Odds and Ends: Price vs Price in Indian contest; China theat; 787 financial impact on Boeing

Price vs Price: More on the price war between Airbus and Boeing in the A320 v 737 contest. Dominic Gates of The Seattle Times has this analysis of hot contest to win an order from India’s Jet Airways, hitherto an exclusive Boeing customer. He takes a larger look at the troubled Indian airline industry.

Finalizing Orders: Norwegian Air Shuttle finalized its order for 100 Airbus A320neos, breaking Boeing’s monopoly here. NAS was also a launch customer of the 737 MAX.

China threat: Maybe, maybe not. Jim Albaugh, CEO of Boeing Commercial Airplanes, cites China as the biggest emerging threat to Boeing and Airbus. Reuters, in Beijing for the IATA AGM, has this article saying, not so fast. The article takes a close look at the ARJ-21, China’s first effort at a modern jet. Although this is a regional jet and not competitive with Airbus or Boeing, it’s a “makee-learn” effort that leads the way to the Comac C919, which is directly competitive with the A320 and 737 class. Implications of the ARJ-21 are also discussed in the article.

LionAir and the 787: Confirming news reports this week, LionAir announced it has committed to the Boeing 787, agreeing to buy five. We’re told these are from the so-called “terrible teens,” those early 787s that required an enormous amount of rework and which were rejected by the original customers. Transaero and Rwanda Air are said to also be taking some of these early aircraft.

EADS Bank: More information on the reports EADS is considering getting a banking license.

Boeing economics and the 787: Jon Ostrower at The Wall Street Journal has an excellent piece today talking about the milestone of 787 #66 and the implications for cost reduction. Unfortunately, the full article is available only for paid subscribers. Contained within the article is this key data:

The losses don’t show up on Boeing’s bottom line, because accounting rules let the company spread the Dreamliner’s costs over years—effectively booking earnings now from future Dreamliners that it expects to produce more profitably. With previous models, Boeing initially spread its costs over 400 planes, but with the Dreamliner it is distributing the costs over 1,100 planes—a number it says reflects unprecedented demand. Boeing already has 854 Dreamliner orders from 57 customers.

Boeing reported that first-quarter profit at its Commercial Airplanes division more than doubled to $1.08 billion from a year earlier. But the company acknowledges that accounting for the costs of each individual plane would have resulted in a first-quarter loss of $138 million—a drop UBS analyst David Strauss says is almost entirely attributable to the Dreamliner.

The Dreamliner’s drain on cash is balanced by strong sales of the profitable single-aisle 737 and long-range 777 models. And analysts estimate Boeing is reducing the losses per Dreamliner by about $10 million each quarter. But maintaining the pace of cost reduction gets harder as the simplest problems are solved. Meanwhile, Boeing aims to increase production of Dreamliners to 10 per month at the end of 2013, up from 3.5 per month today—meaning the losses per plane will be magnified, but will also be tempered by the decreasing cost of each jet.

Some analysts believe Boeing’s target for cost reduction on the Dreamliner could be too optimistic. Mr. Strauss of UBS says the company appears to be assuming it can reduce its cost 50% faster than it did with the 777. If instead the pace of cost reduction matches the 777, says one of UBS’s models, the estimated $20 billion hole could double.

84 comments on “Odds and Ends: Price vs Price in Indian contest; China theat; 787 financial impact on Boeing

  1. Lyon buy 5 B-787s is a good deal for them, and Boeing. They currently have only two B-744s for long haul flights to Mecca. The 5 B-787s will actually give them more seats and more flexibility.

  2. About the bank licence, smart move, all banks are entitled to governmental support if things go wrong. ECB could bail out EADS bank. I love paying taxes! :)

    • No legal entitlement.
      Only those that are “too big to fail” get bailed. On a damned either way basis.
      Just like in the US ;-).

  3. “Mr. Strauss of UBS says the company appears to be assuming it can reduce its cost 50% faster than it did with the 777.”

    777’s initial cost was probably not as sky high as 787’s. So 787’s cost reduction could very well have a steeper down slope.

  4. Re. “The so-called terrible teens”:

    787 line numbers between #4 and #19 have long been referred to as the “teenagers” by Boeing and the industry as a whole. These aircraft have a higher OEW and lower MTOW than post line #19 aircraft, resulting in a shorter maximum range and slightly higher fuel burn.

