25-Feb-2016 1:13 PM

777-300ER fleet report: orders have peaked but Swiss, United and Kuwait new operators in 2016

Analysis

Boeing's 777-300ER was a late bloomer. The variant rolled out in 2002 and had its first delivery in 2004. Yet half of the variant's orders were placed in 2010 and beyond. Two of its record years of sales, 2007 and 2011, coincided with sharp rises in jet fuel, resulting in airlines accelerating retirement of their four engined aircraft. Boeing largely kept business within the family, as the 777-300ER effectively rendered the 747 obsolete; Airbus' A340 succession plan was not so clear.

The world's most powerful twin-engine has come to define the long haul fleets of its biggest operators. The largest, Emirates, operates 114 - almost as many as the next three largest operators combined: Cathay Pacific (53), Air France (40) and Qatar Airways (31). The -300ER variant has 796 orders, comprising over half of all orders for the 777 family. A late bloomer became popular. In Feb-2016 SWISS commenced 777-300ER services, its first time operating the 777. United and Kuwait Airways will also take their first -300ERs in 2016. Orders have slowed since the 777X came into the picture, and in Jan-2016 Boeing announced a production decrease. Boeing still needs to sell new 777s to bridge the production gap until the 777X, but airlines are focusing on growth through second hand acquisitions: British Airways is interested, while Turkish Airlines is taking Kenya Airways' -300ERs.

Summary

The Boeing 777-300ER has become a popular choice for long-haul fleets, with Emirates being the largest operator with 114 aircraft.
The 777-300ER variant comprises over half of all orders for the 777 family, with 796 orders in total.
Many of the largest 777-300ER operators were late adopters, with airlines like Cathay Pacific and Turkish Airlines building up their fleet only in recent years.
The peak year for 777-300ER orders was 2011, with 150 orders, coinciding with a rise in fuel prices.
The 777-300ER has accounted for at least 80% of all 777 deliveries since 2013.
Boeing is facing a challenge in bridging the production gap between the current 777 and the upcoming 777X, with only

22 airlines operate 10+ 777-300ERs. Emirates, Cathay, Air France, Qatar and SIA the largest

There are over 35 777-300ER airline operators. Of them, 22 operate 10 or more -300ERs, and 11 operate 20 or more. The two largest customers (Emirates with 114 and Cathay with 53) account for 27% of in-service 777-300ERs. The next five largest operators (Air France, Qatar, Singapore Airlines, Etihad Airways and Turkish Airlines) operate a further 23%; seven airlines operate approximately half of the world's 777-300ER fleet.

Not all -200 customers became -300ER operators but most -300ER customers had operated earlier versions of the 777. Two notable exceptions are Turkish Airlines and SWISS, which did not operate earlier versions of the 777. Ethiopian Airlines skipped the earlier models of the 777 and operates the -200LR and -300ER variants.

777-300ERs in service by airline customer: 21-Feb-2016

Of the airlines operating 10 or more 777-300ERs, average fleet ages range from 1.6 years to 9.1 years, according to CAPA's Fleet Database. The oldest is at Japan Airlines, which received its first 777-300ER in 2004 (it was one of the launch operators) and last in 2009. Air France operates the second oldest -300ER fleet, receiving its first in 2004 (the very first -300ER delivered to any airline) and most recent in Oct-2015.

On the other end of the spectrum, Garuda Indonesia (operating fleet: 10) received its first -300ER in 2013 and its most recent was manufactured in Jan-2016.

Average 777-300ER fleet age at airlines operating 10 or more: 21-Feb-2016

Many of the largest 777-300ER operators were late adopters

Aside from Emirates and Air France, it is perhaps surprising that the 777-300ER is as prominent as it is with the airlines that operate the most 777-300ERs; many other operators were late adopters or built up their fleet only in recent years.

Emirates and Air France were early operators (Air France the first) and had quick build-ups of the type in their fleet. In 2006, Emirates operated more 777-300ERs (23) than any other airline and has been the largest operator every year since, now amassing a fleet of 114 777-300ERs, a figure slightly less than the the next three largest -300ER operators combined.

Emirates' delivery stream of -300ERs has been fairly steady at around 10 deliveries per annum, with some exceptions (three frames in 2010, 18 in 2012). Air France built up a fleet of 34 777-300ERs over seven years from 2004 to 2011, but in the five years since has increased this to only 40. The second largest -300ER operator, Cathay Pacific, received its first in 2007.

