More Big Orders Seem to Support Narrowbody Rate Hikes

 - March 25, 2013, 11:40 AM
Plans call for the first Boeing 737 built at a newly accelerated rate of 38 per month to go to Panama’s Copa Airlines in early April. (Photo: Boeing)

Airbus and Boeing each secured major commitments for their respective narrowbodies last week, potentially helping to quiet some of the debate surrounding the extent of their production rate increases.

Of the two, Airbus perhaps won more tactical points by poaching a firm order from once-exclusive Boeing customer Lion Air of Indonesia. That record-setting deal–which calls for delivery of 234 A320s–came just days after Airbus announced a contract with Turkish Airlines for 117 A320s. Both contracts included provisions for delivery of a substantial number of A320neos, raising the order count for that program above 2,000.

For its part, Airbus’s cross-Atlantic rival drew a commitment from Irish low-fare giant Ryanair for 175 Boeing 737s, worth as much as $15.6 billion at list prices. That deal marked something of a breakthrough in itself, committing Ryanair to Boeing products into late this decade and, at least for now, silencing talk of an incursion by China’s Comac with its C919. The airline already flies 305 Boeing 737s and it expects its fleet to consist of some 400 by the end of the delivery stream in 2018. Ryanair also said it continues to evaluate the 737 Max, scheduled to enter service in 2017.

As if on cue, the flurry of sales activity happened to coincide with the rollout of the first Boeing 737 built at the new production rate of 38 airplanes a month. Now in the process of raising rates from 35 per month, Boeing expects to accelerate production again next year to match the A320’s rate of 42 per month. The company has already begun considering contingencies for raising rates even further, a prospect that has elicited some concern about a potential oversupply of new airplanes and its softening effect on the values of existing fleets, notwithstanding the gaudy sales figures.

“I didn’t change my mind; I think it’s a bubble that didn’t burst yet,” Avitas senior vice president Adam Pilarski told AIN. “Bubbles by their nature are irrational… For example, Lion Air and Air Asia–I can’t see how both of them can have such huge fleets in the future. Somebody will not survive. I don’t want to guess who, but you have a number of players that are placing huge orders that together don’t make sense.”