Aug 1, 2016 Guy Norris and Jens Flottau | Aviation Week & Space Technology

To find the first official hint of the possible end of an aerospace icon, read page 17 of the July 27 Form 10-Q filing to the U.S. Securities and Exchange Commission (SEC), signed by Robert E. Verbeck, senior  vice president and corporate controller of the Boeing Co. And make sure to read the last sentence of the paragraph, too: “It is reasonably possible that we could decide to end production of the 747,” the filing states.

The potential beginning of the end of an aircraft that has changed aviation like almost no other is being signaled as discreetly as possible. Ending production will surely be a difficult decision, given the role the aircraft has played for Boeing in the 46 years since it entered commercial service. And former program chief and 95-year-old Boeing legend Joe Sutter would surely vote against it if he had a seat on the executive committee. But a little more than 50 years after the 747 program was launched, all signs suggest the 747’s era is finally drawing to a close.

On July 15, 1966, Boeing announced the production launch of the program with orders for 25 jets for Pan American World Airways. At the time, Aviation Week & Space Technology reported that the company had also secured orders for four 747s from Lufthansa and three each from Japan Air Lines and Air France.

With development of the Anglo-French Concorde and Boeing’s own 2707 supersonic transport underway also, it was expected the 490-seat aircraft would have a relatively brief life as a passenger jet. “As supersonic transports begin to make their appearance in the mid-1970s, analysts predict that the passenger appeal of the faster aircraft will cause the conversion of the majority of the 747s to a combined passenger-cargo configuration and, eventually, to all-cargo,” states an article in the Aug. 1, 1966, edition of the magazine. At that time, Boeing still believed it could develop a supersonic transport that could make money from fares that would be only 10-15% higher than for the 747.

Airbus has scaled back the rate of building the massive A380, and now Boeing says it may close its production line for the venerable 747. Is the era of the large airplane over? Credit: joepriesaviation.net

The view that supersonic transports would take over from the likes of the 747 eventually was shared by many in the industry. Of course, looking back now, we see it could not have been further from reality. But revisiting this is a reminder that however sophisticated market research and analysis may be, it can go very wrong.For the 747, that misjudgment turned out to be incredibly good news. Even if Boeing stops making the jets around 2020, more than 1,500 aircraft will have been built. The program will have generated big profits for many years in spite of the massive development costs at the beginning and the charges if it in fact does come to end soon. The 747 was the dominant long-haul aircraft of the 1970s, 1980s and into the 1990s on transatlantic and transpacific routes, which were then by far the biggest long-haul markets.

But in some respects, the 747 is also becoming the victim of its own success. It created the traffic base that justified efforts by Airbus and Boeing to develop smaller widebodies. Initially, they could compete with a 747 on a unit-cost basis, but the latest generation of these aircraft—the 787, 777X, A350 and A330neo—is at least comparable or even better in terms of seat-mile costs. Airlines no longer have an argument to opt for big aircraft to drive down costs; in fact, they have instead chosen to reduce the risk of having to fly with empty seats. Even congested airports that would in theory force airlines to use bigger aircraft have not been a factor important enough to sustain a larger number of orders for the 747 or A380.

It is an irony that Airbus felt compelled to launch the A380 as late as 2000 to counter the 747. Only a few years later, and before the A380 entered commercial service in 2007, deliveries of the 747 started to decline. Airbus has since argued that is because the “jumbo” jet is now being superseded by the “super-jumbo” or “the flagship of the 21st century” that will pick up essentially all of the demand in the segment. But the A380 now appears to have more or less the same problem as the aircraft it was intended to replace.

When the A380 program was launched, Airbus forecast demand for 1,200 500-seat aircraft during the next 20 years, plus another 300 all-cargo derivatives. But with 10 years to go before the endpoint of the first 20-year forecast (2007-27), Airbus’s projections are way off. It has so far recorded just 319 firm orders, and 193 aircraft have been delivered. If one airline—Emirates—were not so supportive of the program (with 142 orders and 81 deliveries), the figures would probably be much worse. Airbus announced in July that it is slashing A380 production to just one per month in 2018 from 2.5 aircraft per month now, a move that essentially puts that program on life-support.

The A380 and 747-8 are not yet in the same situation, however: The A380 backlog is stronger, even taking into account that a significant part of the non-Emirates orders could disappear. But Airbus at least has more time and some prospect that the market will eventually pick up. It can hope that Emirates will eventually want to replace the 140 aircraft and add to its existing fleet. And it has plans in reserve for a revamped A380neo that it could pull out to make the offering more attractive to other airlines.

