Apples and oranges

Last month I talked a bit about the industry-record 1,413 net orders for Boeing Commercial Airplanes in 2007. And you may have noticed that Boeing reported our 2007 results in net orders (while also indicating gross). That’s key because net orders are really the bottom line.

It was good to see that Airbus also reported net year-end orders results this time around. And the reason I mention this is that throughout any given year it can be challenging for those of you who follow our industry closely, to get a clear comparison of Boeing and Airbus numbers. You may have noticed that Airbus reports its numbers only monthly, in gross totals. Which means there’s no clear indication of cancellations of Airbus orders that occur during the year.

Comparing net to gross is like comparing apples and oranges. It doesn’t work. It was especially challenging last year due to the re-ordering and re-confirmations announced and counted in 2007 for A350s. Many of those orders were already booked and counted in previous years - during that airplane’s several earlier incarnations. As we finally saw last month, this accounted for a large number of cancellations on the Airbus books.

We did some calculating, in terms of the past five years, and what you find is that for both of us, indeed some portion of orders tend to be canceled every year.

image

From 2003 to 2007 Airbus had 241 cancellations. Boeing had 49 cancellations - during a period in which Boeing had 164 more net orders.

But the distinction is - as you can see in the charts above and below - that both the total number of cancellations and the cancellation rates are significantly lower in Boeing’s order book compared with Airbus. It’s a reflection of Boeing’s very strong customer base.

Taking a look a the chart below, you see that in terms of cancellation rate, Airbus essentially had 5 times the cancellation rate compared with Boeing over the last 5 years.

image

The average cancellation rate over the past five years was about 6% for Airbus. For Boeing the cancellation rate was about 1%.

Taking this further, over the past decade (1998-2007), Airbus had 511 cancellations. Boeing had 271, despite our having 193 more total net orders. Over this time period, Airbus’ cancellation rate was 84% higher – which means a much wider disparity between net and gross.

If you earn a paycheck then you’re quite familiar with the difference between net and gross. Gross is a nice figure – on paper. But net is what you really take home, after deductions. As I said, that’s the bottom line.

Several years ago Boeing elected to make our commercial airplanes orders process more transparent. The idea was to post our orders figures to our Website weekly. And that’s what we do. If you haven’t already, you can check it out every Thursday. In the case of deliveries we update every month. Key to the whole process is that anyone who visits the site can clearly see what is net and what is gross.

It’s certainly a concept to be mindful of when you consider the order books of our two companies throughout the year. Clearly, Boeing’s low cancellation rate speaks to the quality of our customer base and backlog.

And as we say here in Washington state: “How do you like them apples?”

Comments (17)

G (France):

An apple a day keeps the doctor away.

Rosemary Learmount (London, UK):

Sounds more like sour grapes than apples & oranges.

Must say Randy #1 was far more objective in his informative musings, whilst still managing to successfully get his point across.

Rose

---------

Sorry about that Rose,

But, I'm not sure I understand your "sour" grapes reference. This is all about open, honest and "transparent" communication.

I think you may be reading into my comments something that just isn't there.

--- Randy Tinseth

Bob Grant (Seattle):

What happens to cancellations if Boeing is late again with 787? How badly could that affect the stock price? What are the current risks to an on-time delivery of 787 and how well is Boeing prepared to overcome those obstacles? I have more questions than answers but I'd like to hear from someone in the know out there.

Southern Solstice (Chicago, IL):

Congratulations on making nice charts from numbers that are easily available in the average Google search. Frankly, a well-written blog on how, say, you were experiencing understanding and support from customers in the face of another 787 delay, would have been preferable and more informative than a cheap, childish shot at your competitor.

Norman (Long Beach, California, United States):

Cancellations have been in the Airbus roster.
Almost every single order for the A318 have been
canned, TWA, America West, British Airways, Egypt Air,
Iberia amongst others. The A340-600 has faced cancellations and options withdraws too like the HGW model for Emirates Airlines and premature withdraw from service from Cathey Pacific and Air Canada.
The A350 has faced cancellations from Air Europa
and replaced those orders with 787's.

In an article of Aviation Week today I read that
Qantas and Emirates wants Boeing to start with
the 787-10 project this year, I hope Boeing proceeds because Qantas has the A350 on the short line
to order.

The only big Boeing cancellation was with Primaris
Airlines with the 787 - the reason I think this cancellation happened was because of they at Primaris played to ambition more than they utilised a rational financial plan, or any plan.

Reece Lumsden (Everett, WA):

My opinion is that the flavor of Airbus's public statements are linked to the fact that they exist as a pseudo-commercial entity as opposed to Boeing which is a commercial entity. It's about perception: sometimes it can be good to show an optimistic front in the face of worry, at other times, it's not a good strategy.

I think it's one that has served Airbus in the past and will continue to do so in the future - they want to be perceived as existing in the marketplace the same as Boeing, but yet they have no qualms about asking for launch aid for the A380, most likely the A350 and possibly others.

They have claimed that Boeing receives aid in other ways also, but that's what the current wrangling in the WTO is all about. When it's all about the numbers, I'm sure Airbus would ask the public to focus on how many orders they have as opposed to what they'd consider 'the unnecessary details' of how many of those are robust. : )

Chris C (South Africa):

An interesting article depicting the cancellations for both Boeing and Airbus over the past few years, although as you rightly said, 2007 was considerably high of cancellations for Airbus as they transferred customers from the fifth or sixth version, of the A350 to the ‘new’ A350XWB.

