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Boeing Bags a 777X Order From British Airways

By Adam Levine-Weinberg – Updated Apr 10, 2019 at 11:39AM

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The iconic airline has finally ordered Boeing's largest twin-engine jet.

Last month, Airbus (EADSY -0.80%) finally killed off its ill-fated A380 jumbo jet after top customer Emirates decided to reduce its order. At the time, I noted that the A380's demise would allow Boeing's (BA 0.89%) new 777X to carve out a profitable niche among airlines looking for large, long-range planes.

It didn't take long for Boeing to receive a big 777X order. On Thursday, British Airways parent International Airlines Group announced that it is placing a firm order for 18 777-9s, with options for another 24. This deal can likely be traced directly to Airbus' decision to stop building the A380.

A rendering of a 777-9 in the British Airways livery

British Airways will use the 777-9 to replace some of its Boeing 747s. Image source: Boeing.

Looking for a 747 replacement

Today, British Airways is by far the largest operator of the Boeing 747-400, with 35 in its fleet. Most airlines have already retired the fuel-guzzling jumbo jet, but British Airways needs the extra capacity it provides compared to most twin-engine widebodies, because the carrier's main hub at London's Heathrow Airport is slot-constrained.

That said, British Airways has already replaced some of its 747s, using a mix of Airbus A380s, which are even larger, and Boeing 787s, which are significantly smaller than the 747-400. The carrier also ordered 18 A350-1000s back in 2013. These planes will begin arriving later this year and will be used to replace about half of the remaining 747s in British Airways' fleet.

Over the past few years, British Airways has considered buying additional Airbus A380s in order to replace the rest of its 747 fleet. At first, it was interested in buying cheap used aircraft that were coming off leases at other airlines. It eventually concluded that reconfiguring the interiors of those aircraft would be prohibitively expensive.

More recently, the carrier teased the possibility of ordering additional new A380s. Just a month ago, CEO Willie Walsh said British Airways would be interested in expanding its A380 fleet but that Airbus needed to offer a better price to make the economics work.

Check out the latest earnings call transcript for Boeing.

British Airways finally commits to the 777X

With the A380 now out of the picture and Boeing's competing 747-8 more or less relegated to the cargo market, the 777-9 is now the largest passenger aircraft available. That makes it the natural choice to complete British Airways' fleet renewal project. The 777-9 is expected to be the most fuel-efficient widebody in the sky, burning 30% less fuel per seat than the 747-400.

A rendering of a 777-9 flying above clouds

The 777-9 will be much more fuel-efficient than British Airways' 747s. Image source: Boeing.

British Airways will outfit its 777-9s with 325 seats in a four-class configuration. That compares to 469 seats on each of its A380s, but is roughly in line with the 275 to 345 seats on its Boeing 747s (depending on the exact configuration).

Of the 18 firm 777-9 orders that British Airways placed, 15 are scheduled for delivery in 2022 and 2023. That fits well with the carrier's plan to retire the last of its 747s by early 2024.

The options for another 24 777-9s could potentially help British Airways replace some of its 43 Boeing 777-200ERs, nearly all of which were built between 1996 and 2001. The 777-9 is quite a bit larger than the 777-200ER, but that might be desirable if British Airways wants to add capacity to keep up with traffic growth. (Alternatively, it could buy more 787s or A350s if it wants to replace the 777-200ERs with like-sized aircraft.)

Will more orders come?

Entering 2019, Boeing had 326 firm orders for its 777X family aircraft from seven airlines -- ANA, Cathay Pacific, Emirates, Etihad Airways, Lufthansa, Qatar Airways, and Singapore Airlines -- and one unidentified customer. That's a decent number, but it's less impressive when you consider that Boeing has been taking orders for more than five years.

Boeing plans to deliver the first 777X next year, and boosting the backlog is a key priority for 2019. Qantas and Turkish Airlines have both considered ordering the 777X in recent years and represent decent prospects. Emirates also may buy more 777Xs -- even though it already has 150 on order -- now that A380 production is set to wind down by 2021. Finally, some of the big airlines in East Asia carry enough traffic to potentially justify buying the 777X.

Winning another two or three orders before the 777X enters service in 2020 might allow Boeing to increase output on the 777 production line from the current nominal rate of five aircraft per month. It could also make the 777X program more attractive to aircraft leasing companies, which prefer to own models that have lots of customers. Thus, it will be interesting to see whether Boeing can build on the momentum from its British Airways deal in the coming months.

Adam Levine-Weinberg has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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