater experience of building the 787-8, plus it gives Boeing South Carolina the chance to better integrate the 787-10 with 787-9, so as not to have to juggle all three models in 2017,” said Saj Ahmad, chief analyst for London-based Strategic Aero Research. “This is Boeing’s way of mitigating risk and is the right move to make.”

Final assembly of the first 787-10 started in December, with certification and initial deliveries to take place in 2018.

For now, the Dreamliner program is solid at its current production rate of 12 per month, Hamilton said in his analysis.

“Production through 2019 is full,” he said. “There is emerging weakness in 2020 and a big drop in 2021. Deliveries fall off the proverbial cliff in 2022.”

While there is plenty of time to get orders and fill delivery slots before that happens, Hamilton said Boeing has warned that it doesn’t expect a recovery in the wide-body market until the start of the next decade.

Even if no more 787-8s are built once Boeing’s current orders are filled, Ahmad said the plane can be considered a success.

“These airplanes will be in service for 30 years, even if another is never sold,” he said. “It’s a big seller in its own right. While many carriers have upgauged orders to the 787-9, the baseline 787-8 has been the start of Boeing’s technological and engineering change for all new airplanes it makes thereafter.”

It’s too early in the development cycle to revamp the 787-8, but Ahmad said the plane eventually could morph into the middle-of-the-market jet Boeing has been considering. Such a plane would fill a slot between a single-aisle and wide-body, competing with the popular A321neo built by rival Airbus.

“That would make the most strategic sense in the long term and give Boeing a viable 757 replacement, too,” he said. “Boeing will likely be happy to concentrate on making the 787-9 its bread-and-butter standard-bearer for the 787 family.”