The Boeing Company (NYSE:BA) has had more than its share of troubles this year, with the company’s flagship 787 Dreamliner model grounded worldwide for four months due to battery problems that still have not been fully explained. Despite the initial quality problems with the Dreamliner, airlines have stuck with the revolutionary plane due to its superior operating economics. Boeing’s heavy use of composite materials in the design reduces maintenance costs and fuel burn, saving operators lots of money.
That’s why The Boeing Company (NYSE:BA) recently decided to double down on its plans for the Dreamliner by offering a new stretched model, the 787-10. The new version of the Dreamliner was officially launched this week at the Paris Air Show with more than 100 initial orders from customers like aircraft leasing upstart Air Lease Corp (NYSE:AL), top global carrier United Continental Holdings Inc (NYSE:UAL), and Singapore Airlines.
Stretching the 787 looks like it was a good move for The Boeing Company (NYSE:BA). Top competitor Airbus has been saying that it wants to win more than 50% of the widebody market, where it has traditionally lagged Boeing. Airbus is relying on its upcoming A350 aircraft to achieve that goal. The new 787-10 will allow Boeing to compete more effectively against the A350, as it now can offer a wider variety of aircraft sizes for customers.
Cannibalizing to compete
The 787-10 will have a slightly shorter range than the first two Dreamliner models at 7,000 nautical miles, but that will still allow it to cover more than 90% of the world’s twin-engine widebody routes, according to The Boeing Company (NYSE:BA). On the other hand, it will seat 300-330 passengers, roughly 40 more than the 787-9, the larger of the two models initially announced.
That size puts the new 787-10 into direct competition with the upcoming Airbus A350-900, which recently had its first test flight and is expected to enter service in late 2014. Air Lease Corp (NYSE:AL) CEO Steven Udvar-Hazy — a legend in the aerospace industry — says that he chose the 787-10 over the A350 because it will be slightly more fuel efficient, although it will offer less range. Udvar-Hazy’s job is to understand what airlines (i.e., his customers) want in an airplane, and his preference for the Dreamliner is great news for The Boeing Company (NYSE:BA).
The 787-9 will also compete with two current generation planes; the Airbus A330-300 Boeing’s own 777-200. The new aircraft could therefore cannibalize some of Boeing’s own 777 sales, as the 787 will be a much more fuel-efficient aircraft.
Nevertheless, this cannibalization was absolutely necessary for The Boeing Company (NYSE:BA) to remain competitive in the market for larger widebodies. While the 777 has been a big seller since it was introduced in 1995, new engine and airframe technology will make it increasingly obsolete by the end of the decade. Airbus has been touting the significant fuel-efficiency advantage that the A350 will have, compared to the 777, and Boeing risked losing some orders altogether if it did not respond.