In 2014, Airbus (NASDAQOTH:EADSY) made the unsurprising decision to update its strong-selling A330 widebody plane with new, more fuel-efficient engines. The A330neo competes directly with Boeing's (NYSE:BA) popular 787 Dreamliner family, but it was expected to lure customers through a combination of lower prices, better near-term availability, and significant commonality with the existing A330-200 and A330-300 models.
However, the A330neo has been a flop thus far. The smaller A330-800neo version has sold particularly poorly. In fact, Airbus didn't have any firm orders for the A330-800neo as of the end of last month.
Last week, Airbus finally made some progress, signing a deal to sell eight A330-800neos to Kuwait Airways. Nevertheless, it has a long way to go to make the A330neo -- and especially the A330-800neo -- a viable competitor to the Boeing 787 family.
Low fuel prices and shaky economies undermined sales
Part of the A330neo's problem was simply bad timing. Airbus began taking orders in mid-2014. While Airbus got a good initial haul of orders, oil prices began to plunge in the second half of that year. The steep drop in fuel prices encouraged many airlines that had planned to upgrade to more fuel-efficient models to instead extend the lives of their existing aircraft to save money.
Recessions in previously fast-growing markets like Brazil and Russia -- and slower growth in other countries -- also hurt sales of the A330neo family.
Airbus recorded a respectable 154 net firm orders for the broader A330 family (including the A330neo) in 2014 and 136 net firm orders in 2015. However, net firm orders fell to 83 in 2016 and 21 in 2017. And as of September 30, Airbus had only booked eight net firm orders for the A330 aircraft family in 2018.
The lack of order activity has caused the A330 backlog to shrink significantly, particularly in the last two years. As of September 30, there were just 70 outstanding orders for the current-engine A330 models. Meanwhile, the A330neo had accumulated 224 firm orders -- not a very impressive total. As a result, Airbus plans to deliver just 50 A330s next year, down from more than 100 annually as recently as 2015.
The A330-800neo hasn't found interest
While the A330 family, as a whole, has struggled to gain orders in recent years, the A330-800neo has been the worst of the bunch. Part of the problem is that its larger sibling -- the A330-900neo -- has significantly lower unit costs.
Indeed, much of the appeal of the A330-200 (the direct predecessor to the A330-800neo) was that it had significantly more range than the larger A330-300. However, Airbus steadily improved the A330-300 over time, increasing its range. The A330-900neo (its successor) actually has more range than the A330-200. A relatively small number of routes would require the additional range that the A330-800neo can provide. Few airlines are willing to take on the A330-800neo's higher unit costs just for that extra range.
In the first year or so that it was being sold, the A330-800neo accumulated 10 firm orders: six from Hawaiian Holdings (NASDAQ:HA) and four from Taiwan-based TransAsia Airways. However, TransAsia collapsed before it could take delivery of any A330-800neos. Meanwhile, Hawaiian Airlines got cold feet as Airbus failed to find additional buyers for the A330-800neo.
Ultimately, Hawaiian Holdings canceled its A330-800neo order earlier this year, placing a firm order for 10 Boeing 787-9s instead. While the A330-800neo would have meshed well with Hawaiian Airlines' existing fleet of 24 A330-200s, the carrier's management simply wasn't willing to take on the risk of owning an "orphan" aircraft.
Airbus finds a new buyer
The last-minute order cancellation by Hawaiian Airlines -- its first delivery was scheduled for 2019 -- left Airbus in an awkward spot. It had already built the A330-800neo test aircraft, but now it had no customers for the model.
Airbus finally secured a customer this past Monday, when it signed a purchase agreement for eight A330-800neos with Kuwait Airways. (It previously signed a non-binding memorandum of understanding for two A330-800neos with Uganda Airlines back in July.) The first delivery is scheduled for 2019, suggesting that the Kuwaiti flag carrier will take the aircraft that had been intended for Hawaiian Airlines .
The outlook still isn't good
Selling eight aircraft to Kuwait Airways and a pair to Uganda Airlines won't do much for Airbus' A330-800neo in the long run. Both orders are small and from low-profile airlines. Airbus would need a big order from one of the largest global airlines to get other carriers interested.
Unfortunately, the A330-800neo is already caught in a vicious cycle. The lack of orders makes airlines nervous that the model could be discontinued, hurting resale values and making it harder to find spare parts. Even American Airlines -- the world's largest airline and a major Airbus customer -- has said that it's not interested in the A330-800neo for that reason.
Making matters worse, Boeing is set to boost the 787 Dreamliner production rate from 12/month to 14/month in 2019. This -- combined with a slowdown in orders between 2014 and 2016 -- has greatly reduced the lead time for Dreamliner orders. Boeing also has become very aggressive on pricing recently. Both developments have removed key selling points for the A330neo family.
The A330-900neo may find some small measure of success. There's already a backlog of more than 200 orders, and A330 operators may find it easier to upgrade to the A330-900neo than to switch to the 787. But unless Airbus is willing to sell dozens of planes below cost to lure a big-name customer (and hopefully jump-start sales), the A330-800neo doesn't seem to have a long-term future.