At the end of 2012 Cathay operated 29 -300ERs. Over the following 2.5 years there was accelerated growth as Cathay ended 2015 with 53 -300ERs. It was in 2013 that Cathay overtook Air France as the second largest operator of the -300ER.

Aircraft at year end for the largest 777-300ER operators (40+ frames): 2004-2016

Looking at the operators with 21-31 777-300ERs, many had late growth spurts in their fleet. ANA ended 2010 with 19 777-300ERs and did not take additional ones until 2015; it now operates 22. Singapore Airlines received 19 777-300ERs between 2006 and 2008 and then did not expand its fleet until 2013 (it now operates 27).

Turkish Airlines had 12 777-300ERs in 2011 and then did not grow the fleet until 2014 (with an increase to 16); it then ended 2015 with 24 of the aircraft. EVA Air ended 2010 with 15 777-300ERs, not resuming deliveries until 2014 (ending the year with 18); it then ended 2015 with 23. EVA Air plans even more 777-300ER growth.

Aircraft at year end for the largest 777-300ER operators (21-31 frames): 2004-2016

Looking at operators with 14-20 -300ERs, a few in this group are new to the -300ER variant. American Airlines and Saudia built up 777-300ER fleets of approximately 20 between 2012 and 2016. Air China received its first 777-300ER in 2011 and reached 20 in 2014. In 2016/2017 it expects to take delivery of a further six.

Aircraft at year end for the largest 777-300ER operators (14-20 frames): 2004-2016

2011 was the peak year for 777-300ER orders, 2014 for deliveries

The 777-300ER was rolled out in Nov-2002 with its first delivery approximately 1.5 years later in Apr-2004. In the year after the delivery - the year in which the industry started to climb out of the post 9/11, Middle East conflict and SARS downturn - the 777-300ER recorded 98 orders.

The following year, 2006, was slower with 35 orders. There were 88 orders in 2007. 2008 and 2009 combined accumulated 50 orders, while momentum was gained in 2010 with 61 orders.

2011 was the best year for 777-300ER orders with 150. 2011's orders included a single order of 50 from Emirates, but there were numerous other orders as no other airline that year ordered more than 10 777-300ERs. There were 73 orders in 2012, 45 in 2013, 49 in 2014, and only 22 in 2015.

777-300ER orders and deliveries: 1990-Jan-2016

777-300ER order sequence shows some correlation to fuel price

The 777-300ER's orders had their second best year ever in 2005 with 98 orders (at the time, a record). This was the year after the -300ER's entry into service, a period that airlines have sometimes waited to pass before ordering. Entry into service gives feedback, operational to passenger, and can measure achieved gains versus those sold. (The -300ER's performance has been significantly improved from when it was first sold.) Yet this order spike in 2005 coincided with an increase in jet fuel prices. Jet fuel (WTI) averaged USD57 a barrel in 2005, up from 2004's USD42 and 2003's USD31, an 83% increase over two years and a doubling over three years.

The next order spike, in 2007, was for 88 -300ERs. At the time this was the -300ER's second best year (today it is the third best year). Orders in 2007 followed the increase in fuel from USD66 in 2006 to USD72. Fuel reached USD100 in 2008 but the Global Financial Crisis dampened demand. Orders in 2009 were low (18) but so too was demand (and fuel).

Orders in 2011 (150) became the -300ER's best order year, and followed the industry's strong performance in 2010. Fuel was also on the up, increasing from USD62 in 2009 to USD80 in 2010, and to USD95 in 2011. The current quiet period of -300ER orders probably best reflects that the -300ER will be outpaced by the 777X in a few years. The low fuel price has some role in dampening prospects for top-up orders or late orders.

Boeing 777-300ER orders (left axis) and crude oil WTI barrel: 1990-Jan-2016

After 40-60 annual deliveries from 2006-2012, Boeing delivered 80 777-300ERs from 2013

Between 2006 and 2012, Boeing delivered approximately 40-60 777-300ERs a year. There were deliveries of approximately 80 aircraft in each year of 2013-2015.

There have been 13 individual orders for more than 10 777-300ERs. After the largest, from Emirates in Nov-2011 for 50, the second largest order was for half the number of frames (24) and was also placed by Emirates (in Nov-2005). The third largest order, for 20 from China Eastern, was placed in Dec-2012 and is one of three large (over 10 frames) orders placed since 2010. Of the 13 orders for more than 10 777-300ERs, Emirates accounts for five. It is Middle East and Asian airlines that have placed the top orders, with the exception of Turkish Airlines and lessor ILFC.

