By Bjorn Fehrm
Dec. 18, 2014: In our Monday article we go behind the scenes of the doubts that were spread over the A380 by Airbus last week. To complete the picture we now update our competitive analysis that we did in February this year. We then compared the A380 to Boeing’s 747-8i, the 777-300ER and the forthcoming 777-9X. We also included Airbus closest aircraft, the A350-1000.
A lot has happened since then. Airbus has done a lot of work on the passenger area of the A380 to offer increased passenger densities and the pictures of the emerging Boeing 777-9X and Airbus A350-1000 is now clearer.
Sales efforts of the A380 has also progressed, with meager results despite adding a leasing proposition what should make the hurdles of operating a small sub-fleet of A380s lower. To understand why, we interviewed Mark Lapidus, the CEO of Amedeo, the leasing company which specializes in financing and leasing of A380s. We wanted specifically to talk to Lapidus about the reactions of the airlines to the A380 and what problems he saw in selling an aircraft of this type.
In preparing the article we also gathered additional info from Airbus and Boeing, from the former around their work on the cabin configurations and densities, from the latter the maintenance costs for the up and coming 777-9X.
As we did this deeper study, a more nuanced and different picture emerged from the one seen in February. The results busts a number of deeply engraved myths, one being that four engines are more expensive to fly and maintain than two.
Dec. 17, 2014: There is a production gap for single-aisle Airbus and Boeing airplanes that could be exacerbated by the current dramatic drop in oil prices, writes the aerospace analyst for the investment bank UBS in a research note issued today.
Heretofore, focus has been on the production gaps for the Airbus A330ceo and the Boeing 777 Classic, with analyst consensus of those reports we have seen pointing to gaps they believe are insurmountable, and which will demand a rate cut.
Airbus has formally announced the rate on the A330 will decline from 10/mo to 9/mo in 4Q2015. At its Global Investors Forum last week, Airbus displayed a graphic that shows a further rate decline. Although officials did not place a number on the rate, our interview with an analyst present said Airbus later indicated a “floor” of 6/mo is anticipated.
Boeing continues to insist it will be able to maintain the current production rates of 8.3/mo for the 777 Classic to the introduction of the 777X in 2020, but analysts predict rate cuts to seven then five and perhaps even four by the time 2020 rolls around.
Indian airline Spicejet, which has been struggling financially, was grounded today when credit was withheld to buy fuel. The airline has eight Boeing 737-800s and 42 737-8s on order. The -800s are scheduled to be delivered next year; the MAXes are scheduled for delivery in 2018-2023 on a roughly even number per year in the earlier years.
There have been a number of stories hand-wringing over the adverse impact to Boeing. While no OEM likes to lose an order of this size, should Spicejet cease operations permanently, we don’t view this as having any impact on Boeing. The company is already strained to find delivery slots for the MAX, so this gives Boeing slots to resell. The eight -800s scheduled for delivery next year, being close-in, could be more problematic, but we have no doubt homes can be found for these airplanes without too much trouble.
The hand-wringing is unnecessary.
We view the airline’s difficulty as another example of the problematic Indian marketplace. The blog Flying Engineer follows the Indian market closely and checking out a number of its posts will paint a comprehensive picture of the Indian market. We view this market as highly risky, with Airbus having a much greater exposure than Boeing. AirAsia, a carrier on our Storm Warning Flag list, recently expanded to add a new subsidiary service in India, a move we question given an environment that is essentially hostile to airline operations.
Dec. 16, 2014: There have been record aircraft orders year after year, swelling the backlogs of Airbus and Boeing to seven years on some product lines, Bombardier’s CSeries is sold out through 2016, Embraer has a good backlog and the engine makers are swamped with new development programs.
So it is with some irony that several Original Equipment Manufacturers (OEMs) are warning of cash flow squeezes in the coming years.
