ANALYSIS: The Boeing 787-8 aircraft report

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Source: Flightglobal.com
This story is sourced from Flightglobal.com

The Boeing 787 Dreamliner series is a long-range, twin-engine mid-size widebody aircraft  seating between 210 and 330 passengers.

In the late 1990s, Boeing began considering replacement aircraft programmes for the 747-400 and 767 models as sales started to slow. The manufacturer proposed a stretched version of the 747-400, dubbed he 747X, and a brand new widebody aircraft, the Sonic Cruiser, to tackle the market.

In 2001, Boeing abandoned its derivative approach, shelving the 747 Stretch and plans for further 767 variants, a major U-turn in the company’s history.

At the same time, studies for a new faster aircraft development were confirmed - the Mach 0.98 Sonic Cruiser - with service entry targeted for 2006-10. The Sonic Cruiser received good market reaction, but was dismissed by Airbus as a publicity stunt as the A380 grabbed the headlines.

Boeing continued to pursue the Sonic Cruiser the following year despite the economic downturn that follows the September 2001 terrorist attacks, but many potential customers pushed for a more conventional alternative using the technology to provide significant operating cost savings rather than increased speed. Boeing had been undertaking parallel studies of a "super-efficient airliner" under "Project Yellowstone" and by year-end the Sonic Cruiser had been shelved.

In 2003, the super-efficient airliner studies came to the fore publicly in the form of the 7E7. The twinjet was intended to succeed the 757 and 767. Airbus initially dismissed the proposal as a "Chinese copy" of the A330. At Paris in June, 7E7 was christened "Dreamliner" after a public vote, reflecting its flowing conceptual lines and shark-fin tail. Boeing decided to adopt carbon fibre for bulk of structure.

The following year, the 7E7 programme was launched with Mike Bair at the helm, following an order from All Nippon Airways. It was offered with General Electric and Rolls Royce engines.

Boeing re-designated the 7E7 the 787 in early 2005 and released finalised design renditions, with the production aircraft losing some of its flowing lines but retaining an element of its original concept.

The manufacturer unveiled the 787 on 8 July 2007 (7/8/07). At the time of the unveiling, the programme had amassed 677 orders with 47 customers, an unprecedented feat for a new aircraft programme. Of these, an estimated 517 were 787-8 models, 43 are 787-3 models, 112 are 787-9 models and five were undecided.

The first 787-8 was scheduled to enter passenger service in May 2008 but the introduction into service suffered multiple delays.

The maiden flight was performed in December 2009 and the 787-8 received Federal Aviation Administration and European Aviation Safety Agency type certification in August 2011.

The 787-8 started commercial operations in October 2011. The aircraft suffered from early in service problems, notably fires on board related to its lithium-ion batteries, which grounded the active fleet between January and April this year.

Market

By 24 June 2013, the 787 programme had logged 923 net orders from 66 customers, with operating leasing company ILFC the largest customer with 74 units.

The 787-8 model represents 497 orders with General Electric equipping 247 aircraft, and Rolls Royce 165 units. Another 85 orders remain unannounced, according to Flightglobal’s Ascend online database.

The latest delivery was to British Airways on 26 June.

British Airways' first 787-8 arrives at London Heathrow following a delivery flight from Seattle. Picture: James Mellon, Flightglobal.com (27 June 2013)

Of the 63-aircraft in service, General Electric equips 36 aircraft and Rolls Royce the remaining 27 units.

 

The 787-9 model represents 376 orders with General Electric equipping 147 aircraft, and Rolls Royce 107 units. Another 122 orders remain unannounced.

The Boeing 787-10 model has so far received 50 orders with General Electric selected on 20 aircraft and Rolls Royce on 30.

Ascend expects the 787-9 and -10 variants to be the most popular variants in time, although the current orderbook does not reflect this yet. More upsizing from -8 orders is expected. It says that the economic and performance propositions are likely to the position aircraft as a benchmark product in the small widebody sector, replacing large numbers of 767-300ERs and A330-200s in the process.

Collateral Verifications’ Gueric Dechavanne expects operators to move towards the larger 787-9 and -10 variants as the industry continues to recover and grow. “The larger variants of this aircraft will offer improved seat mile economics and greater cabin flexibility to better meet passenger demand which we feel will be more compelling to operators and investors alike,” he says. 

Despite the groundings, Boeing continued production – it has been steadily working through post-production re-work and reached a production rate of five aircraft per month by year-end 2012, which will double to 10 aircraft per month by the end of 2013.

Ascend notes that Boeing did not lose any orders during the grounding American confirmed its 42 orders during the first quarter and decided to take 12 as -8s rather than all-9s. International Airlines Group is expected to firm up 18 options for British Airways for 2017-21 while Air Berlin is anticipated to covert 15 orders for -8s into -9s.

Stuart Rubin, principal of ICF SH&E, says the 787-8 operates in a “very healthy and competitive” market segment – the medium twin-aisle sector. As a twin-aisle, two-engine, long-range aircraft, the 787-8 is well equipped to benefit from the on-going growth in long haul point-to-point services, he says. “As airlines realise the benefits of bypassing congested mega hubs and passengers’ preference for flying direct to their destination, aircraft like the 787-8 should enjoy strong demand for the next decade and more,” says Rubin.