13 orders for more than 10 777-300ERs: 1990-2016

2007 was the busiest for the 777-300ER in terms of new customer deliveries. That year five new commercial operators of the -300ER were added. The pattern in most years was three new customers. After four new customers in 2014 (including three in greater China: China Airlines, China Eastern and China Southern), there were none in 2015. There will be three new operators in 2016: SWISS, United and Kuwait Airways.

First 777-300ER delivery by commercial airline operator: 2004-2016F

777-300ER comprises 80% of recent 777 deliveries

Since the first 777-300ER was delivered in 2004 the variant has come to define the 777 family. From 2005 onwards, the -300ER accounted for at least 50% of all 777 variant deliveries. From 2013 through 2015, the -300ER accounted for at least 80% of deliveries. In Jan-2016, the -300ER was the only variant built.

The 80 -300ERs delivered each in 2013, 2014 and 2015 represent a -300ER being delivered every 4.5 days.

Boeing 777 deliveries by -300ER/other variant, and -300ER share: 1995-2016

Bridging the 777 classic until the 777X arrives: half of production sold

Since Boeing announced the 777X there has been much interest in how it will "bridge" sales of its current 777 with the 777X, which is due to be delivered from 2021. The 777 is believed to be Boeing's highest-margin aircraft. The 777X represents a leap in efficiency over the existing 777 family, so the last few years of 777 classic production could be undesirable models, since they will be quickly outpaced by the more efficient 777X.

Since producing approximately 80 777 classics each year between 2009 and 2012, Boeing has delivered 100 each year from 2013 through 2015. It expects to deliver another 100 in 2016. After much speculation that Boeing would need to reduce production of the 777 classic due to slowing sales, in Jan-2016 the company said that it would trim production from 2017, to 84 777s a year.

Although much has been said of this cut, it merely brings Boeing back to pre-2012 levels. Prior to 2012, Boeing delivered more than 84 777s a year only in 2009, with 88 delivered; 1999 and 2007 came close with 83 deliveries each year. The question is whether Boeing can maintain output at 84 a year or needs to make a further revision.

At the end of Jan-2016, Boeing had accumulated orders for 1,585 777 classics, of which 1,367 were delivered. That leaves a backlog of 218.

To maintain its production forecast, Boeing needs to deliver 430 777 classics from Feb-2016 through 2020. There will also be some 777 classic deliveries in 2021, although the exact number is unclear since it depends on which month Boeing stops 777 classic production.

Assuming all aircraft in the backlog are delivered, Boeing has sold under half of its remaining "bridge" capacity. Yet this varies considerably by year: while 2016 production looks good and 2017 is forecast to have approximately two thirds of production sold, 2018 is forecast to have one third of production sold, and 2019-2021 have minimal sales. Boeing has not released exact guidance on its backlog by year and these are only estimates.

Boeing 777 deliveries (all variants) and forecast: 1995-2020

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Growing interest in second hand 777-300ER market

The faint prospect of a second hand 777-300ER market received attention in Jan-2016 with IAG CEO Willie Walsh remarking that the airline's 12 777-300ER fleet entered BA's fleet too late, but BA could consider taking second hand 777-300ERs. Mr Walsh, as reported by Leeham News said: "another opportunity we also look at is leasing 777-300ERs. We brought the 777-300ER late into our fleet, actually too late. It is a very effective and flexible aircraft. We now see that we could need more and once again we are prepared to lease these...We will go for used aircraft and lease them. It shows how BA has changed; we are prepared to adapt to a changing market and to take opportunities that come our way."

Emirates, and more recently Cathay Pacific, have been considered sources for airlines taking second-hand 777-300ERs (the two are also the largest operators). Turkish Airlines has taken the 777-300ERs disposed of by Kenya Airways, but these were relatively young and only a handful. Cabin refits would often be necessary, but all -300ERs use the GE90 power plant.

777 bridge sales may not be strong but forecast output is still at relative highs.

Time - and discounts - could produce further sales. Meanwhile the 777X, with a healthy 300 orders, will carry Boeing into its third and probably fourth decade of the 777 family.

See past CAPA Fleet Reports: