I am following relatively closely the news related to the grounding of Boeing 787 world fleet due to the recent issues that 2 of the operating aircraft had in service. I was wondering how much could Boeing be penalised by this situation.
Then, a couple of days ago I started seeing estimates (up to 5bn$?!), so enjoying playing with numbers as I do, I wanted to make up my figures before reading the explanation I am looking for somewhere else. Let me share the number play with you.
I have read news pointing at a solution based on new batteries, which certification could extend until 2014! Well, hopefully it doesn’t take that long, but since we don’t know for how long the fleet is going to be grounded and we also don’t know what the final fix is going to be, what I am interested at this moment is in trying to guess the cost per day of the grounding of the fleet.
Let me explain the assumptions I am going to take and where do they come from:
- aircraft grounded: 50 (Boeing deliveries).
- average seating: 210-250 seats for -8 (a/c delivered) and 250-290 for -9 (seating numbers from Boeing; deliveries from Wikipedia).
- revenue per passenger: here, instead of doing an extensive research, I based the calculation on a previous research made by Air Insight for a report about Air India potential claim for 787 delays (the article is from one year ago).
- $234 per flight hour for first class (using a 75% load factor),
- $136 per flight hour for business class (80%),
- $67 per flight hour for economy class (85%).
- seating per class: using the information from United as reported by SeatGuru for the
- 787-8: 36 + 72 + 111 (1) (for a total of 219 pax).
- flight hours per day: Air India was flying between 11 and 11.78 FH/day according to Air Insight. Ethiopian was said to be flying about 14 FH/day. I’ll take an average of 12 flight hours per day.
With all these assumptions, the daily cost of B787 grounded fleet is: ~12.3 millon dollars / day.
Partial results of the calculation are:
- average revenue per flight hour, ~20,500$;
- average daily revenue of a 787, ~245k$.
Taking into account that the fleet has been grounded for already 2 weeks, the cost so far is in excess of 170m$, not much compared to Boeing earnings (to be released today). But if the solution and certification process takes really until 2014, this cost would be in the order of 4.5bn$ (close to the 5bn$ figure pointed by Jefferies & Co. analyst).
Final remarks. Remember that this number play just tries to guess what is the revenue loss from not flying 787s. It doesn’t take into account the cost of fixing the problem, or whether the same routes are flown by other aircraft models and to what extent Boeing might or might not be penalised (in relation to revenue loss? profit loss?). This number play also does not take into account potential financial impact on further deliveries being postponed.
(1) Taking estimate of revenues and load factors from Air India and seating numbers from United already introduces some error.
Note: After completing this post, I saw the following similar estimate in Reuters published 2 weeks ago: 1.1m$ per day for a fleet of 17 a/c, the case of ANA.