Emirates negotiations may deal blow to key Boeing 777X order

By Dominic Gates / The Seattle Times

PARIS, France — Giant Gulf airline Emirates, the carrier with the world’s largest widebody aircraft fleet and the clout to go with it, is in negotiations with Boeing that could substantially defer part of its massive order for 150 Boeing 777X jets and perhaps substitute smaller 787 airplanes for some portion of the order.

Emirates president Tim Clark confirmed in an interview Saturday that the 777X renegotiation is approaching conclusion, though the outcome likely won’t be announced until the Dubai Air Show in the fall.

The airline represents nearly half the firm orders for the new widebody jet. For Emirates, the global champion of giant airplanes, to cancel or defer any of its 777X orders is a marketing black eye that could affect the plane’s sales prospects.

Speaking by phone from the U.K, where he is laid up due to a virus and unable to travel to this week’s Paris Air Show, Clark said he’s discussing with Boeing “a combination of the 150 777Xs and the 40 787s, essentially looking to keep the numbers in place, but substituting and spacing them out over a longer timeline.”

An aviation industry executive said a more drastic outcome is possible, with a portion of the firm 777X order either canceled or pushed out so far into the future it’s effectively the same thing.

The 777X is Boeing’s next new airplane. The company has invested $1 billion just to build the plane’s composite wings in an all-new facility in Everett, and at further cost developed a new automated assembly system.

Since the 777X was launched in 2013, it has won 344 firm orders including the 150 from Emirates. Production has begun and first delivery is next year, yet there have been only two new sales in the last two years. Questions were already being asked about whether this plane was too big and wouldn’t sell enough.

Boeing’s aim in the negotiations with Emirates is to save its 787 order, which was never finalized and isn’t in the order book, while sacrificing as little as possible of the 777X order. The talks should play out over this summer.

Airbus forces the Emirates shift

Clark said his airline’s need to reexamine its firm order for 150 777Xs was triggered when Airbus in February finally terminated its ailing A380 superjumbo jet program.

Having failed to persuade Airbus to invest the money needed to upgrade its flagship airplane, Emirates then canceled 39 of the A380s it had on firm order, and committed to replace them with 70 new orders for smaller widebody jets: 40 A330-900neo and 30 A350-900 aircraft.

That influx of new Airbus widebody aircraft means Emirates no longer needs in the near future as many Boeing widebodies as previously planned.

Emirates had earlier agreed with Boeing on two hugely important orders:

• At the 2013 Dubai Air Show, Emirates announced the order for 150 777Xs, the largest airplane order in aviation history and one that helped launch Boeing’s giant-winged airplane.

• At the 2017 Dubai Air Show, Emirates signed a letter of intent to buy 40 of the largest Boeing Dreamliner model, the 787-10. Emirates owns no Dreamliners, so this was a big strategic win.

Clark said the 787-10 letter of intent not only was never finalized but has now lapsed and “has no validity.”

Still, this lapsed 787 deal is now is at the center of renegotiations that involve both the 787 and the 777X contract.

Calling the negotiations a “work in progress,” Clark said the aggregate total order for airplanes will likely end up “roughly the same” at 150 plus 40, “but subject to longer timelines for service entry.”

Clark also strongly suggested that because the Airbus A330-900neos he has committed to are very similar in size and performance to the 787-10, he’s likely to also change out the Dreamliner model he wants from Boeing and instead opt for the smaller 787-9.

Hinting that Emirates might not have chosen the A330neos without the pressure of events, Clark said, “We had to make compromises … (with Airbus) with regard to the shutdown of the A380.”

Clearly, if Boeing wants to restore its Dreamliner win, it has to bargain and can expect to give something up.

The 787 takes priority for Boeing

It seems Boeing is willing to renegotiate its firm 777X order — and potentially lose part of it — not only to accommodate Emirates but also because it desperately wants to preserve the Dreamliner order. It needs to sell more 787s to ramp up production as planned next year to 14 airplanes a month.

While the 777X hardly has a surfeit of orders, it’s less of a priority because it’s still some years away from accelerating production. The 787 order is a more immediate need to generate the cash flow Boeing has promised Wall Street.

It would certainly be a blow if Emirates, as Clark suggests, downgrades from the 787-10, which has a slender order book, to the hot selling 787-9. Still, just retaining the Gulf carrier as a premium 787 customer is also strategically important, because then it’s likely more Emirates 787 orders would follow in later years.

The aviation industry executive, who spoke on condition of anonymity to protect his business relationship with Boeing, described a worse outcome for Boeing, whereby it gets to firm up the order for 40 Dreamliners only by cutting the 777X order by an equivalent dollar amount. That would mean 30 to 35 cancellations out of the original 150 airplanes.

In contrast, Clark clarified later via email that he’d like to end up with an order for “roughly” 190 airplanes, though with the deliveries deferred. If orders are pushed out far enough, they effectively can be substituted later for some new airplane.

Clark said he expects to finalize the separate widebody jet deals with Airbus and with Boeing soon and certainly in time for this year’s Dubai Air Show in November.

Clark said both deals are the result of a major rethinking at Emirates of its future network, resulting in a new plan for the future that was finalized only in April. The rethink, spurred in part by the A380 termination, came after a troubled year at Emirates when profits for the fiscal year ended March 31 plunged 44%.

Clark said that “once we get these smaller aircraft in, like the A330neo and the 787-9, we’ll be able to grow the network significantly again,” opening routes that were too small for the much bigger Airbus A380s and Boeing 777-300ERs that make up the current fleet.

“We think we can get things back on track again, while remaining cash positive, very soon, within the next two to three years,” he said.

Clark said he’ll come to Seattle next month to take a close look at the 777X, “which I hope will have flown by then.”

If it hasn’t, he said that will begin to squeeze his timeline, which depends on taking delivery of the first 777X in June next year.

Max design

Separately, Clark spoke about the crisis around the Boeing 737 Max following two fatal crashes that killed 346 people in Indonesia and Ethiopia.

He said that although Emirates doesn’t fly 737 Maxs, sister airline Fly Dubai does and has 13 of them grounded. Clark said his boss, Sheikh Ahmed Bin Saeed Al Maktoum, who also runs Fly Dubai, is “not happy.”

Clark added that while he’s neither a pilot nor an aerodynamics engineer, he’s surprised that Boeing installed in the Max its Maneuvering Characteristics Augmentation System (MCAS), “a system so powerful that it could pitch the airplane up and down and did what it did to those two aircraft — if that is proven — and that it relied on a single sensor that could be easily damaged.”

Boeing needs to explain to regulators “why this system was designed in the first place to do what it did,” he said.