For Airbus and Boeing, financial health over the next four years depends on two things: executing a historically steep ramp-up for single-aisle aircraft and keeping enough customers in the order book to justify that output hike in the first place.
Demand for the newest widebodies from both companies remains strong, but neither 787 nor A350 deliveries are expected to turn a profit at the programme level in the immediate future.
That leaves both firms largely dependent in the short-term on rapidly escalating deliveries of single-aisle aircraft to generate the kind of reliable cash flow and operating margin shareholders expect.
Boeing’s 737 deliveries, for example, have nearly doubled from 2008, rising from an average of 24 per month that year, to 42 per month now. The growth rate is expected to accelerate over the next four years, rising to 47 per month in 2017, and to 57 per month in 2019.
Boeing and its suppliers are preparing to go even higher in 2020, with the final assembly plant in Renton, Washington, capitalised to build as many as 63 per month. Airbus is following a similar expansion path.
That is why United Airlines’ decision, revealed on 15 November, to defer deliveries of 61 737s rattled investors enough to briefly dent Boeing’s share price.
The deferral bore echoes of Southwest’s announcement last June that it would push back 67 737 deliveries by up to six years. Nor does it inspire confidence when Airbus struggles to ramp-up production of the A320neo, which is nearly identical to its predecessor except for new engines.
If single-aisle deliveries can’t be sustained at planned growth rates, where do Airbus and Boeing turn for cash flow?
In some ways, the stock market is probably over-reacting. United and Southwest may be two of Boeing’s best and most reliable customers, but the combined deferral of 128 aircraft over the next several years represents a tiny, single-digit percentage of planned 737 output. Airbus and Boeing also have well-stocked backlogs for single-aisle aircraft reaching nearly five digits combined.
But stockmarket jitters highlight the unusual dependence of the two firms on a single product line for meeting financial performance.
The escalating single-aisle output does not represent an upside for either company, but a commercial necessity. Single-aisle production rates will climb because of unprecedented demand, but also because the balance sheets become, well, unbalanced otherwise.