Why is Boeing playing hardball with a key customer, refusing to let it revoke an order cancellation and take its planes? Court filings reveal the reason: Boeing has new customers lined up to take the jets — and an agreement with one that could add new orders for 777Xs and 787 Dreamliners by the end of this month.
In a year when Boeing’s order backlog has fallen by more than 500 airplanes, as airlines cancel hundreds of 737 MAX orders and new orders during the massive coronavirus downturn are thin, a deal for 777Xs and 787s would be an uplifting surprise for the jetmaker.
Boeing has already slashed production plans as airlines shrink their operations in response to the air travel collapse. Its large order backlog is expected to be cut dramatically, and the outlook for the new 777X looks especially vulnerable.
The 777X is a giant plane entering the market when airlines will have trouble filling it. Key customers including British Airways, Emirates of Dubai, and Cathay Pacific of Hong Kong are reeling from the pandemic’s financial hit. So a new 777X order would be a tremendous boost for Boeing.
The conflict between Boeing and Russian cargo carrier Volga-Dnepr surfaced in U.S. District Court in Seattle last week, when Volga filed suit alleging that it has a contract to take one 747-8 jumbo jet freighter and three 777 cargo jets — in total worth more than $600 million after standard industry discounts — but that Boeing refuses to deliver the jets.
Volga, blaming the global pandemic, told Boeing early in the year it couldn’t secure financing for the planes. However, months later, it managed to obtain the funding and declared itself ready to take delivery.
When Boeing responded that it was already finalizing a resale of the aircraft to other customers, Volga sued.
Boeing told the court that Volga had explicitly told the jetmaker to go ahead and resell the planes.
On Tuesday, Chief Judge Ricardo Martinez denied the restraining order sought by Volga, giving Boeing an initial victory and noting that Volga “has not demonstrated a likelihood of success on the merits of its breach of contract claim.”
The detail on how Boeing resold the Volga airplanes is contained in a written declaration to the court by Maria Akiyama, a Boeing Commercial Airplanes director who was Volga’s principal contact on the contracts.
On May 4, Boeing “finalized the resale of the 747-8F airplane Volga refused and has scheduled delivery of the plane to Customer A,” Akiyama states.
Customer A is likely UPS, which is the only remaining airline with 747-8s on order, and would likely be willing to take Volga’s remaining order for three more 747-8s if the Russians walk away.
The court filings also include an April 2 purchase agreement with another unnamed airline, Customer B, to purchase two of the three 777Fs originally meant for Volga.
The agreement outlines a series of “credit memos” for the two 777Fs, with all financial details redacted, that likely stipulate the discounts Boeing is providing. And an additional memo makes clear the deal is conditional on an agreement to purchase multiple Boeing models.
“In recognition of Customer’s partnership with Boeing as a 777 and 787 customer in [REDACTED], Boeing will issue to Customer a multi-model aircraft credit memorandum in the amount of [REDACTED], contingent on Customer executing definitive agreements to purchase (i) Model 777-9 aircraft and (ii) additional Model 787 aircraft no later than June 30, 2020.”
The 777-9 is the first version of the new 777X, which began flight tests in January.
There are a limited number of potential airline customers that fit the above details. The latest issue of Cargo Facts, an air freight trade publication, speculates that Customer B is most likely either All Nippon Airways (ANA) of Japan, EVA Air of Taiwan, or one of the large Chinese state airlines.
Boeing declined to comment on sales discussions with customers.