Jumbo jets have been losing their luster for more than a decade. Airbus (NASDAQOTH:EADSY) spent massive sums of money to develop the enormous A380, which has been shunned by most airlines. Meanwhile, Boeing's (NYSE:BA) iconic 747 is way past its prime -- by the end of 2016, the company will be building just six per year.
In late 2013, Boeing officially launched sales of the 777X, the largest twin-engine jet in history. The company's goal was to disrupt the jumbo-jet market by offering a plane that could offer high seating capacity with much lower costs. In that effort, it has been fairly successful: Since the 777X launched, Airbus has received only one significant A380 order.
Now, Boeing may be looking to finish off the A380 for good, by stretching the 777X even further into jumbo-jet territory.
Boeing considers a larger 777X
Boeing has approached several customers, including Emirates, about the possibility of building a stretched version of the 777X, according to Bloomberg. The proposed larger model, tentatively dubbed the 777-10X, would have room for four extra rows. This would allow it to hold roughly 450 seats in a standard configuration.
The 777-10X would probably be a fairly straightforward stretch of the 777-9 model. That would keep development costs relatively low. Furthermore, it would burn less fuel per seat than the 777-9, although there might be a trade-off in terms of range or payload capability.
An Airbus A380 killer?
The proposed 777-10X would still be a good deal smaller than Airbus' A380. That isn't really a problem, though: Very few airlines are interested in a plane as big as the A380. Middle Eastern airline giant Emirates is the only vocal backer of the A380. Its 142 orders represent nearly half of the total A380 backlog (including airplanes that have already been delivered).
Going forward, the vast majority of A380 deliveries will likely go to Emirates. Most of the 66 remaining A380 firm orders from other airlines and aircraft leasing companies are unlikely to ever be filled, according to aerospace analyst Richard Aboulafia.
Indeed, Boeing may not need to develop an A380 killer -- there's a good chance that the A380 will die on its own. Airbus' breakeven production rate for the A380 is about 30 per year. It delivered 27 A380s last year, yet even that pace is unsustainable. Airbus is planning to slow A380 production to 1.7 per month (about 20 per year) in 2017, according to Reuters.
Airbus would probably be willing to produce the A380 at a loss for several more years to placate Emirates. But barring a significant uptick in sales, it won't make financial sense for Airbus to keep building the A380 indefinitely.
The case for a stretch seems shaky
The 777X family seems likely to be far more successful than the A380 in the long run. That said, after launching the program with a record 259 orders, Boeing has secured only 47 more 777X orders since the beginning of 2014. Demand for large wide-bodies has been lukewarm at best.
Furthermore, the 777X has just as much of a customer concentration problem as the A380, for now. And it's the same customer! Emirates accounts for 150 of Boeing's 306 firm orders for the 777X.
Even if Emirates goes all-in on the 777X, it's hard to imagine it increasing its order much further in the near future. Meanwhile, other airlines seem less interested in jumbo jets, so it's not clear that a 777-10X would fit their needs any better than the already-designed 777-9.
Finally, if Boeing goes ahead with building a 777-10X, the chances of Airbus offering a stretched version of its A350-1000 to compete directly with the 777-9 will increase. The resulting proliferation of models would add costs for both Airbus and Boeing without expanding the overall jet market, thus making both companies less profitable. (While development costs for simple stretch derivatives are fairly low, they can still run into the billions of dollars. Adding models also makes the production process more complex.)
Boeing really needs to sell more planes
Given the lukewarm sales totals for the 777X over the past two and a half years, Boeing's first priority needs to be signing up more customers. The 777X program has only six announced customers so far, plus one unidentified order for 10 planes.
If launching a 777-10X would help Boeing bring in a lot of incremental orders -- particularly among airlines with aging 747 fleets -- then it might be worthwhile to do so. However, many airlines have already made plans to replace their 747s with much smaller airplanes like the 777-300ER or A350-1000. The 777-10X might not be a game changer in this replacement market.
Boeing can't afford to launch the 777-10X on pure speculation that a market for it will develop. It also shouldn't pour more money into the 777X program if Emirates is the only carrier that is enthusiastic about the 777-10X. (So far, even Emirates has doubts about the concept.) Demand for a bigger 777X might not crystallize until A380s start coming up for replacement 10 to 15 years from now.
In short, with the 777X, Boeing needs to avoid the pitfalls that have tripped up the Airbus A380. It needs to sign up a broad and diverse customer base rather than relying on massive orders from Emirates. Developing a 777-10X now in order to deliver a knockout blow to the A380 could prove to be a useless distraction.
Adam Levine-Weinberg owns shares of Boeing. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.