Boeing (BA, Financial) and Airbus (EADSY, Financial) have been struggling to market their jumbo jets. Several industry analysts believe that Boeing would make the final 747 deliveries in three years. However, a new report says that the aircraft manufacturer may cease taking orders soon to close the struggling program. Boeing has already announced a production cut from its current 1.5 a month, to 1.3 month, which will be effective later this year.Â
Why demand for jumbo jets is poor
Boeing 747 has been a revolutionary plane for modern air travel, able to carry more than double the passengers other smaller planes could fly during the 1970s. Air travel in those days was very expensive for ordinary people. But once the 747 hit the runways, it proved beneficial for both customers and airlines. Airlines began benefiting from economies of scale by carrying many more passengers. Traveling fare prices reduced, and more and more people were able to fly by air.
However with the entry of twin engine planes such as the 777 and the A330, demand for the 747 started falling. The A330 entered service in 1994 and the 777 in 1995. These wide body aircraft caught immediate attention of airlines as they consumed much less fuel compared with the 747. Carriers reduced use of the 747 and instead replaced their fleet for the large 777s. As such, the production of 777 increased. Boeing recorded orders for 283 777s, which increased the total aircraft backlog to 547.
Fundamental shift toward twin engine jets
Poor orders for the jumbo in the past compared with solid orders for single aisle and small wide body planes is a clear indicator that airlines don’t want to fly fuel guzzling jumbos other than in very limited routes.
In 2014, neither the Boeing 747 nor the Airbus A380 recorded any order from airlines or leasing companies. This shows the fundamental shift in favor of twin engine jets as they consume much less fuel than the jumbo planes. And this is very crucial for airlines while placing orders, as fuel cost accounts for nearly 40% of their operating cost.
Jumbo backlog shrinking
As a result, the 747 and A380 backlog has stagnated and is evaporating with time. In such a scenario, it raises questions regarding the viability of the project for the aircraft makers. According to sources close to the matter, both Airbus and Boeing are brooding over the future of these planes and trying to figure out how long can the program sustain under the current situation.
Both Boeing and Airbus sales force have been promoting the 747 and A380, respectively, to bag orders as they want the production line to continue through the end of this decade. The plane makers are offering generous discounts of at least 50% on list price of about $400 million. In fact, Airbus is also thinking of upgrading the A380 as Emirates has been showing immense interest for the superjumbo provided the company fits more fuel efficient engines to the plane. But that remains to be seen as reengineering the plane would cost Airbus in billions.
Boeing recently bagged a couple of orders for Air Force One. While this is a prestigious order for the plane maker, it’s important for Boeing to get 747 bulk orders to sustain in the near future. Similarly, it's essential for Airbus to weigh the benefits of reengineering the A380 against the total orders its estimates to receive for the upgraded plane. There’s no doubt that jumbos have become a tough sell, and their future is uncertain. However, it would be interesting to see how long Boeing and Airbus decide to continue the program.
