December 2005, Volume 1, Issue 2

Realistic Market View Makes 787 a Superior Investment Value

787The Boeing airplanes and services product line reflects the market's preference for airplanes that can flexibly serve the broad spectrum of complex airline network requirements, including frequency optimization and point-to-point service. The newest Boeing jetliner, the 787 Dreamliner, is a dramatic example. The 787's long-range capability enables airlines to extend point-to-point strategies to a whole new array of markets, including the longest distance markets in the world.

The 787's unprecedented efficiency enables airlines to achieve low per-passenger costs that rival those of their largest aircraft. Yet, the Dreamliner will offer the lowest trip costs of any twin-aisle jetliner.

Commonality Improves Airplane Liquidity

A first in aviation history, Boeing invited the financial community to define the attributes that contribute most to the value of an airplane at the earliest stages of 787 design. In response to this input, the 787 raises commonality to new heights by standardizing a large number of features that have traditionally been offered as options. In addition, the Dreamliner's highly flexible interior design makes it easier for operators to configure—and reconfigure—their airplanes to match market conditions and support brand identity.

The 787's standardization looks far beyond an airline's original requirements to the day when the airplane is offered for lease or resale. The 787 is the first commercial jetliner to offer engine interchangeability. Operators seeking to acquire a 787 will encounter no obstacles, either in the form of interior or systems peculiarities or engine manufacturer compatibility. The new operator will be able to integrate the Dreamliner into the fleet quicker, easier, and more economically than ever before imagined.

The Financial Community Embraces 787 Market Strategy

Asked by Boeing to present the investor's point of view, Tom Hollahan, managing director of Global Aviation Industry of Citigroup's Corporate Banking said, "From the standpoint of the financier, Boeing got the development process exactly right in the 787."

Citing the balance between standardization and customization, Hollahan stated, "In my view, the 787 will achieve much more efficient financing than other existing airframes, based largely on the commonality, standardization, and what I perceive to be a tremendous residual value story."

Hollahan went so far as to suggest that the 787 would change the way financiers evaluate the strength of an investment opportunity. The 787's commonality and standardization creates unparalleled airplane liquidity, enabling Citigroup to "rely more on the value of the underlying airframe itself than on the credit worthiness of the airline."

    Why Air Canada Selected Boeing and the 787

In November 2005, Air Canada recommitted to upgrade its fleet with up to 36 Boeing 777s and 60 Boeing 787 Dreamliners, affirming the complementary roles of two advanced twinjets. The firm order for 32 Boeing wide-body jetliners is valued at over US $6 billion at list prices, with options for up to 64 additional airplanes. Speaking of the advantages of flying the game-changing pair, Robert Milton, president and chief executive officer of ACE Aviation Holdings, Inc., parent company of Air Canada, has gone on record:

"Our decision to modernize our fleet with the 777 and 787 Dreamliner will move Air Canada into a clear leadership position among North American international carriers with the world's two newest and most efficient twin-engine, long-haul airplanes. The superior customer comfort and operating economics of these aircraft will put us in the company of the leading European, Middle East and Asia Pacific carriers."

"We're extremely pleased to move forward with the renewal of Air Canada's wide-body fleet with these new Boeing airplanes. Our analysis of these aircraft confirmed overwhelmingly attractive economics; we estimate the fuel burn and maintenance cost savings alone on the 787 to be approximately 30 per cent versus the 767s they will replace. This is particularly important in the current high-fuel-price environment."

"We believe the Boeing 787 is a true game-changer—a quantum leap in technology—the likes of which our industry has not seen in decades."

Milton is confident that the Boeing 777 and 787 will help Air Canada significantly reduce fuel and maintenance costs and support plans for growth into new markets, especially in longer thinner routes that were not previously viable.

The 777s and 787s are uniquely suited to meet Air Canada's current route structure and growth plans for long-range, nonstop routes for both passengers and cargo.