Odds and Ends: Dual sourcing; FAA overflight bans; Super Constellation

Dual sourcing: There is always much angst in Seattle among the labor groups and Washington State’s elected officials when Boeing decides to put work outside the state. Much of this angst is because Boeing uses this as a sledgehammer to beat up unions for concessions and the state for tax breaks.

But dual sourcing isn’t really a bad thing. Pratt & Whitney is dual sourcing to avoid a single point of failure, as this article explains. Boeing, of course, has made the same point but it always gets submerged by its heavier-handed tactics. We’ve often made the point that if Boeing wants to set up assembly lines elsewhere, why not use the Natural Disaster Risk Diversion as the reason–and nobody could argue the point (well, they could, but it is a valid concern).

FAA overflights: It’s big news here in the USA, likely far less so in the rest of the world: the racial unrest in the small Missouri town of Ferguson, a suburb of St. Louis, where an unarmed 18-year African-American male was shot six times by a white policeman. Police say the young man attacked a police office. Witnesses say he had his hands up to comply with the officer’s orders. A grand jury will attempt to sort out facts. In the meantime, demonstrations–some peaceful, some not, some with looting–have turned Ferguson into an armed camp of police looking like the Army, in Humvees, battle gear and automatic weapons.

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What order bubble?

Following the Farnborough Air Show last month, media and some aerospace analysts once again began asking the question: is the order bubble done?

We retort by saying, “What order bubble?”

We have been hearing since 2008 if the order bubble was about to burst. We’ve been asked this question many, many times. The trouble in answering this question is that nobody truly defines what they mean by “order bubble” when they ask if the bubble is about to burst.

Do people mean:

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Odds and Ends: CSeries status; Airbus accident analysis; 737 rate increase; Kenya Air holds Boeing hostage

CSeries Status: Here is an interesting, detailed article from a blogger who follows the Bombardier CSeries more closely than anyone we can think of.

The article pretty well summarizes the issues, although we have this additional color: the fixes have been identified and are being installed and are still in Transport Canada review for approval and the green light to resume flight testing.

Airbus accident analysis: Airbus issued a study that looks at the causes of commercial accidents since 1958. The full report may be found here. The report is intentionally light on text and heavy on charts and graphics, so it’s easy to digest.

737 rate increase: Several media reported yesterday that Greg Smith, CFO of The Boeing Co., told an investors day Boeing is likely to decide this year on a production rate increase for the 737 line beyond the 47/mo previously announced to go into effect in 2017. Well, you read it here first–we reported more than a year ago Boeing was looking at a rate increase to 52/mo and even 60/mo. We’ve had in our estimates the 52/mo by 2018, 2019 or 2020, followed by 60 a year or two later.

Kenya Air: no more Boeings: We know some Airbus customers have long tied route authority to buying Airbus airplanes, and China is notorious for holding Airbus and Boeing orders hostage for political reasons. Kenya Airlines now says it won’t buy more Boeing aircraft unless it gets US route authority, according to this article.

Odds and Ends: Boeing discounting; A380 analysis; A320neo LEAP

Boeing discounting: Although Boeing alternately acknowledges it’s under price pressure from Airbus or it’s maintaining pricing on its aircraft, UBS aerospace analyst David Strauss concludes that discounting is increasing on the 737 and 777 but is somewhat better on the 787.

Strauss writes in an August 6 note that discounting on the 737 is around 59%. The 777 is now discounted at about 54% and the 787 trails at 46%. (He doesn’t bother with the 747-8.) These are for in-production models.

Strauss concludes that 737 discounting increased since the introduction of the MAX in 2011.

Current list pricing for the 737 is $78.3m for the -700, 93.3m for the -800 and $99m for the -900. The MAX list prices are $87.7m, $106.9m and $113.3m.

The list prices for the 777 are $269.5m for the -200ER, $305m for the -200LR, $330m for the -300ER and $309.7m for the -200LRF. The -8X comes in at $360.5m and the -9X at $388.7m.

The 787-8 lists for $218.3m, the -9 for $257.1m and the -10 for $297.5m.

We are hearing, however, of special cases in which the 787-9 runs for $135m or significantly less and the 787-8 for as low as $115m. We also hear of the 777-300ER being offered for as little as $128m in special circumstances. The calculated discounts UBS mentions for 737 fall within the pricing range that we hear in the market. Strauss writes that some discounts to list reached 65%, also within the range of what we have heard.

The discounting becomes increasingly important because Airbus says it can price the A330ceo and neo sharply below the 787, up to 25% less. Boeing has far less flexibility to discount the 787 than with the 737NG and 777 Classic. The former still isn’t making money while the latter have amortized production lines–just as the A330ceo line is fully paid for. Airbus has offered the A330ceo at steeper discounts to list than Boeing offers the 787, and the forthcoming neo will also see steeper discounts than the 787–unless Boeing becomes more aggressive in that pricing, which will only increase the time to profitability.

A380 analysis: Here is a good, detailed analysis about the Airbus A380 and its position in the marketplace.

A320neo LEAP: CFM’s LEAP-1A, for the Airbus A320neo, has entered production. Aviation Week has this article with the details.

Overlooked possibilities for the A330neo

There are overlooked possibilities for the Airbus A330-800 and A330-900 New Engine Options.

What, you may ask, are these?

