Both manufacturers accumulated huge order backlogs after launching sales of these new models, as airlines looked to lock in a supply of new, fuel-efficient planes. However, sales of both models have cooled off in recent years. To support their high planned production rates, Boeing and Airbus are counting on a rebound in order volumes within the next few years.
This raises the stakes for upcoming widebody fleet replacement decisions at all three U.S. legacy carriers: American Airlines (NASDAQ:AAL), Delta Air Lines (NYSE:DAL), and United Continental (NYSE:UAL).
Sales slow for Airbus and Boeing
Between 2004 and 2007, Boeing secured 817 net orders for its revolutionary 787 Dreamliner. In the next eight years combined, it accumulated just 325 net orders, with only one year of 100-plus orders and three years with more Dreamliner cancellations than orders.
It's a similar story for the Airbus A350. Airbus recently boasted that it has nearly reached 800 firm orders for its A350 family. What Airbus failed to mention is that it had reached that milestone back in 2013, but has had more cancellations than orders since then.
Neither company is in dire straits right now. Boeing and Airbus have more than 750 unfilled orders for the 787 and A350, respectively: enough to support years of production. Nevertheless, if order rates don't pick up in the next few years, Boeing and Airbus won't be able to go ahead with planned production increases.
U.S. airlines still need more widebodies
American Airlines, Delta Air Lines, and United Continental are each in the early stages of major widebody fleet renewal projects. All three carriers have dozens of widebodies on order.
Despite these bulging order books, American, Delta, and United will likely need to order more widebodies within the next few years. That's largely a consequence of the aircraft order binge that swept the U.S. airline industry in the late 1990s. Planes ordered then will reach retirement age during the 2020s, driving a big replacement cycle.
More Dreamliners for United: A350s too?
United Continental is in the midst of receiving 51 787s from Boeing. (At one point, the order totaled 65 planes, but since early 2015 United has swapped 14 orders for the larger 777-300ER.) Five years ago, United planned to use most of these 787s to replace retiring 767s.
Instead, United has taken advantage of the low fuel price environment to keep its 767s flying. By the end of 2016, United will have received 30 Dreamliners without retiring a single 767.
Nevertheless, United will need to retire these 767s in the next decade or so. The oldest are already 25 years old, while even the youngest are 14 years old. The Boeing 787 is by far the best 767 replacement available, so Boeing has a good chance of getting 30-40 more orders from United over the next few years.
United Continental also has 70 Boeing 777s that were delivered between 1995 and 2002. These planes will start to reach retirement age in five years. Some of United's 787-10 and A350 orders will replace its 777s. Nevertheless, United will probably need to order several dozen more medium-large widebodies to fill this need. The choice between the 787 and the A350 may ultimately come down to pricing.
Delta also needs a 767 replacement
In late 2014, Delta ordered 25 A330-900neos and 25 A350-900s to jump-start its widebody fleet renewal. It also has a long-standing order for Boeing 787s on the books, but it has the right to cancel this order -- and many analysts expect it to do so.
Of the planes it has on order, Delta has earmarked the A330-900neos to replace its aging 767-300ER fleet. Delta has 58 767-300ERs, which are 20 years old, on average. It also has another 21 767-400ERs that are 15 years old, on average.
Delta has been known to keep aircraft in its fleet longer than other U.S. airlines. It has also been opportunistic about buying cheap used airplanes at times to meet its fleet replacement needs.
However, if Delta decides to replace its remaining 767s with new aircraft, Boeing will have the inside track again. The A330-900neo and A350-900 will each hold about 300 seats in Delta's configuration: far more than a Boeing 767. The 787-8 or 787-9 would work better for routes with less demand. Airbus' offering in that segment of the market, the slow-selling A330-800neo, isn't nearly as capable.
American Airlines needs more widebodies, too
Finally, American Airlines has aggressively replaced older aircraft in recent years, but it will still need to order more widebodies a few years down the road. At the end of Q1, American had 49 outstanding orders for Boeing 787s and A350s: enough to replace 23 767s and 9 A330s that will retire between now and 2018 while also supporting some growth and additional replacements in 2019 and 2020.
American currently plans to keep 17 Boeing 767s beyond 2018. Yet even the youngest of its 767s will be 15 years old by then. American will probably retire these planes by the early 2020s, based on its decision not to extend its new international premium economy class to the 767 fleet.
Additionally, most of American's 47 Boeing 777-200ERs were delivered between 1999 and 2001. These planes will probably be retired in the mid-2020s. The 787-10 and the A350-900 are both good replacement options in this size range. Given that American has outstanding orders for both 787s and A350s, it could go either way.
In the meantime...
American Airlines, Delta Air Lines, and United Continental are likely to wait a few years to see how their fleet needs evolve before placing major follow-on orders for the 787 or A350. This year's big contest between the 787 and the A350 is for a long-awaited order of 50-70 jets from Emirates Airline.
But ultimately, U.S. airlines are likely to need hundreds more planes in the 787 and A350 size classes within the next 10-15 years, assuming relatively modest growth. That will help Boeing and Airbus keep their production lines busy beyond 2020.
Adam Levine-Weinberg owns shares of The Boeing Company and United Continental Holdings, Inc. and is long January 2017 $40 calls on Delta Air Lines, Inc. and long January 2017 $30 calls on American Airlines Group. The Motley Fool is long January 2017 $35 calls on American Airlines Group. 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.