By Philippe Poutissou
Special to Leeham News and Comment
Dec. 15, 2014: The market for turboprop aircraft has been strong for nearly a decade, yet there has been limited new product development in the segment. This has some regional airlines getting nervous about their future, in particular those who specialize in serving smaller markets with 30- to 50- seat turboprops built in the 1980s and 1990s. Which aircraft will replace the robust, but not indestructible, Bombardier DHC-8, Saab 340 and Embraer Brasilias?
Setting aside the technical challenges of developing and certifying a new aircraft type (of which there is ample evidence), the market challenge for smaller turboprops comes down to a question of limited revenue potential. Due to overall pressure on aircraft prices and demand that is highly fragmented, the business case for an aircraft OEM becomes risky and difficult to justify.
Update, 0530 PST Dec. 15: Aviation Week posted an article that indicates Airbus and Rolls-Royce are closing in on an engine deal that will lead to the A380neo and a stretch.
Last week’s Airbus Global Investors Forum proved to be a debacle due to a rogue customer and two miscues by management.
First, Group CFO Harald Wilhelm indicated Airbus may decide in 2018 to terminate the A380 program, causing consternation from Tim Clark, president of Emirates Airlines, which has 44% of the order book. Airbus Commercial management spent a good part of the next day in damage control.
Second, with little forewarning, Airbus told analysts that production rates for the A330ceo would come down in advance of introduction of the A330neo. This news shouldn’t have come as a surprise, but for some it did. If they had closely followed sales efforts for the A330ceo, the lack of success and the production gap, news that Airbus will bring rates down more than the 1/mo decline previously announced shouldn’t have surprised. Still, Airbus had not previously sent strong enough warning signals.
Third, profit and free cash flow warnings weren’t well received.
Finally, Akbar Al-Baker, the prickly CEO of Qatar Airways, chose the first day of GIF to announce he wasn’t going accept delivery of the first A350-900 three days later.
The result: the stock price plunged 10% on Day 1 of GIF and another 4.3% on Day 2.
The new chief executive officer of United Technologies Corp., Gregory Hayes, threw cold water on hopes and dreams of Pratt & Whitney, a subsidiary, that the successful small- and medium-sized Geared Turbo Fan will grow into the wide-body market.
Aviation Week just published an article in which all three engine OEMs were reported to be looking at a 40,000 lb engine that would be needed to power a replacement in the category of the Boeing 757 and small 767. Hayes did not specifically rule out a 40,000 lb engine, leaving PW’s potential to compete for this business unclear.
Hayes has been CEO for two weeks. He was previously CFO. He made his remarks in a UTC investors event last night. The Hartford Courant has this report.
Hayes’ remarks were in response to a question from an analyst about research and development expenses. Here is his reply, from a transcript of the event:
757 replacement: Aviation Week has a good piece about Boeing’s studies of a replacement for the 757, harking back to the era when Boeing designed the 757 and 767–a New Small Airplane and a New Light Twin. Guy Norris’ story hits on many of the same themes we discussed in October when we interviewed Kourosh Hadi of Boeing’s product development team. Our post then was behind our paywall; we’ve opened up today for all readers.
Qatar’s A350: Flight Global takes a look at what’s up with the acceptance delay by Qatar Airways of the world’s first Airbus A350-900. Free registration required.
PNAA aviation conference: The Pacific Northwest Aerospace Alliance will hold its annual conference Feb. 10-12 in the Seattle area. This has become the largest conference of its kind on the US West Coast, expected to serve about 500 delegates at this event. Airbus, Boeing, Embraer, suppliers and a suppliers fair are key elements. You may click through to the conference via the banner advertisement above.
Dec. 11, 2014: The fallout continues from the disastrous Airbus investors days held yesterday and today in London. Company investor days are supposed to bolster the stock. Yesterday, Airbus stock tanked 10% on cash flow and profit projections, the delivery delay of the first A350 and, according to some commentary, news that theA380 program might be terminated.
We’ve talked with a couple of the analysts who were at the meeting, who reacted with a mixture of eye-rolling, chuckles and “what where they thinking?” moments.