The A330neo might give new life to the poor-selling A330-200F program and, perhaps more importantly better position Airbus to compete for the next round of the USAF Air Force Tanker competition, the KC-Y program.

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Half time 2014 for Boeing and Airbus

The major OEM’s have published their half time 2014 results and we can make an analysis of their half year results together with orders / deliveries and the state of their product lines. We compare Boeing and Airbus on the high end and in a follow up article Embraer and Bombardier on the low end. To make orders and deliveries comparable we include the month of July as the OEMs collected business to be announced at Farnborough mid July.

Boeing had a strong first half 2014. Boeing Commercial Airplanes (BCA) business is now past the initial problems on the 787 program and delivered 48 units January to June 2014 (8 per month) which is the same numbers as for the 777 program. The 737 is now at rate 40 per month with a first half total of 239 deliveries. The 747-8 is at rate 1 with only 6 deliveries and the 767 has stopped as a commercial program with only 1 delivery during the first half year. The commercial deliveries of 342 aircraft drove a 4% increase in company overall revenue and a 5% increase in earnings compared to first half 2013 (both non-GAAP i.e. the core business performance), this despite a Defense, Space and Security side which was down 5% on revenue and down 15% on earnings.

777-9X, 787-9 and 777-300ER in ANA colours

777-9X, 787-9 and 777-300ER in ANA colors

The troubled unit is Boeing Military Aircraft (BMA) which is struggling with its 767 tanker program (KC46A charged BMA with $187 million and BCA with $238 million due to increased development costs) and it is also fighting to not have its major military airplane program, the F18, stop 3 years from now from lack of orders. The military aircraft order drought contrasts with BCA where first half orders was 783 aircraft, mainly 737 but also 777X, where Emirates and Qatar confirmed their orders for 200 777X. Continue reading

Can the A350-800 rise out of its own ashes, like the Phoenix?

The announcement last week that Hawaiian Airlines swapped its order for six Airbus A350-800s for the A330-800neo isn’t a particular surprise, although we thought HA might issue an RFP and open the competition for Boeing.

That it did not may speak as much as to lack of the Boeing 787’s availability as anything else. But Airbus had some advantages going into a replacement for the A358: HA already operates a fleet of A330-200(ceos), so there is commonality between the neo and the ceo, minimal integration costs and the likelihood of additional Airbus incentives to keep HA in the Airbus family.

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Odds and Ends: Airbus regional A330, IAG orders and Bombardier reviewing options

Airbus A330 regional might get sales after all, Airbus is negotiating a large order with China against local off-sets (assembly or final configuration, the experts are divided) according to Wall Street Journal. We reference Ben Sandilands writeup of the story to avoid the WSJ paywall. As we were told at Farnborough by Airbus the A330 regional is a de-papered A330ceo with an adapted interior. It does not make sense to wait for a neo variant for this aircraft as the fuel costs are a less important factor on sub 5 hour missions. It will be interesting to see if some other market will pick up on this 200 tonne aircraft, to some extent it is back to the roots for the A330-300, it started off as a medium haul complement to the long haul A340-200 and -300 at 206t maximum take-off weight.

IAG has given Airbus a cheer up signal after the bad news around SkyMark. In their second quarter report call IAG CEO Willie Walsh declare their A380 as “fantastic aircraft when you can fill it”, they see 98% load factors on their most popular routes (e.g. LHR-LAX). IAG also announced better results in their Spanish daughter Iberia, consequently it is allowed to order 8 A330-200 (ceos as the neo comes to late) and convert 8 of IAGs A350-900 options to firm orders for their airline.  Right now IAG is satisfied with the 12 A380 they have on order for BA according to Walsh.

Bombardier is re-examining its options for the recently created Aerospace divisions according to FlightGlobal; they want to leverage the Aerostructures divisions capabilities more when Boeing and Airbus looks for further partners for their booming supply chains. They also need to guard their bets on Russia as partner to drive sales of Q400 and Cseries, given the mounting political problems between Russia and the west. This results in renewed activity in the China / Comac discussions, initially for cooperation on the after sales side in addition to the present fuselage deliveries, but come a worsened situation with Russia such talks could find new depth we think.

Airbus Group, first half results 2014

Airbus Group (before EADS) reported 1H 2014 results yesterday against the backdrop of an eye-catching cancellation (Skymark A380). Overall it was a report which showed solid progress in making the former EADS a homogenous, modern industrial group managed by market realities and not involved government’s politics.

Much has been achieved since the same occasion last year when then EADS announced the name change to Airbus Group and the merging of its Defense and Space side into one tighter knit division. These changes reflected market realities; civil aerospace is growing year over year whereas Defense budgets are shrinking. The yesterday announced group numbers shows gains in revenue and profitability (+6% each when EBIT is cleaned from sale of ex. Paris HQ) underlining solid progress in the undertaken structural changes. Continue reading

GE analysis post Farnborough

Our wrap up of Farnborough would be incomplete without looking closer at the world’s leading engine supplier, GE Aviation, which together with partners (like SAFRAN in CFM joint venture) garnered more than $36 Billion in orders and commitments during the show. This figure was only significantly bettered by Airbus ($75 Billion) and it came close to Boeing’s $40 Billion. With such level of business the claim by GE Aviation CEO, David Joyce, that the Airbus A330neo engine business was not the right thing for GE as they have more business than then they know what to do with, was certainly no case of “sour grapes”. Continue reading