Volga-Dnepr order for 20 Boeing 747-8 Freighters is not as firm as thought

The Memorandum for Understanding (MoU) for 20 additional Boeing 747-8 Freighters for the B747-8F fleet of Volga-Dnepr, which Boeing announced at last month's Paris Air Show, is less solid than earlier assumed, Leeham News & Comment has reported.

Volga-Dnepr 747-8 freighter commitment is vital for Boeing
Volga-Dnepr 747-8 freighter commitment is vital for Boeing

The U.S.-based aviation news group said in a recent report that the fleet expansion is "more about options than firm orders" and quoting market intelligence, it added that Boeing is facing an "insurmountable" production gap as the Volga-Dnepr expansion is over seven years, which fails to fill the gap at current production rates.
However, as speculated in the Leeham News & Comment report, Boeing last week announced a cut for the 747-8 production rate to one per month in a move to sustain the programme until the ongoing recovery in air cargo materialises into much anticipated new orders.

Dwindling Baglog
The cutback to just 12 aircraft per year comes despite signs of an increasing recovery in the international air cargo market and a yet-to-be-finalised deal with cargo carrier Volga-Dnepr for up to 20 aircraft, trade publication Aviation Week reported. Boeing, however, says action needs to be taken now to reduce production as the current firm-order backlog has dwindled to only 32, of which 14 are -8 Freighters, and the balance, passenger models.
Aviation Week said the decision to slow the rate to the smallest annual output at which Boeing can profitably produce the aircraft was not unexpected given the pressures on the programme.

Reduced rate of production
The rate reduction continues a gradual production cutback that began in 2013, when the 747-8 was built at two per month. In April 2013, the company announced it would be reducing the build rate to 1.75 per month, and later the same year, it announced this would be further reduced to a 1.5-per-month rate. The programme is slowing to 1.3 per month by September, and will begin transitioning to the lower rate in March 2016.
Complicating Boeing's efforts in selling additional 747-8's in both passenger and freighter version is the possibility that the charter for the US Export-Import Bank may expire after June 30, 2015, eliminating a longtime source of financing for aircraft orders from Boeing’s overseas customers, Bloomberg reported. Although US Congress last month decided not to renew the Ex-Im Bank charter, the closure may be temporary as Ex-Im backers plan to meet with President Barack Obama on July 8 to discuss how to revive the bank, the Bloomberg report noted.

Uncertain future
Should the Ex-Im charter close permanently and the demand for four-engined jet aircraft continues to shrink, the Chicago-based plane manufacturer could be forced to provide its own financing and thus tie up capital that could be used for development programmes and share buybacks, Bloomberg said, adding that nine 747-8's with a list value of US$3.3 billion, representing more than a quarter of Boeing’s 32-plane backlog of 747s, are bound for markets like Russia, Azerbaijan and Nigeria, where buyers rely on Ex-Im support.
However, should Boeing manage to firm up the Volga-Dnepr Group commitment for the 20 additional 747-8 Freighters, and assuming that Cargolux books additional orders for the aircraft, it would lock up enough orders to keep its 747-8 assembly line busy for at least the next two years.

Nol van Fenema

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