    Your use of the term “so-called” seems to indicate a broader use of the title “terrible teens” than just on this blog. However, it is the first time I have heard the descriptor “terrible” added to the teenager moniker. A quick Google of “787 terrible teens” turned up only your blog as using this term to describe these aircraft. Evidently, the 787 teenagers are only called “terrible” by you.

    Can you explain your use of the term “terrible” as well as the descriptor “so-called”? It seems you are trying to invent two perceptions here which did not previously exist.

    • Terrible as 4 tons overweight and lower MTOW than LN20. I wonder if RAM will take their frames, just under the LN20..bad timing..

      Most first frames are heavy, you never want to be first in line as a customer ;)

      • Yes. I know the detailed specs for each of the frames… I helped design them. They are indeed heavier than post line 19 frames. They also offer a double-digit improvement in fuel burn over other competing aircraft in that size. If they are “terrible”, it is only compared to a later line number 787-8. The reason early customers balked at taking delivery of these early frames is because Boeing was on the hook to deliver an airplane with better specs. There is nothing “terrible” about these teenagers for an operator who is comparing them to the A330-200 or 767-300ER.

        My real question was why Scott chose to attach the term “terrible” to them, then try to pass it off as a name that’s been there all along.

        • The name “Terrible Teens” is what’s been applied to them in the market place by customers and potential customers, as well as some of the suppliers. We first heard this term late last year, often enough that it became common (to us, anyway). They are heavy, short on performance, have loads of rework, etc., compared with original plan.

          Your point that this is in comparison to later 787s is valid, as is the comparison vs. A330 and 767.

    • Some at Boeing may be suprised to find that the world outside is a little different. I am hearing the term “terrible teens” from different corners in the industry.

      Re learning curves: The implementation of three final assembly lines, a third integration line for mid-bodies and a third tool for joining aft fuelage sections may be taken as evidence that significant step changes are required on top of whatever learning curve is achieved to meet the ramp-up plan. Going to ten might even take a fourth mid-body integration line.

    • A very common phrase commonly used on both sides of the pond by those who have endured the up-bringing of teenagers. Similarily the phrase terrible two’s is used relating to offspring of the same age. One assumes you are fortunate enough to have experience of neither.

      With so many 787 airframes demanding extensive modification the use of of the terrible two’s phrase in this instance would have been totally inappropriate.

      • LOL! I’m familiar both with the term(s) and their human namesake :) I just took exception with the pre-line 20 787s being called “terrible”. They aren’t.

  5. The indian (local state) jet fuel tax mentioned by Dominic Gates changes the picture
    in respect to business performance of the national airlines significantly.
    A similar tax in the US or Europe and the local airlines would have long gone down in flames too.

  6. leehamnet :
    The name “Terrible Teens” is what’s been applied to them in the market place by customers and potential customers, as well as some of the suppliers.

    Odd, since I spend my life working with customers, potential customers, suppliers, and the market place as a whole, yet I’ve never heard it. Regarless, congratulations. It appears you are the first to break this news to the rest of the world.

  7. RAM-Royal Air Maroc must feel sad, one of their frame is 19.. A hair from the better ones.. Maybe the late comers were the real winner when it comes to 787, they get the good frames..

    • I have to believe these frames merit extra compensation for the customers. Even if they are way better aircraft than, say, the 707 or DC-8, they fall far short of the specs committed to by B (and far behind schedule). No matter how much blood, sweat and tears CM and others put into the design, the end product was not what was promised.

  8. thysi :
    the end product was not what was promised.

    Absolutely true.

    en590swe :
    RAM-Royal Air Maroc must feel sad.

    Hardly…

    – RAM got excellent pricing for buying early positions.
    – RAM has been compensated for the delays in delivery.
    – RAM has been compensated for the guarantee shortfalls.
    – RAM is now in a position to operate a significantly more efficient
    airplane than their competition for at least the next year.

    It’s hard to feel too sorry for them.

  9. CM :
    Yes. I know the detailed specs for each of the frames… I helped design them. They are indeed heavier than post line 19 frames. They also offer a double-digit improvement in fuel burn over other competing aircraft in that size. If they are “terrible”, it is only compared to a later line number 787-8. The reason early customers balked at taking delivery of these early frames is because Boeing was on the hook to deliver an airplane with better specs. There is nothing “terrible” about these teenagers for an operator who is comparing them to the A330-200 or 767-300ER.
    My real question was why Scott chose to attach the term “terrible” to them, then try to pass it off as a name that’s been there all along.