ICF SH&E says early-line number aircraft – particularly those that required interim work during production – have lower maximum takeoff weights and are therefore less capable than later build aircraft. ICF SH&E is of the opinion that these early vintage 787s with reduced capability are likely to suffer value impairment over both the short- and long-term in comparison with 787s that have been produced more recently.

IBA Group has not revised its 787-8’s value profile, as the grounding was seen more as a temporary operational matter. "Based on the healthy order backlog and market interest in the aircraft from lessors to investors alike, as the fleet grows, the aircraft should soon put any teething problems behind and show a strong value profile in light of its unique capabilities and technological advancements," says senior analyst Alice Gondry.

 

 

Financing acceptance

The 787 has received a good response in the capital markets from aircraft investors.

Ethiopian Airlines issued a $362 million US Export-Import-guaranteed bond transaction, backed by 787s, in November 2012 with coupons between 1.5% and 1.53%.

Continental Airlines also financed its 787s in the bond markets. The airline issued an $892 million enhanced equipment trust certificates offering backed by four 787-8 deliveries scheduled between September and December 2012.

As part of that financing, AISI said a September 2012 delivery was valued at $120.8 million, while a November aircraft carried a $121.2 million base value. BK was the highest of the three appraisers with quotes above the $130 million mark. The firm valued a September delivery at $133.5 million while a November aircraft carried a $134 million valuation. MBA said the September delivery had a $127.9 million valuation, while a November-built aircraft had a $128.3 million quote.

In an interview with Flightglobal Pro, Boeing Capital's capital markets managing director Kostya Zolotusky confirmed the average quotation in Continental's bond financing was on target. "$127 million for a new 787 delivery feels about right," he said.

Continental tapped the capital markets again in the second part of 2012 with more 787-8s as part of its $844 million pass through certificates, series 2012-2. Two 787-8s were scheduled for December and AISI said the base value was $124.8 million, BK Associates valued the future delivery at $123.5 million, while MBA was the highest of the three appraisers with a $126.9 million quote.

As part of Continental's recent bond financing, a July 2013 delivery was valued at $126.3 million by AISI, $125 million by BK Associates and $128.4 million by MBA.

The last 787, under the financing, is a delivery scheduled for September 2013. BK Associates is again the lowest of the three appraisers with a $125 million base value. AISI values the aircraft at $126.7 million, while MBA says the base value is $128.8 million.

The 787 also featured in British Airways’ EETC offering issued this week. Also, Air Canada, which is expected to receive its first 787-8 in March 2014, says it is considering the EETC to finance some of its 30 orders.

The aircraft also has been a success in the sale and leaseback market due to the limited supply of 787s, with ILFC the only lessor to place an order for the type up until this month’s Paris air show.

The 74 787 orders belonging to ILFC "are desirable", says a leasing source. "And even more so with the delays because the purchase prices are frozen, but the market values have moved up."

Air India has been quick to capitalise on lessors’ strong appetite for 787s. The carrier mandated two parties this month on its request for proposals for financing for seven 787s.

Lessors characterised the demand for Air India’s 787s as “solid” despite the on-going investigations into the cause of battery failures when the RFP was first issued in February.

"There is clearly a lack of 787 supply in the market and Air India knows lessors are very interested in this product," said a source in February. "If Air India had any doubt, the RFP wouldn't be out, but the carrier knows it is a good move despite what we all hope is just a speed bump for the 787."

Another lessor agreed adding: "If someone came to us with a 787 now, we would do whatever we could to make it work as you can't get a hold of them."

Values and Lease Rates

Appraisers assessed a Boeing 787-8, powered by Rolls Royce Trent 1000 engines, with a 502,000 lb maximum take-off weight (MTOW).

Collateral Verifications says a new delivery has a $115.5 million current market value, while ICF SH&E values a 2013 delivery at $113.6 million. Ascend has the lowest appraisal with a $107 million current market value, while MBA has the highest quote at $121.7 million. IBA Group’s current market value for a new delivery is $112.2 million.

Ascend notes that market values were reduced by 5% at the start of the first quarter of 2013 as a new year of build entered the market. Values range between $90 million and $100 million for the 2009-2012 years of build, according to Ascend. No value change has been made as a result of the temporary grounding, says the appraisal firm.

A 2012-delivery has a current market value of $101.5 million, according to Ascend and Collateral Verifications. ICF SH&E values the aircraft at $106.5 million, while IBA Group has a $105.5 million current market value. MBA is the highest of the appraisers with a $113.1 million current market value.

A two-year old model is valued at $93.5 million for Collateral Verifications and $96 million, according to Ascend, $99.2 million for IBA Group. MBA’s current market value is $104.6 million.

Lease rates on a new delivery range between $940,000 and $950,000 a month for MBA. Collateral Verifications has a new delivery lease rate of $920,000 a month while Ascend and IBA Group says $1.02 million a month. ICF SH&E’s lease rates range between $860,000 and $940,000 a month.

Lease rates for a 2012-delivery are between $900,000 and $910,000 says MBA, while Ascend has a rental value of  $955,000 a month. IBA Group lease rate estimation is $985,000 a month. ICF SH&E’s lease rates range between $810,000 and $890,000 a month. Collateral Verifications says lease rates are $800,000 a month.

A 2011-delivery has a lease rate of $750,000 a month, according to Collateral Verifications. Ascend has a rental value of $905,000 a month, while MBA says lease rates are between $850,000 and $870,000 a month. IBA Group says the lease rate is $940,000 a month.