Photographer: Andrey Rudakov/Bloomberg

Boeing, Airbus Shares Slump on ‘Bubble’ for Used Wide-Body Jets

  • Secondhand sales may hurt pricing on factory-fresh 777s
  • Keeping order flow crucial for planemakers' production lines

Shares of Boeing Co. and Airbus Group SE tumbled after Delta Air Lines Inc. said a surge of wide-body passenger jets are coming off lease, creating investor concern that the planemakers face pressure on pricing and orders for new aircraft.

Delta Chief Executive Officer Richard Anderson, speaking Wednesday on an earnings call, said he sees a “huge bubble” for used wide-bodies while also signaling his interest in eventually adding secondhand long-haul jets.

Models most vulnerable to a glut of used planes would likely include Boeing’s 777, hundreds of which are in service with carriers including Emirates, the biggest user. The latest Boeing 787 and Airbus A350 wide-bodies may be less exposed, since they offer significant operational savings and have order backlogs that already guarantee at least five years of production.

777X Gap

As planes come off lease it may get tougher for Boeing to generate fresh sales of current-generation 777s, one of its biggest sources of profit, said George Ferguson, senior air transport analyst with Bloomberg Intelligence. While the backlog for the twinjet extends to 2018, the successor 777X, with new engines and a larger wing, won’t begin deliveries until 2020, leaving the manufacturing line in Seattle potentially vulnerable.

The situation is “causing concerns about new-model pricing,” and heightens “the risk that Boeing has to cut 777 production rates very soon, even late next year,” he said. Boeing aims to sustain output at 8.3 777s per month.

Airbus has already said it will cut production of its twin-engine A330 wide-body to six planes a month by 2016 from nine now as it transitions to the A330Neo, with new turbines from Rolls-Royce Holdings Plc. The four-engine A340 is no longer in production, while the A350 -- which competes with the 777 -- first flew in 2014 and is ramping up to 10 planes a month by 2018 from a total of about 15 for the whole of 2015.

‘Pricing Pressure’

Chicago-based Boeing said it was well-prepared for current market conditions.

QuickTake Dreamliner

“As you go through a bridge as we are on the 777 you do see pricing pressure as you go from one airplane to another,” Randy Tinseth, vice president of marketing at Boeing Commercial Airplanes, told Bloomberg Television Thursday. “But I think that our pricing is within expectations. I don’t think there are any surprises out there.”

Airbus fell as much as 3.8 percent and traded 2.1 percent lower at 54.94 euros as of 12:50 p.m. in Paris. Boeing sank 4.3 percent to close at $134.22 in New York, its biggest drop since Oct. 22, 2014.

Delta, whose fleet choices are widely copied, is exploring adding used versions of the Boeing and Airbus jets most popular on long, international routes, according to Anderson, including the 777-200ER, of which 422 have been built, and A330-200, with 575 deliveries.

“The aircraft market is going to be ripe for Delta over the course of the next 12 to 36 months,” he said. “Prices are going to get lower.”

‘Jitters’

Anderson’s remarks came amid fretting by some investors that airliner demand has peaked and that Boeing and Airbus risk over-producing jets as they plot production-rate increases for single-aisle jets like the Boeing 737 and Airbus A320, and the wide-body Boeing 787 Dreamliner.

“Considering the jitters around the commercial aerospace cycle, it does not take much for the market to react,” Ken Herbert, a San Francisco-based analyst with Canaccord Genuity, said in a note to clients. He rates Boeing as buy. While he sees 777 output being cut to five or six jets a month, Herbert doesn’t expect wide-body “weakness” to spread to the narrow-body market.

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