A380, 10 years later

April 28, 2015: Airbus is celebrating 10 years of its A380 super jumbo.

Just about everybody else is taking pot shots at it.

There’s little doubt the airplane is a masterful achievement. But production miscues delayed the airplane by two years, the market moved on it and when it was envisioned in the late 1990s, the Boeing 777-9 wasn’t.

So 10 years after entry-into-service, and a mere 15 after the program was launched, Airbus faces a crossroads: does it re-engine the airplane on an iffy business case or can it come up with enough Performance Improvement Packages for the airframe and with the engine makers chipping in to give it new life until the market grows into the airplane–if it ever does, say detractors.

Some at Boeing we talked with are rooting for Airbus to take the neo plunge. Read more

Tipping point for supply/demand? We don’t think so

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Introduction

April 28, 2015, c. Leeham Co. Goldman Sachs over the weekend issued a research note, Is the new aircraft supply/demand equation nearing a tipping point?

GS cited the recent United and American airlines actions involving the Boeing 787 and Boeing 777 and other fleet activity or inactivity at Lufthansa Airlines and Virgin Atlantic as harbingers for its thesis.

Goldman has a Sell rating on Boeing stock, based on its belief the demand is leveling off and announced production rate increases by Airbus and Boeing will lead to oversupply.

Summary

  • Goldman sees recent fleet actions indicating a softness in demand, driven in part by lower fuel prices.
  • United, Lufthansa actions delaying retirement of older aircraft cited.
  • Virgin Atlantic decision on Boeing 747 replacements delayed, says Goldman.
  • We see other reasons for the above and no meaningful impact.
  • Key wide- and narrow-body campaigns pending.

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Pontifications: “Everyone” deferring Boeing 787s? Not hardly.

Hamilton (5)

By Scott Hamilton

April 27, 2015: c. Leeham Co. With the announcement on the 1Q2015 earnings call that American Airlines is deferring Boeing 787s, I received an inquiry from a media person: what is it with the 787 that “everyone” is deferring the airplane?

I found the question puzzling.

True, this comes on the heels of United Airlines swapping 787 orders for 777-300ER orders, but this hardly counts as “everyone.” And the reasons for the maneuvering was well-stated and for very different reasons. Read more

Can PIPs bring the A380 what Emirates Airlines wants?

By Bjorn Fehrm

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Introduction

26 April 2015, C. Leeham Co: With Emirates Airlines deciding for Rolls-Royce Trent 900 engines for its 50 new A380s and admitting that it would accept that this could be for all of them if Airbus does not proceed with an A380neo, the time has come to look at how much incremental improvements can be brought on the present A380.

Our proprietary aircraft model is particularly suited for such studies as we can change any parameter and read the result off the efficiency scale. We can also play with the aircraft’s configuration and see what effect it will have. Based on Emirates’ new configuration of A380s equipped with the Trent 900 engine, we have checked what incremental improvements are doable and what would they bring.

Summary

  • Our deep analysis of 18 Dec. 2014 showed that the present A380 is the most economical aircraft one can operate if one can fill it to normal load factors.
  • Emirates COO Tim Clark complements this fact with the statement, “It is Emirates’ most profitable aircraft” in the press conference in London last week when announcing the Trent 900 deal with Rolls-Royce.
  • Clark’s statement also covers the fact the passengers prefer A380 over other aircraft if they have a choice, it operates with higher load-factors then Emirates other aircraft.
  • The A380 is a rather special design and its characteristics make Product Improvement Packages, PIPs, possible in a number of areas. We discuss which they would be and model their effect on overall performance.
  • While the sought-after 10%-13% improvement would not be in there, incremental changes can cover up to half of that with more or less plausible business cases. Airbus is right now deciding which of these they see as worthwhile and introducing them.

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Bjorn’s Corner: Boeing’s 787 and Airbus’ 350 programs, a snapshot

 

By Bjorn Fehrm

By Bjorn Fehrm

Introduction

23 April 2015, C. Leeham Co: It has been an eventful week for Boeing with Q1 results reported and with that an update on the 787 program. At the same time we ran into Qatar Airways CEO Akbar al Baker, while visiting Airbus the other day and could exchange a few words with him and his team re the A350. I therefore decided that this week’s Corner should provide a snapshot on where these two new aircraft projects stand right now.

