Delays in the delivery of the Boeing 787 could potentially allow some customers to cancel orders without penalty, taking advantage of the same contractual clauses that allowed some 737 Max buyers to opt out.
This is according to the executives of the aircraft rental company Air Lease and an analyst at BofA Securities.
Aircraft sales contracts generally allow customers to cancel orders without penalty if deliveries are delayed by more than a year. Due to production issues, Boeing halted 787 deliveries between October 2020 and March, and then again in May.
Deliveries have not yet resumed.
Boeing said it has around 100,787 undelivered in its inventory.
“As more and more planes reach that 12 month point, where the customer has the right to cancel, it will definitely increase the pressure on Boeing to find solutions, not to have white tails,” said Steven Udvar, Executive Chairman of Air Lease. Hazy said during the call for the lessor’s second-quarter results on August 5.
“There might be situations where we may have to face the reality of giving Boeing notice to cancel a plane,” he adds.
White tails are jets that have been made but do not have a buyer.
Air Lease holds orders for 30,787, according to securities documents.
Ron Epstein, BofA analyst, said on the earnings call that “perhaps a third” of Boeing’s undelivered 787s could be subject to “material adverse change” clauses in purchase contracts – clauses which allow cancellations without penalty.
Boeing did not immediately respond to a request for comment.
“It is certainly possible that some of these 12-month cancellation points will be triggered. I have no idea how many of the over 100 planes could be subjected to this, ”said Air Lease chief executive John Plueger. “We have a few that could be submitted to it in the coming months. “
The latest production break for the Boeing 787 stems from a problem with the flatness of the fuselage coatings at the junction of the fuselage sections. In July, Boeing revealed another 787 build quality issue involving deficiencies in the front pressure bulkheads. The company says the problems do not affect flight safety. Boeing is working to get its fixes approved by the Federal Aviation Administration.
“It’s very difficult to predict when the eight-seven will start deliveries,” said Udvar-Hazy.
Plueger adds: “It’s entirely possible… we could have a situation similar to what we had in the Max”.
Airlines have canceled hundreds of orders for the 737 Max in the middle and after the 18-month downtime, although it is not clear how many of those cancellations without penalty under the delayed delivery provisions.
Air Lease executives also note that some customers have subsequently reinstated canceled Max orders.
If customers want to cancel orders for 787s, “we’ll just have to see what Boeing’s response is and whether we can satisfy our airline customers accordingly,” says Udvar-Hazy.
“We have a great relationship with Boeing on this sort of thing, they’ve been very accommodating,” Plueger adds.