The order cancellation of 24 Boeing 787 Dreamliner passenger aircraft, each priced at around $185 million, by China Eastern Airlines (MU) on Monday, October 17, 2011 may be an indication of similar future actions by other Asian carriers, according to reports published on Tuesday, October 18, 2011 by The Economic Times of India, Reuters News Service, The Wall Street Journal, ATW Daily News, The Chicago Tribune and other media sources.
Yesterday's order cancellation brings to 26 the number of Boeing 787 aircraft red lined during 2011. While no new orders have been received, Boeing still has almost 800 Dreamliners on their order books, making the plane the fastest selling new aircraft in aviation history, as seen in the attached slide show and video clip.
According to Boeing's Vice President of Marketing Randy Tinseth, the Chicago based aerospace company has no reason to be alarmed by the latest airline defection, saying "Frankly as we look forward, we expect to see the Dreamliner order base increase, we expect to see more orders, we expect to see more cancellations, especially as we go through mitigation with our customers."
That "mitigation" stems from a number of factors, including growing unrest over 787 delivery delays that are at least three years behind schedule due to manufacturing and supply disruption; reluctance to take delivery of an aircraft that may not yet be fully tested; skepticism that Boeing will be able to ramp up its production from 2 to 10 planes a month; gloomy worldwide economic forecasts; changes in operational strategies for several Asian carriers that is placing more emphasis on medium range aircraft; and the fact that other carriers in China and elsewhere in Asia often use similar strategies as a group.
While China Eastern Airlines substituted 45 medium range Boeing 737 Next Generation aircraft at below 2008 catalog prices after opting out of the 787s, it also ordered twelve Airbus A330-200s and three Airbus A330-300s, valued at $2.5 billion, to be delivered between 2013 and 2015. That order should boost the carrier's capacity by 9.4% and will facilitate the Shanghai based airline's international expansion.
The Airbus A350 is the Dreamliner's chief rival. It costs about $300 million a copy and is currently under development, expected to be introduced during 2013.
Boeing has already delivered a 787 Dreamliner to its launch partner, All Nippon Airways (NH) in September 2011. ANA is expected to begin 787 service on October 26, 2011.
Financial analysts say there may be a silver lining to the large order cancellation.
For one thing, any carrier that opts out of their 787 Dreamliner commitment, will have at least a 10 year wait to get back into the delivery queue. However, Boeing may also offer the 24 aircraft that China Eastern Airlines has turned down at much higher prices, thereby expanding their profit margins.
Other carriers have pledged to stick by their commitments to Boeing.
Australia's Qantas Airways (QF) said on Tuesday, October 18, that it remained fully committed to its 50 Dreamliner orders. Air New Zealand (NZ) also said it was not reconsidering its orders.
Korean Air (KE) confirmed that it would introduce ten 787-9 Dreamliners in 2016 "as planned".
In Beijing, Boeing China said there was no sign of further cancellations of Chinese orders. According to a statement from Boeing, "The other committed Chinese airlines remain committed to the 787. The 787 is the right choice for these airlines' international expansion for a number of reasons, including unmatched passenger experience, fuel efficiency and environmental performance."
While those factors are certainly important, they become moot issues until the Dreamliner is actually delivered and in service to those carriers.
In New York Stock Exchange trading on Tuesday, October 18, 2011 Boeing (BA) closed at $63.47 a share, up $1.69 or 2.74%. Shares hit a daily high of $64.24 at around 3:00 p.m. EDT. Analyst sentiments are positive. There are currently 18 buy recommendations, and 7 holds, with no sell advice according to MarketWatch.
It is always important to seek competent personal financial advice before investing in any publicly traded company.
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