    Customers do certainly appreciate a double-digit improvement in fuel burn and the improvement in payload range capability. Customers do not only compare the Dreamliner to the 767 and the A330, though. They compare the delta in performance and productivity to the required investment. I’d wager you would have to got to 60% below list before one of the teens would become economically attractive.

    One customer went public lately stating that they “don’t like doublers” on new airplanes. I guess the real rationale for the term “terrible teens” lies in the physical state these airframes are in after numerous major modifications and repairs.

    Let’s see what impact the design changes which are going to be touted for the 787-9 will have on the residual value of the (early) 787-8s.

  10. CM :
    There is nothing “terrible” about these teenagers for an operator who is comparing them to the A330-200 or 767-300ER.

    The 787 was advertised as 20% more efficient than contemporary aircraft ( obviously silently limiting the selection to the 767 only ). Not achieving at least 10% would have been a real bummer.
    Distance to the A330 should be much smaller. The advantage I assume has been moved even further towards initial aquisition cost.

    • Current build spec 787s have high teen per-seat fuel burn advantage over the 238t A330-200 and low 20’s per seat fuel burn advantage over the 767-300ER. You don’t need anything more than Google to get that from independent sources. Even the heavy “teenagers” will offer around 15% better per-seat fuel burn than a new-build A330-200.

      • CM, recognizing that you work for Boeing and aren’t disinterested, what do you think of Airbus’ argument:

        Yes, the 787 beats the A330 (200 or 300 vs -8 and -9) on SFC, maintenance, landing weights, etc.–all things operational–but when it comes to ownership costs and extra payload capability, A330 nets between $192,000 (-200 v 8) to $113,000 (300 v 9) per month as an advantage over the 787?

        Assumptions are typical 2000nm mission, standard load factors, $2.50 fuel, and (for the 300) $900k lease rate vs $1.2m lease rate for the -9.

        We have our opinion, which will be published shortly on AirInsight.

  11. I congratulate the Boeing salesteam placing these early 787s. Most were produced years ago and taken apart several times. The team succeeded in setting up contract/ financing, maintenance contracts to convince Lion and Uganda taking the machines.

    If I ordered a car and it was delayed 7 times and underperforming, had numerous late modifications build in and was using more fuel, I probably would not accept the salesman saying I should be happy because it still should be better then my previous cars.

    Regarding the 787 still being better then a A330, questionabe IMO. Maturity, reliability, maintenance guarantees, cargo capability, family options, first deliveries with 2 yrs, leasing options etc. also mean something. Ask Virgin, Singapore, Qantas, Delta and most other A330/787 customers.

    • We never intended (nor expected) to create a controversy with the reference to the “Terrible Teens.” We regard the placement as good news. In addition to the issues identified, we were told on several occasions by a Wall Street analyst that he thought these aircraft would prove impossible to place, resulting in scrapping and a write down of several billion dollars. We never subscribed to this theory and until now never revealed it. It illustrates the scope of the perception toward these aircraft. So when new homes were found for them, we viewed it as good news.

      • The problem is people (whether intentional or because they are misinformed) feeding the misconception that these teenager will somehow be bad airplanes. I would love to discuss on a technical basis why the referenced analyst felt these airplanes would be scrapped. Seriously? Here is the reality:

        They are brand new. They are not test airplanes. They have never flown.

        They rolled out of the factory different in three important ways from a post line19 frame:

        1. They have a lower MTOW, which (as noted above) impacts the mission capability of the airplane, and therefore its theoretical value to an operator.

        2. They rolled out heavier than spec.

        3. They rolled out with a build configuration which was different than the certified configuration, and therefore will require modification before they can be delivered.

        Numbers 1 and 2 cannot be changed. These airplanes will always have this limitation compared to other 787-8s, but they are still very capable. Similar to a 233t A330-200 in payload/range with a double-digit fuel burn advantage.

        Number 3 is being addressed through modification. Someone above mentioned “doublers”. There’s not a lot of that (although there’s some), but a well done modification will fly the life of the airplane without consequence, so an airline like Batik will likely never even see most of the structural modifications. Other changes (like new wiring) will never even be perceived by the customer. The mod work is done by professionals and completed to the same build quality standards as a new airplane.

