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Boeing Rings Out the Old C-17 and Rings in the New 777-9X

CHICAGO ( TheStreet) -- Even as Lufthansa became the launch customer for Boeing's (BA - Get Report) new 777-9X, the airplane maker also apparently was sealing the fate of the three-decades-old C-17 cargo aircraft.

Lufthansa said Thursday it would be the launch customer for 34 of the Boeing 777-9x, a new 400-seat plane that will be delivered around the end of the decade. Lufthansa's announced 59-jet order also will include 25 Airbus A350-900 jets. On Wednesday, Boeing said it would discontinue C-17 production and close its Long Beach plant in 2015, potentially idling 3,000 workers.
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Richard Aboulafia, a aviation consultant with the Teal Group, said that in sum the two announcements indicate that "the defense market is heading down and the civil aviation market is heading up."

He said both announcements indicate that Boeing continues to allow the market to determine what products it will produce, and he questioned whether C-17 production will actually end in 2015. The C-17 announcement, he said, is more an announcement to potential buyers that "this is the last chance" to order.

"The Saudis are natural customers -- they haven't ordered any -- and the Indians could order another batch," Aboulafia said. Boeing has delivered 257 C-17s since 1991. The U.S. Air Force has been the primary customer, taking 223 of them; the other 34 have gone to six countries and to NATO's Strategic Airlift Capability initiative.

Sterne Agee analyst Peter Arment wrote Thursday that Boeing has 22 C-17s left to build, "but only 13 are officially sold so we do expect new international orders for the final nine aircraft." UBS analyst David Strauss said the C-17 contributes about 30 cents a share in annual earnings. Boeing said it would take a charge of less than $100 million in the third quarter for the production halt.

"Our customers around the world face very tough budget environments." said Dennis Muilenburg, CEO of Boeing Defense, Space & Security, in a prepared statement. "While the desire for the C-17's capabilities is high, budgets cannot support additional purchases in the timing required to keep the production line open.

"What's more, here in the United States the sequestration situation has created significant planning difficulties for our customers and the entire aerospace industry," Muilenburg said. "Such uncertainty forces difficult decisions like this C-17 line closure."

As for the Lufthansa order, Aboulafia said the 777-9X "has a very promising design and will be a huge seller." Once again, he said, "Boeing had to be dragged kicking and screaming to a launch decision" just as it was when American (AAMRQ) ordered the first 737 MAX in 2011 before final design was completed. He said Boeing "takes the most passive approach" to selling aircraft, letting airlines make key decisions on timing.
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The philosophy worked, of course, when Boeing listened to its customers and designed the 787, a smaller, long-range aircraft, while Airbus designed the A380, a very large, long-range aircraft that has not sold nearly as well.

Boeing said Thursday that the "the launch of the 777X family is targeted for later this year (with) entry into service around the end of the decade." The 777-9X will have around 400 seats.

"With its new engines and an all-new composite wing design, the 777X will be the largest and most-efficient twin engine jet in the world with 20% lower fuel consumption and 15% lower operating costs than today's 777," said John Wojick, senior vice president of global sales, in a prepared statement.

Boeing shares were up 97 cents to $119.37 in mid-morning trading on Thursday. Shares hit an all-time high of $120.38 earlier in the day.

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

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