Boeing Announces 777 Order, But Analysts Remain Concerned About Demand
Boeing has announced a deal with Kuwait Airways that could allay some concerns about its ability to sell enough of its current 777 wide-body jet.
The Kuwaiti airline has finalized an order for ten 777-300ERs, the current version of Boeing's popular twin-engine, long-haul jet.
Analysts have been speculating about that plane for a while. The question is whether there's enough demand for the current version so that Boeing can keep building them at the same rate as it transitions to the revamped, more fuel-efficient 777x, scheduled to be delivered starting in 2020.
Morningstar analyst Neal Dihora says the Kuwait deal helps but it’s not enough. He says the company faces a financial hit if it can’t sell another 200 or so.
"Basically the concern is overly discounting or lower production rates," Dihora said.
A lower production rate means equipment wouldn’t be used as efficiently and could potentially mean job cuts. But if Boeing reduces prices to sell more of the planes, that means lower profit margins.
And Dihora says Boeing, just like a clothing store, doesn’t want to get clients accustomed to bargain-basement prices.
"It sure is a slippery slope because if you get airline customers used to a certain level then taking that away from them is hard and they know that," he said.
Boeing has said it’s seeing healthy demand for both versions of the 777 and expects to capture enough orders to bridge the transition to the 777x.