        Bottom line is Batik, RAM, ANA and a few other airlines who will get these airplanes are still getting great airplanes. They will out-class the aircraft they replace and compete with by a wide margin. They will have all of the 787’s safety features, better cabin, lower maintenance cost and greater availability. They are certainly not “terrible” unless you are a rival airline trying to compete against them with a 767 or A330.

        • CM, the WS analyst’s rationale (and remember, we didn’t subscribe to it) was that there would be so many modifications required that (1) no airline would want these odd birds in their maintenance shops) and (2) possibly the FAA would not certify these for airline use.

          We argued that Boeing’s Gold Care would make accommodations if necessary and even if the FAA wouldn’t certify these for airline use (a dubious prospect, we said in our conversations with the analyst), then Boeing could sell them as VIPs/BBJs where performance was less of an issue and the heavy mods probably wouldn’t have mattered so much.

          This is an analyst who is a credible, well-regarded person at a brand-name firm (ie, not a boutique) who has favorable ratings on Boeing’s stock. In other words, this person is not some out-there wack-job. This happened to be one of those instances where this person and we thoroughly disagreed. But the point is, this analyst (as with others) looked at these Terrible Teens and had doubts.

  12. Why the super negative spin on anything Boeing does in this place? How can so many people have a beef with a company? Silly and childish. I will rate information posted here as gossip and not fact anymore.

    • No ‘spin’ at all. Remarketing the “teenagers” is damage control. Finding new customers = success = less damage… but still damage, can’t help it.

      This obsession with being positive about everything is a good recipe for disaster.

      Quote: [http://www.rbogash.com/boeing_comments.html]

      When I came to Boeing 40 years ago, it was
      “Kick ass, take names, build planes”,
      now it is
      “Sit down, hold hands, build plans”

      Some ass kicking might be well in place.

      • You even trashed the patent on the oval NB Boeing filed, there is nothing B does that you will not trash. I took you as informed at first, now I know you just spread a lot of opinons without backing it up ever. Others here post interesting stuff, you just contribute to negativity. So I will not read any more of your posts.

        Its not being overly positive, its just easier living if not everything is negative. What you give is what you get.

        This is not a complaint about the site or other posters, just some that drag this place down IMO.

    • As Scott lives near Seattle, Boeing Commercial is also basically here, and Boeing seems to be more open (or more leaks) than Airbus, Scott has more information on B than A. Just as Jon Ostrower was able to blog about the 787 a lot starting with basically no sources.

      I live near Seattle and am pro-B, I find this site to be a very good read, Scott and his Air Insight colleage Addison try to be very professional, but will bring up the negatives as that is important news.

      My real question is: where is the information on the A350 program, it must be going swimmingly as the only news is Airbus press releases. I wish our DOD classified programs were as leak free.

  13. leehamnet :
    what do you think of Airbus’ argument:

    That one is easy:
    Lease rates are driven by demand, which is driven by value. Looking at Airbus’ inferred lease rates, we’d say the Airlines see something worth paying 25% more for in the 787-8. They certainly aren’t stepping up to pay more in order to get less. In reality, the lease rates are not quite that far apart, but the gap that does exist represents a real value difference the airlines perceive between the products.

    Also, Airbus’ groundrules using fuel at $2.50 per gallon are deceptively skewed to ignore the greatest cost reality the airlines face. $4.00 per gallon is more realistic. By discounting one of the the 787’s greatest advantages over the A330-200 by 40%, Airbus has essentially told us in what way they know 787 kills the A330.

    Anyhow, beyond the lease rates and fuel price discrepancies, here are my thoughts on how the aircraft compare:

    Boeing would probably argue the 787 cabin will demand a premium. Airbus certainly argues this for the A380, and many airlines have validated this claim. However, for the sake of discussion, let’s call the product demand and passenger yield as equal between the two types. With similarly sized cabins, let’s call pax revenue as equal.

    At 2000nm, the 787-8 and A330-200 will likely both be working at volumetric limit for belly payload, in which case the 787-8 will carry one additional pallet (or about 10% more) revenue cargo than the A330-200.

