While Boeing (NYSE:BA) is working on improving its balance sheet health, the company is still facing a wide variety of issues regarding its current product line as well as the future product line up. Right now, we are seeing that the Boeing 737 MAX is back. The aircraft is well received by airlines, but the ramp up in deliveries has been disappointing while on the Boeing 787 program deliveries remain halted without a clear timeline for a delivery resumption. While all of that is happening, Airbus (OTCPK:EADSF) has been targeting Boeing on the freighter market which is basically the only segment where Boeing still has a lead over Airbus.
In response to the launch of the Airbus A350 freighter, Boeing has been forced to launch the Boeing 777-8. The most recent commitment that Boeing was able to book comes from Ethiopian Airlines. That commitment is a very interesting one for many reasons explained in this report.
Boeing’s Big Freighter Win From Ethiopian Airlines
In early March, Boeing and Ethiopian Airlines signed a Memorandum of Understanding for the purchase of five Boeing 777-8F. Important to note, this is a tentative agreement which has yet to be formalized, but we do expect the MoU to be turned into a firm purchase agreement sooner rather than later. By potential purchase quantity this is not a huge deal, but it is a potential order for a big freighter, which intends to replace the Boeing 747-400F.
The order, once finalized, provides further support for Ethiopian Airlines to increase cargo capacity from Addis Ababa in line with its long-term aspirations to become a leading logistics provider and turn Addis Ababa into a cargo hub of significance for Africa, but also for the world.
Boeing 777-8F selection makes sense
The selection of the Boeing 777-8F by Ethiopian Airlines does make a lot of sense. The airline already operates 6 Boeing 777-200LRs and 4 Boeing 777-300ER in the passenger aircraft fleet and has a further 9 Boeing 777s in the freighter fleet. Ethiopian Airlines used to have a tenth Boeing 777F freighter, but that aircraft was destroyed beyond repair after it caught fire while being loaded with cargo at Shanghai Pudong airport. With a fleet of almost 20 Boeing 777 aircraft, Ethiopian Airlines has a lot of experience with the Boeing 777 platform, which joined the airline’s fleet over 11 years ago. Being familiar with the Boeing 777, but also the Boeing 787, offers advantages due to the combination of parts commonality with the Boeing 777 and flight deck commonality with the Boeing 787, which itself has very few differences compared to the Boeing 777 flight deck requiring minimal difference training. Obviously, we have yet to see in what way training requirements will be impacted for the Boeing 777X given how badly Boeing messed up with the Boeing 737 MAX in order to keep the required additional training for the MAX at minimum levels.
In 2014, Ethiopian Airlines had already been looking to acquire 10 Boeing 777X aircraft but back then those talks centered on the passenger variants and not the freighter variant, which had not even been launched at the time. In some way, it is interesting to see that Ethiopian Airlines will likely be ordering the Boeing 777X, but instead of the passenger variant, it will be the freighter variant for the time being. Eventually, that could also result in orders for the passenger variant if Ethiopian Airlines is satisfied with the performance of the Boeing 777X platform.
While Ethiopian Airlines is intimately familiar with the Boeing 777, it was not straightforward that an order for a next generation freighter would go to Boeing. While Ethiopian Airlines operates a fleet of 19 Boeing 777 aircraft, it also has a fleet of 16 Airbus A350-900s with a further 8 units on order with the European plane maker. So, when we view the cargo airline and passenger airline as a group rather than two separate airlines, selecting the Airbus A350 would also have made sense.
At this point, it cannot be ruled out that Ethiopian Airlines will introduce the Airbus A350 to the dedicated cargo operations in the future as well, driving market share growth for Airbus. However, at this point, it is likely that the airline could get a better deal from Boeing.
Ethiopian Airlines returned the Boeing 737 MAX to service in February 2022. The airline celebrated it with cake, which can be considered a tone-deaf move without consideration for the pain the victims of Ethiopian Airlines Flight 302 will live for the remainder of their lives. The financial compensation package for the Boeing 737 MAX crisis can most definitely be considered a contributing factor to selection of the Boeing 777-8F. The tentative agreement for the Boeing 777-8F was made public in early March, a month after Ethiopian Airlines returned the MAX to the skies and nearly three years after the second fatal accident with the Boeing 737 MAX. It is likely that Ethiopian Airlines was able to negotiate significant discounts for the Boeing 777-8Fs it intends to order. Furthermore, according to Reuters, five Boeing 777Fs ordered in February by an unidentified customer belong to Ethiopian Airlines. It makes a lot of sense that those five aircraft as well as the five next generation aircraft are part of a compensation package for Ethiopian Airlines and we might be seeing those orders being attributed to Ethiopian Airlines when the order for the Boeing 777-8F is logged as well.
We are currently in a stage where Boeing and Airbus are battling for each wide-body freighter aircraft order. While the order is still pending finalization, Ethiopian Airlines has selected the Boeing 777-8F. While it cannot be ruled out that Ethiopian Airlines will also order the Airbus A350F in the future, the selection of the Boeing 777-8F is a big boost for Boeing. It is unlikely that this will be a very profitable deal for Boeing as I expect the deal to be part of a bigger compensation package for Ethiopian Airlines, but at this point a freighter order that does not go to Airbus is a win for Boeing and provides further support to production rates on the Boeing 777 program. Additionally, in the future, this could also result in orders for more orders for the Boeing 777X either for the passenger variant or the freighter variant.