Udvar-Hazy sets high bar for 787 profitability, performance

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Air Lease Corp. CEO Steven Udvar-Hazy has given his assessment of Boeing's 787 potential profitability, saying the US airframer will need to sell at least 1,500 twin jets to break even after more than three years of delays, while saying the jet may need more power to meet its performance goals.

"The break even point for the 787 has moved far, far to the right. You can imagine their [research and development] cost has skyrocketed compared to the original projection," says Udvar-Hazy, speaking to a group of journalists on the sidelines of the 28th annual International Society of Transport Aircraft Trading conference.

Boeing has earned 843 orders for the new majority composite twin jet, though the programme has struggled with supply chain and design issues that have added an estimated billions in cost overruns.

"This means the number of aircraft they'll have to sell will be significant and my guess is at least 1,500. But then again, that's a 30 to 40 year production cycle," he says.

Boeing estimates the market for the 787-sized aircraft is more than 3,300 units, with an expectation to capture at least half of the market over 29 years.

That target for 787 profitability would set a high bar, as the company's original widebody 747, which in its more than 40-year production run has sold 1,525 747 aircraft covering 21 different commercial and military models, making it the most popular twin-aisle jet in commercial aviation history.

Coupled with aggressive pricing on at least the first 300 aircraft, Boeing will have to sell significantly more of the widebody twin - or convert orders to the more expensive 787-9 - to ensure its recurring costs to build each 787 fall lower than the sale price.

In his previous role as CEO of ILFC, Udvar-Hazy placed an order for 74 787s.

Air Lease currently has no 787s in its portfolio, though Udvar-Hazy says "the logical next step in three or four years is to take some role in the A350, particularly -900, and the 787-9. But that's not a current priority."

The lack of availability of near-term delivery dates for the A350 and 787, says Udvar-Hazy, centres his focus on current production models. "Those aircraft don't produce any revenue for us, and as a new company we've been focused on getting aircraft we can actually put in our portfolio. An aircraft that actually delivers in 2020 doesn't have a lot of value to me right now. If I had a 1,000 airplanes that's one thing, but we started from nothing."

According to its latest schedule, Boeing plans first delivery of the 787 to Japan's All Nippon Airways in late July, though Udvar-Hazy says the certification of the new jet and the larger stretch remains -9 an uncertainty.

"I don't want to make any prediction on when they're going to certify the plane or deliver the -9, I just don't know. I don't think anybody knows to be honest with you, people have expectations, but who knows what the FAA is going to do."

Boeing says it expects to deliver the first 787-9 in late 2013 with Airbus' A350-900 entering service the same year.

Udvar-Hazy also believes the jet will remain overweight if Boeing is unable to covert its titanium structural reinforcements to lighter-weight composite materials, but achieving the 14,800km (8,000nm) specification will require more thrust and higher take off weights to meet that goal.

"My gut feeling is that the airplanes will always be heavier and they'll just have more power and they'll just increase the max takeoff weight and say we still meet the spec. It's just going to become a heavier more powerful animal. Show me one commercial jet that hasn't been heavier, whether it's the A380 or the 777 or the A330, they're always heavier."