SINGAPORE – Singapore Airlines ordered 20 Boeing 777-9Xs, and 19 787-10 Dreamliners this morning, boosting its portfolio of Boeing widebody jets on order to 69 (as compared to 62 Airbus widebodies). The order is technically a letter of intent (LOI) at the moment and includes 6 additional options for each of the 787-10 and 777-9X. The 787-10 orders include flexibility for Singapore Airlines to convert some of the orders to other 787 variants, and the order is worth nearly $13.8 billion based on present list prices. Applying the standard list price discounts offered by the large manufacturers, this works out to an actual price of $6.2-$9.0 billion paid by Singapore Airlines in the deal.

Singapore Airlines logically wraps up the core pillars of its fleet replacement needs over the next decade

Singapore Airlines previously had 30 787-10s on order along with 57 Airbus A350-900s (with 10 already delivered) and 5 Airbus A380-800s. The A350 had been shaping up as the core of Singapore Airlines’ longhaul/mainline fleet, with missions ranging from A330 and 777-200/200ER replacement on medium haul flights to 777-300ER replacement and growth on long haul flights to spiritual succession of the A340-500 on ultra-long haul (ULH) nonstop flights to the United States. The A380, for which Singapore Airlines was the launch customer, had perhaps a less secure future with Singapore Airlines, as the current fleet of 19 (with one set to retired in October 2017) would appear to be enough to service Singapore Airlines’ network in an era of fierce competition from the Middle Eastern giants and rampant growth from Chinese carriers.

The 30 787-10s were indeed earmarked for high density regional routes (also completing to A330-300 replacement) and it was always understood that Singapore Airlines would likely grow that commitment. The variability of switching a few of those orders to the 787-9 to service longer and thinner routes is preserved with this additional order, and our view is indeed that Singapore Airlines will end up with a fleet of 15-20 787-9s out of the likely 60-65 plus 787s that will eventually end up in Singapore Airlines’ fleet.

Some of these 787-10s may also be placed with Singapore Airlines’ long haul low cost subsidiary Scoot, which already operates 6 787-8s and 6 787-9s in an all-Dreamliner fleet. The carrier has 4 additional 787-8s and 787-9s on order, and given the initial success that Scoot has seen on Australian and European routes, Scoot could take over a few more of the core Singapore Airlines routes to Europe as that piece of the network shifts away from connecting business travelers to East Asia, Southeast Asia, and Australia.

The more interesting piece of this order is certainly the purchase of 20 777-9Xs, which was competing directly with the Airbus A350-1000 on the top end to replace Singapore Airlines’ highest load factor 777-300ERs and grow high-density long haul routes. The purchase of the 777X family is a bit of an upset at Singapore Airlines, as the A350-1000 is more of a natural step up from the A350-900/787-10 with the A380 on the top end from a size perspective. Moreover, once Airbus opted for the A350-900ULR to resume nonstop service to the United States, it wiped out the allure of the smaller 777-8X in the 777X family and the flexibility of switching to that type as a sweetener in the deal.

But the 777-9X makes a lot of sense for Singapore Airlines, as it now faces unique pricing pressure from Chinese carriers to the north and Middle Eastern carriers to the west on its traditional connecting flows. The 777-9X will be the lowest unit cost widebody on the market period (yes, lower than the A380), and that will better position Singapore Airlines to compete for economy class passengers on price (the dominant driver for economy class purchases even on long haul flights). Indeed additional 777-9Xs via a top-up order may well end up replacing the A380 at Singapore Airlines now that Airbus has effectively punted on a re-engined A380neo development.

Another win for Boeing at Singapore Airlines

For Boeing the order is a huge win given flagging sales for its flagship widebodies (the 787 and 777X) over the last two years. On the 787, Boeing has been relatively bearish with its commentary on whether the orderbook is large enough to support an additional ramp up to 14 aircraft per month by the end of the decade (up from 12 aircraft per month). One of the challenges in growing the 787 orderbook (in addition to the fact that Emirates and Cathay Pacific haven’t ordered any) is that certain large widebody operators like Singapore Airlines have smaller firm orders for the 787 while holding large volumes of purchase options that almost assuredly have to be fulfilled for these carriers to effectively replace their widebody fleets.

The 20 additional jets from Singapore Airlines are a good start to that process, but other mid-sized 787 customers like United Airlines, American Airlines, Air Canada, LATAM, Air France-KLM, and Qantas Group will also need to boost their order volumes with more top-up activity for Boeing to truly secure the long run skyline of the 787 program. The 787-10 also more broadly hadn’t won a new net order in more than two years due to availability constraints, and the new order is a boost to the largest 787 variant, which is widely expected to be the best performing medium-range widebody on the market from a cost and payload perspective. This incidentally, is why Singapore Airlines purchased the 787-10 at all given that the A350-900 is similarly sized.

Meanwhile, Boeing is singing paeans to the ghost of Lee Kuan Yew over the 777-9X order, as it represents the second for the type in as many months after nearly a year-and-a-half drought. Moreover, the geopolitical views of the new US presidential administration likely put the most recent order from Iran Air for 15 777-9Xs at risk, so the Singapore Airlines buy is doubly validating for Boeing in a sense. The 777-9X is an excellent fit in Singapore Airlines’ fleet as noted above, and now Boeing’s attention will turn to winning further customers for the type that have expressed interest, including Australia’s Qantas Group.