August 2012

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Korean gives 747-8I a new lease on life

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korean7478_560.jpgAlmost exactly three years to the day, Boeing has earned its second firm order for the airline configured 747-8I. Korean Airlines placed a firm order for five of the jumbo jets for delivery between 2013 and 2015.

Lufthansa launched the 747-8I program on December 6, 2006 with an order for 20 aircraft. Since then the company has seen a dry spell of orders for the passenger version, while earning seven orders for the VIP variant.

Korean Airlines, which also holds orders for ten A380 aircraft, said that the 747-8I fills a gap between the carrier's 300 and 550 seat aircraft.

The order breathes new life into the -8I program, which over the last three years has had sparked speculation as to whether or not Boeing would go through with its development of the new jumbo jet.

Boeing always firmly maintained that the 747-8I would become a reality, and the surpassing of 90% design release combined with this latest order should put those questions to bed for good. The replacement for Air Force One alone was almost certainly enough to keep the -8I alive.

I went back and looked at my notes today from a conversation I had with Boeing's Randy Tinseth at the Dubai Air Show about the 747-8. His comments, which came before the Korean order was announced, were quite interesting: 
It's a really tough market to be selling big airplanes and people forget that since we launched that airplane in November 2005 we've only been in two passenger campaigns where airlines made decisions: Lufthansa and the other was British Airways. We're pleased we won one and disappointed we lost the other. 

Frankly the airplane has been selling in total about where we expected, we've been very pleased with the strength of the freighter, we're disappointed that we haven't sold more passenger airplanes. Ultimately we believe that market is going to pick up...when we start going on the upside of the cycle - this coming cycle - and airlines start replace their older 747s.

At the end of the day the 747-8 and the A380, it's our belief that these are a replacements for the 747, so when that happens that when we'll see airlines making those decision.

You saw it [in the presentation], 740 airplanes, 200 of them are freighters, so that means you're down to 540 aircraft. That means a handful of campaigns moving forward, all those campaigns are going to be tough. I like to say, lots of hand to hand combat.
Boeing's own market forecast, which Tinseth references, expects 740 large aircraft to be sold between 2009 and 2028. That 740 number was a 25% cut over the previous year. Though with 1 in 10 747-400s now parked, the potential for the -8I and A380 may just take hold.

However, that shrinking market, says Richard Aboulafia, vice-president of analysis for the Teal Group, may be dominated by big-twins, not jumbos and superjumbos:
The big plane market has been all but obliterated by the huge popularity of the long-range mini-jumbos, especially the 777-300ER and A350XWB. Operating large aircraft can be very dangerous when the market tanks. But the Korean order shows that the 747-8I still will have part of this niche, despite some very aggressive A380 pricing.

As the saying goes, nobody ever went bankrupt flying planes that were too small. Very few carriers will replace 747-400s with equally large or larger planes. There's just too much to be said for getting rid of 20% of your lowest yield passengers and focusing on improving profits. You also get greater schedule and route flexibility with smaller long-range planes.

Getting rid of jet engines works great, too.
Though, word on the street is another -8I order from an airline customer may be coming soon.

Photo Credit Boeing

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