    The 787 has lower maintenance costs (scheduled airframe maintenance half as often, expected higher reliability than the A330 reducing unscheduled costs, but slightly higher engine maintenance costs than the CF6 engine). With engines included, let’s call the 787’s maintenance cost advantage -20%. In addition, the 787’s lower maintenance burden permits greater productivity for the 787 over the A330 (fewer days out of service for maintenance). Not only are the direct costs of maintenance avoided by the 787, but the A330 suffers the opportunity cost of lost revenue from its additional downtime.

    The 787 has lower operating and landing weights, which will give the 787 a small advantage in landing fees and some operations which have weight based crew pay.

    Navigation/ATC fees and other cash costs should be very comparable between the two aircraft.

    Airbus is in the unenviable position of trying to sell an airplane which is heavily handicapped against the 787. To make their special math work…

    1. They had to artificially deflate the cost of fuel
    2. They had to imagine a revenue payload advantage which does not exist
    3. They had to artificially inflate the lease rate delta
    4. They had to pick an uncharacteristically short mission for the aircraft
    4. They had to ignore differences in pax yield, finance terms, residual value, speed, etc.

    We can see the true measure of the A330 vs the 787 by looking at A330 orders for delivery when 787 (or A350) slots are available. There are virtually none. Nobody is choosing the past generation aircraft for their operation when the next generation aircraft are available.

    • Value has a strong link to percception. As has been noted in an earlier posting about appraisers this is accessible to perception management.
      I would not assume a 100% hard link between value and resultant leasing rates and
      the actual value a product will present in the future.

    • CM, I love it when you get your “dander up”. You end up writing some of the better contributions to this blog and as I have mentioned to you before, your contributions are quite credible.

      Ref #30
      Scott Hamilton, if you’d like to see “this sort of discussion analysis” and I wholeheartedly agree with you, I’m afraid you’ll have to spend some of your “limited resources” to keep out the continuous bullcrap from only a couple of particioants (always the same ones)!

      • Thanks for that!

        It’s the duplicity which gets me. I can only imagine the outcry from these contributors, had Scott presented a Boeing marketing claim using $2.50 as an assumed fuel price. They would have gone into their usual gyrations about Boeing’s deceptive “smoke-and-mirrors” and “confuse the customer” marketing practices. Yet somehow when it turns out it’s Airbus who is cooking the numbers… silence. Silence which speaks volumes.

        Anyhow, thanks again AVC!

      • If you buy an airplane today, for delivery in 2019, with the intention to operate it until 2031… based on the economics of today’s spot price for jet fuel… you would have just made an enormous tactical error in your evaluation.

        Spot prices are useful if you don’t hedge and you need to figure out the cost to fill your airplane this afternoon. They are pretty much useless for understanding an airplane’s economics over the next two decades. No airlines run evaluations using spot prices. $4.00 per gallon has been pretty typical for the last couple years.

      • Agreed, in the long run we’ll see much more than $4,00 per gallon. I was thinking of customers being cued for delivery of an airplane today. Looking at Airclaims CASE database, lots of -8 deliveries seem to be deferred a few years and/or converted to -9s. Is that correct?

    • CM your assumption on 787 maintenance costs are positive assumptions only. There has developped an overwhelming ” show me first ” approach around the 787 specs, costs and performance after numerous dissapointments.

      Those 787s did not go to their contracted customers for a reason. They rejected them. Why? Ask them. Which manufacter is using special math? Maybe ask and google around. About a year ago one of them was reinventing its NB comparisons and strategy after some major customers told them to get their feet back on the ground, fast.

    • Some quite blatent mathmatical untruths & splitting of hairs here, however CM does offer a feisty response.

      Few in the industry argue the economics of Boeing’s offering, but against original promises & current airframes off the line is another matter.

      Putting aside early political & brand loyalty deliveries, more astute carriers continue to adopt a sit back & wait policy, not a complete unknown with any new airframe & one that many believe that until the competitor flies will ultimately bare fruit.

      Like many correspondents here it is tantalising to enter a more detailed debate, for various reasons circumstances dictate otherwise.