But for the 747, the going is quickly getting really tough. Because of lower-than-expected demand for large commercial passenger and freighter aircraft and slower-than-expected growth of global freight traffic, Boeing says it will cancel “previous plans to return to a production rate of 1.0 aircraft per month beginning in 2019.”

Although it has expressed confidence that the 747-8 freighter market in particular will recover toward the end of the decade, as earlier-production 747-400s begin to retire, the lack of new orders means that even at the slower assembly rate, the program is running out of time. Earlier this year, before the announcement of Boeing’s recently concluded aircraft deal with the Volga-Dnepr Group, the company indicated the 747 line was around 70% sold through 2016 but only 50% sold out through 2017.

However, the Volga-Dnepr agreement for as many as 20 aircraft, announced at the Farnborough Airshow, has not turned out to be as much of a potential lifeline as it first appeared. By the time of the announcement, the carrier had already taken four of the aircraft announced in the package, while others are believed to be aircraft that were previously deferred by other carriers such as Atlas, or unsold aircraft already built.

A letter of intent from Iran Air to purchase Boeing aircraft is also believed to include 747-8s, but that deal has not been finalized and is caught up in a political debate in the U.S. Congress.

Before its latest decision not to increase production again in 2019, Boeing’s original plan was to have produced a total of 1,574 aircraft between 1969 and the end of 2020. The decision to stay at the six-aircraft-per-year rate has reduced the program accounting quantity to 1,555 aircraft, which—together with lower anticipated revenues from future sales and higher costs associated with producing fewer airplanes—resulted in a $1.2 billion deferred production cost charge to the program. Boeing says the adjusted program accounting quantity includes 32 undelivered aircraft, currently scheduled to be produced through 2019.

Despite stepping up 747-8 marketing efforts, the firm order backlog has shrunk to just 21 aircraft and, with a roughly 2% decline in the air cargo market seen earlier in 2016 against longer-term hopes for 3% growth over the year, the program appears to be increasingly living on borrowed time. Boeing has also continued to try to reduce 747 program costs by merging several manufacturing activities with the 767, the production rate for which is expected to rise to 2.5 per month in late 2017 as assembly of the KC-46Atanker derivative steps up.

Confirming the increasing pressures on the line, Boeing says it has “a number of completed aircraft in inventory as well as unsold production positions and [remains] focused on obtaining additional orders and implementing cost-reduction efforts.” The manufacturer adds: “If we are unable to obtain sufficient orders and/or market, production and other risks cannot be mitigated, we could record additional losses that may be material, and it is reasonably possible that we could decide to end production of the 747.”

The path to the latest warning about the long-term future of the 747-8 began in April 2013, when Boeing announced it would cut the 747 build rate to 1.75 per month from two. Later that year, it announced a further reduction to 1.5 per month. Although this seemed bleak then, many recalled that the 747 had survived even leaner times in the past. No aircraft were delivered in 2010 during the transition from the 747-400 to the 747-8, but the first true market-driven slack period stretched from 2004 to 2009 when, averaged out over that interval, just over 13 aircraft were delivered per year.

In late 2014, with the backlog continuing to shrink, Boeing decided it would again slow the production rate, reducing  it to 1.3 aircraft by September 2015. Even this was not enough to hold the line, though, and in May 2015, before the latest reductions had even been implemented, the company revealed plans to slow the line again, to one aircraft per month by 2016. It was subsequently forced to take the rate to its lowest sustainable figure of 0.5 per month, which will be reached by September.

To reduce costs and retain skilled workers while the 747 rate was reduced, Boeing implemented a plan to merge major portions of the 747 and 767 programs. The plan is to fully integrate major functions of the two programs—including empennage assembly on the same line—by the end of the third quarter of this year.

In addition, largely at the instigation of Triumph Aerostructures, the longtime builder of the 747’s fuselage panels, Boeing announced in 2015 that it will bring the work in-house. Boeing still plans to transition the work to its facility in Macon, Georgia, where C-17fuselage skins were previously made. Although originally targeted at 2018, the fuselage panel work is now scheduled to transfer to Macon in the third quarter of 2019—effectively around the time the 747 line could be closed down altogether.

Source: http://aviationweek.com/commercial-aviation/boeing-s-747-struggles-indicate-large-aircraft-market-decline