It was very interesting, but not surprising, to see that the first ever A350 customer, cancel their order and opt for the super-efficient 787 Dreamliner. Randy, could you tell us what the penalty is for a customer if they cancel orders, or is there a certain timeframe in which orders can be cancelled or even deferred?

Dick Kubb (Lake Havasu City):

To have Orders on the Books is always A Plus.
It means the Product is Good and can be Delivered..Starting a second Assembly line and getting out from slow Production will make more Sense in the Long run - that way the Customer will remain and not look else where. In 5- Years from now Japan and China will produce there own Airplanes with the Boeing Technology, and then What. Seattle will become a Airplane Museum?

Paulo M (Johannesburg, RSA):

Sure it looks like another cheap shot at the competitor. But, with such big negative numbers - would you (as the owner of the dirt) really want to have this information all over the media?

Still, coming from the perceived more responsible & reserved company among the two, I really think that this was an unnecessary comment/comparison - as much as I wanted to know, and as much as I dislike The Competitor.

Chris Gibson (Australia):

Good for you Randy, for years your competitor has fudged the figures and it was about time that this was mentioned.

I would like to see more emphases on deliveries rather than figures 5 to 10 years in the future.

John K (Eugene, Oregon):

It surprises me to read the number of ‘grumbling comments’ about Randy, just for posting what is considered to be a corporate news story. Maybe I am more cynical than most people, but I have read much about Airbus and the business news from the European Union.

The business news from the EU is most partisan and gloating over any EU advantage, real or imagined, over any American product. Randy’s remarks are both measured and business like. With the EU, every business event is a bitter fight with America.

Saj (London, UK):

I can't for the life of me figure out why some people say that this blog entry is a "cheap shot".

On the contrary, its about time that Airbus' figures were more transparent - or are the complainants now going to blame Tinseth for those too?

It seems that those who read this blog have forgotten very quickly how sharp Randy Baseler was when it came to outing Airbus' inaccuracies:

Click below

http://fleetbuzz.wordpress.com/2008/02/08/the-truth-is-out-there/

Ted C. (Mt. Vernon, WA):

To answer the question, who was the biggest commercial aircraft company for a given year? I would want to know two things. What was the total empty weight of all aircraft delivered and what was the combined maximum take off weight for all deliveries.

I would be interested to see that data for the last 10 years.

Ed (Dublin, Ireland):

I suggest everybody googles '2007 airbus orders'. The first result is a link to the 2007 corporate information page of the airbus website. It clearly distinguishes between net orders and gross orders.

Then tell me when they are 'fudging' the figures.

Everytime theres no bad news in the press about 'the competition' this blog is a tool to fabricate some.

Ron (New York, NY):

I notice in all the commentary and conjecture about the 747-8 that there is little comment about how this airframe fits the 'point to point' strategy that has made the 787 marketing so successful.

How many airports worldwide can land a 747 and how many can and will land an A380?

The 380 is planned as 'hub and spoke' but the vast difference in numbers of airports that can land a 747 is not mentioned nor does is seem to be used in Boeing's marketing.

Am I wrong about this?

Maybe is seems odd that a plane as large as the 747-8 be sold as a 'point to point' product but the volumes in air traffic that are in front of us will make this a fact and not simply an idea.

------

Hi Ron,

Well, actually, we routinely talk about benefits of the 747-8 regarding infrastructure -- for both airlines and airports.

For airlines:

Pilots will have the same type rating as the 747-400 minimizing training. And there will significant commonality with 747-400 airframe spares, maintenance tooling and ground services equipment. Again, saving airlines that own 747's today millions.

And as a companion to the 777 and 787 families, we believe the 747-8 Intercontinental is well positioned to provide point-to-point operations between high-traffic city pairs, such as New York-Hong Kong, Los Angeles‑Mumbai and London-Singapore.

For airports:

Little or no airport changes at the more than 200 airports worldwide that see a 747 every week.

For the A380, the initial plan is that will operate into about 30 airports worldwide. This has required billions of dollars to be spent on airport improvements (taxi ways, hangars, terminals, etc.).

- Randy Tinseth

G (France):

To Ron (New York, NY)

It seems that Boeing proposes the 747-8i as one of the natural replacements of the venerable 747-400, the other being the 777-300ER.

Almost all of those flying 747-400s are operated from big airports (hubs).

Paulo M (Johannesburg, RSA):

As usual, there continues to be a draught on 747-8 news - as the 787 gets all the attention. I just learnt that the A380 is having quite the EIS - international news from high fliers. This is different from when local news passed on the A340-600's EIS as good, then the 777-300ER came along and changed all that.

Randy Baseler & many others at Boeing thought that the A380 was a great technical achievement - which it clearly is - while disagreeing with the market size for the monster - pun intended. Also Boeing & Airbus are in some agreement that many 747-400's are becoming ripe for replacement. My concern is that with the A380 having such an excellent reception - now that it has finally entered service, it's only going to make prospects for the 747-8 Intercontinental weaker. Some airlines are going to misuse it to replace the 747-400 mainly because of its excellent performance. The Boeing plane clearly has much to re-achieve/re-prove despite its past dominance and current advantages. Needless to say, this is the most interesting part of the development - besides the flight tests.

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