Boeing (BA, Financial) is slightly upgrading the 777 aircraft to make it more appealing so that the company is able to keep its Everett production line running until the 777X, it reengineered version, hits the skies in 2020. The American aero major is looking to win sufficient orders as demand for the plane has been dull post the announcement of the 777X at the Dubai air show in 2013. Boeing marketing VP Randy Tinseth said that there would be five changes made in the upgraded version which should reduce fuel burn.
Keeping the production line going
Lack of sufficient order for the 777 for a smooth transition to the 777X has been an issue for Boeing from a long time. The Chicago-based plane maker had repeatedly shown confidence that it would be able to bag enough 777 orders to sustain the production line until 777X deliveries begin. In contrast, the 777 hasn’t won orders as per expectations. The aircraft isn’t attracting buyers, particularly when airlines have the option to get its reengineered version.
Boeing’s website shows that the 777 has a total backlog of 272 aircraft – 226 for 777-300ER and 46 777Fs. At the current production rate of 8.3 a month Boeing manufactures 100 777s annually. This means that the 777 backlog will be cleared in three years unless the company reduces the production rate. However, the plane maker doesn’t look to keen on trimming production. It has therefore decided to add to the appeal of the current 777 so that enough orders flow in to fill the production gap. The upgraded 777 would act as a bridge between the existing 777 and the highly anticipated 777X.
The company is making subtle improvements such as enhancing the aerodynamics by making thinner trailing edge and modifying the wing flaps. The plane would have more seats with passenger windows modified such that it’s closer to the fuselage and helps in reducing friction. Among other things, the plane would have better flight software, slight interior alterations, and utilize low-density hydraulic fluid. All this would reduce the weight of the aircraft by about 1,200 pounds.
A safe move to make?
What’s amusing is that Boeing is ready to invest and make a slight upgrade to the 777 just at a time when the program is nearing its end. However, Boeing must have taken this step with consideration. The jet maker wouldn’t have gone for this unless it was reasonably certain that this minor upgrade would make the 777 sell better. Airlines may have suggested Boeing to make slight tweaks for better efficiency so that they place orders for this plane.
The key selling point of this upgraded 777 version is that Boeing would be able to deliver it faster than the 777X. The aircraft maker could start the deliveries as early as 2016. The plane would also be 2% more fuel efficient than the current model.
An essential strategic move
Recently Boeing’s peer Airbus (EADSY, Financial) announced the production cut of its popular wide-body aircraft A330 after experiencing a similar situation as Boeing did with the 777. Orders for the A330 have been weak after the company revealed its plan for A330neo, the reengineered version of the A330. Eventually Airbus decided to cut back on production from 10 a month to six.
But Boeing doesn’t want to follow suit. The 777 is considered to be a cash cow for Boeing as it brings regular flow of income and helps in cash generation. So making the upgrade was crucial for the plane maker as its 777 facility at Everett would have stayed unused. Boeing would have to cut production, and this would impact the company’s revenue and cash flows.
However, Boeing is instead involved in expanding the Everett plant together with its suppliers as they prepare their base to handle the 777X demand. The company hopes to successfully manage a transition to the 777X by making subtle changes to the current model. What remains to be seen is how airline operators would react to the changes and whether Boeing’s strategy would works in its favor.