    • Good stuff CM, good stuff! That is what I like to see on this threads, informative discussions. For Scott, man try to avoid the A vs B bullshit, that deviates the conversation and makes the thread boring..CM/Scott keep it coming…would be interesting if a Airbus insider gets in…

  14. Moving right along… I like the Reuters “China” article.
    I am amused at all the other press “sky is falling” comments about the “China Threat”, to go along with the “Russian Threat”, the “Japanese Threat” and so on.
    Not one of these countries has the aerospace infrastructure yet to challenge the US or EU, nor will they in the near future, in my opinion.
    Probably the most technically competent today is Russia.
    Yet we built an air superiority fighter (F22) 20 years ago that the Russins still cannot duplicate.
    The F22 has a 30/1 kill ratio against Russia’s finest. And the Russians can only build a handfull a year.
    Russia has never had what the West would call a successful commercial aircraft.
    China? Granted they are far more pragmatic and determined than even Russia, but so many of their aircraft never get beyond the prototype.
    I recall a reverse engineered baby 707 years ago that was going to damage Boeing severely.
    Never happened.
    Now they have the ARJ21 which, it appears to me, is trying to compete with the MD80 – and failing.
    With its developmental problems this aircraft is very likely to never reach production.
    After all you can go buy a good reliable half life MD83 for under a million $USD today.
    Even subsidized the ARJ21 will cost more than that, and probably have a shorter useful life.
    And the ARJ technology isn’t going to advance the state of the Chinese aerospace industry which is the only reason for the program.
    The C919? By the time they get it in the air B and AI will be very close to announcing the all-new NB which I would expect to be on an order of 15 – 30 % better than the Neo and Max, much less the C919.
    The Chinese are afflicted with terribly long development times which destroys their market timing.
    Japan? The Japanese have been building commercial aircraft for over 50 years.
    They are technologically well endowed.
    They have good QC and generally good process control – though some improvement is needed there if we are to believe the stories out of Mitsubishi.
    And they have never built a successful commercial aircraft – mostly because their product support is so primitive.
    I certainly don’t counsel dismissing adversaries; that’s the way you lose wars.
    But reality is reality and you don’t want to erect straw dogs either.
    That gets you looking in the wrong direction.
    If I were B or AI, I’d be worried about the Boys from Brazil.
    They are damn good.
    Canada? Jury’s still out, but one thing is true, they have bet the farm on the C Series.
    And they had better figure out how to sell it or the party’s over.

    • Its that attitude that will hit you bad one day. Keep the guard up, or you will wake up with a bad hangover one day.

    • Share your thoughts. I just wouldn’t underestimate the Canadian guys. Selling 500 planes with discounts and frivolous performance guarantees is easy. Looks like they don’t want to go there.

      • It seems like many americans have this attitude and it will bite them one day or it already has. The A320 has taken market share from the 737, no worries we are the best and brightest, no need to do anything, just keep them dividens coming. A bit of that Roman empire smug attitude that led to its demise. Not saying EU is better, I think the western world is fubar really, we dont want to wake up and see the reality.

  15. Uwe :
    I would not assume a 100% hard link between value and resultant leasing rates and
    the actual value a product will present in the future.

    I didn’t, which is why I provided details comparing the real economics and physics of the two airplanes.

    Uwe :
    Value has a strong link to percception. As has been noted in an earlier posting about appraisers this is accessible to perception management.

    Well, the irony is not lost on me that Airbus is counting on a strong insustry perception that the 787 is worth a 25% higher leas rate in order to work their magic math into showing the A330-200 more profitable than the 787-8. That and a wonderful 40% discount on gas prices.

    • That’s a 40% discount on fuel prices from your (Boeing’s?) assumption. No one actually KNOWS what the fuel prices will be in 2020, 2015 or even next month.

      • $4.00 per gallon fuel is very typical for an aircraft evaluation. In the past year I’ve seen airlines request studies done as high as $4.60 per gallon, and none lower than $3.50. $4.00 per gallon is a legitimate number for this kind of analysis. $2.50 is not.

  16. “The F22 has a 30/1 kill ratio against Russia’s”

    against those wildly exported Su30s ? Does it give comfort believing so?

    Let not put indirect pressure on Hamilton to report more positive on our favourite OEM when reality isn’t as glorious as we would like to.

    Boeing has build a reputation in underestimation other manufacturers and its official statements on the Dreamliners 747-8i, 737 NG/ Plus / MAX have been so overly positive and even surprising the aerospace world is looking at them differently then a decade ago.