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United Airlines revises fleet plan

April 23, 2015: United Airlines announced its 1Q2015 earnings today (which will eventually be posted with commentary on SkyWriterAviation.aero). What caught our eye in the press release was the following. United will:

  • Complete the removal of more than 130 50-seat aircraft from its schedule by the end of 2015. UAL will remove additional 50-seat aircraft in 2016 and beyond as aircraft come off lease.
  • Exchange 10 787 orders with Boeing for 10 777-300ERs for delivery beginning in 2016. The new 777-300ER aircraft will provide attractive upgauge and range opportunities to the company at competitive economics.
  • Extend the life of 11 additional 767-300ER aircraft. The company now plans to extend the life of all 21 767-300ER through investments in winglets, reliability improvements and interior modifications, which will improve financial performance and make the aircraft more customer pleasing.
  • Reconfigure and transition 10 777-200 aircraft currently used in international markets into the domestic network, and position a number of its trans-Atlantic 757-200 fleet into the domestic and Latin markets, with the extension of the 767-300ER aircraft.
  • Acquire additional used narrowbody aircraft. The company is in final negotiations regarding the lease of 10 to 20 used narrowbody aircraft for delivery over the next few years. In addition, the company plans to continue to seek other opportunities to acquire used aircraft to meet its needs as market conditions allow.

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Analysts hone in on Boeing Free Cash Flow

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Introduction

April 22, 2015: c. Leeham Co. Boeing may have reported solid earnings for the first quarter, but aerospace analysts focused on free cash flow (FCF) and gave the company a raspberry.

Analysts have been increasingly pinpointing and asking questions about FCF since the third quarter call, when Boeing stock got pummeled over the issue. Boeing surprised Wall Street with the fourth quarter numbers in which FCF was sharply higher and greater than expected.

Last week, we reported UBS’ analysis of FCF and how it was driven up by more advanced (pre-delivery payments, or PDPs) than usual.

On the 1Q earnings call, Ron Epstein, the aerospace analyst doe Bank of America Merrill Lynch, honed in on the issue.

Summary

  • Our Market Intelligence since January has identified hundreds of millions of dollars in accelerated advances from customers to bolster cash flow.
  • Money needed to meet promises of shareholder buybacks, say sources on and off Wall Street.
  • Accelerated cash advances required throughout this year and into next, say sources.
  • Boeing declines further comment.

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Boeing 1Q15 earnings: EPS beats consensus but cash flow concerns dominate analyst reaction

April 22, 2015: Boeing reported its first quarter earnings today, with earnings per share well ahead of analyst expectations. Of the analyst reports we see, only Bernstein was pleased with the cash flow, with others concluding free cash flow was below expectations. Increasingly analysts believe Boeing has been accelerating aircraft deposits (advances) to improve cash flow and to meet share buyback promises.

A summary of the earnings call follows the initial analyst reaction.

Analyst reaction:

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Pontifications: Remaking the Armed Services

Hamilton (5)

By Scott Hamilton

April 20, 2015, c. Leeham Co. A news item last week caught my eye about the Defense Department, defense spending and recapitalizing the US Armed Forces.

I don’t normally follow defense items at Leeham News and Comment. LNC is pretty much all-commercial, all the time. I’ve stepped outside this to follow commercially-derived air force tankers (Boeing 767, Airbus A330) and the P-8 Poseidon (the Boeing 737). I took rides on Trident nuclear ballistic missile subs and reported thusly. But this news article, which came about two weeks after my visit to Wall Street where some defense programs were discussed, prompts me to ask: Since we can’t afford the monies required to recapitalize the Armed Forces, what do we do?

I’m going to throw some ideas out and see where they land. I have no doubt some will be blasphemy. But here goes. Read more

IAM vote delay at Boeing SC shows weakness

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Introduction

April 19, 2015, c. Leeham Co. The withdrawal by the International Association of Machinists of the planned April 22 unionization vote at the Boeing 787 plant in Charleston (SC) appears to answer a question that was lingering ever since the January 2014 IAM 751 vote at Boeing’s Puget Sound operations:

Was there a quid-pro-quo between IAM International headquarters and Boeing for Boeing to stand by and allow unionization of BSC is exchange for the International to “sell out” for a Boeing contract package at Puget Sound?

It seems the answer is “no.”

The vote withdrawal also seems to answer another question: Has the IAM become increasingly impotent?

The answer to this seems to be “yes.”

Summary

  • Obviously the IAM didn’t have enough votes to pass unionization.
  • Vote delay shows weakness and continued SC predilection against unions.
  • McNerney’s legacy includes largely busting the IAM.

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