    Also on 787 financial impact on Boeing, Everybody has witnessed what has happened during the past 6 yrs and knows how Boeing has to push 737s as we speak. Still for some there’s no reason to question very positive statements on quaterly meetings. There’s an admosphere around Boeing that only exciting news gets absorbed and boosts the stock value. Surreal at times..

  17. CM :

    leehamnet :
    what do you think of Airbus’ argument:

    The 787 has lower maintenance costs (scheduled airframe maintenance half as often, expected higher reliability than the A330 reducing unscheduled costs, but slightly higher engine maintenance costs than the CF6 engine). With engines included, let’s call the 787′s maintenance cost advantage -20%. In addition, the 787′s lower maintenance burden permits greater productivity for the 787 over the A330 (fewer days out of service for maintenance). Not only are the direct costs of maintenance avoided by the 787, but the A330 suffers the opportunity cost of lost revenue from its additional downtime.

    Lower maintenance costs and expected higher reliability is always a difficult subject, especially if the new product is not an incremental change, but a multitude of significant technology leaps which the 787 is. In my business, we are no longer allowed to use expected reliability improvements in the business case for technology and product improvements, as it is such a poorly defined parameter, unless we are doing a project specifically to address a known warranty issue.
    The problem with reliability is that you can make it where you need it to be by adjusting the amount of service. And in practice, warranty costs and reliability are driven by factors which were not expected.
    While extending service intervals is a clear cost benefit, I don’t think reliability is today and it will need about 3-5 years of service data to make a valid judgement in this area.

  18. KDX125 :
    Looking at Airclaims CASE database, lots of -8 deliveries seem to be deferred a few years and/or converted to -9s. Is that correct?

    There certainly has been some of that, but there are still nearly two times as many 787-8s on order as 787-9s, and well over two times as many operators for the 787-8. The reason for it is the same reason we see operators moving to the A320 from the A319, or moving to the 737-800 from the 737-700; the larger aircraft offers much higher revenue with minimal trip cost premium.

    keesje :
    CM your assumption on 787 maintenance costs are positive assumptions only.

    The 787 maintenance program received FAA approval in 2009 and EASA approval in 2011. The required maintenance for the airplane (both the tasks and the intervals) are known. On a labor hours basis, the 787 requires less than half the routine maintenance of the 767, A330 or 777. The engine maintenance costs are known as well, as they are all maintained via PBH contracts. As I noted in my original post, the GEnx and Trent 1000 cost more to maintain than the CF6-80C2 or CF6-80E1. That last item is not a “positive”, and none of these items are “assumptions”.

    keesje :
    Those 787s did not go to their contracted customers for a reason. They rejected them. Why?

    The answer is simple: because there was a better solution… If Boeing delivers a “teenager” to an original launch customer, the customer gets and airplane which is off of spec performance and Boeing must pay remedies on the original guarantees. However, if Boeing substitutes a later frame, the launch customer gets an airplane on spec and Boeing is now able to sell that early frame to a new customer (like Batik), with new guarantees drafted at the actual level of performance for that teenage frame. When that happens, everyone is happy. And that’s the reason we see this happening.

    AngMoh :
    Lower maintenance costs and expected higher reliability is always a difficult subject, especially if the new product is not an incremental change, but a multitude of significant technology leaps which the 787 is.

    Predicting the in-service reliability of a very complex machine is a difficult science, that is absolutely true.

    AngMoh :
    The problem with reliability is that you can make it where you need it to be by adjusting the amount of service.

    Also true. Reliability comes as a result of design and test practices. It happens to be something Boeing is very good at. Here are the current fleet-level reliability stats (12 month rolling average):

    A320 – 99.35%
    737 – 99.68%

    A340 – 98.24%
    767 – 98.84%
    A330 – 99.00%
    777 – 99.34%

    A380 – 97.80%
    747 – 98.79%

    With only 11 aircraft in service and just two operators, the 787’s reliability is probably not statistically significant at this point. Still, it is impressive, given the early stage in its operational history. It is currently operating at higher reliability levels than the A380, and nearly as good as the A340.

    • CM, FAA / EASA couldn’t care less for maintenance costs and you know it. They have other responsibilities.

      On maintenance cost, the major costs drivers, components and engines are totally unclear, what we know is that many are new and have to mature and the OEMs are aiming to get their investments back via aftersales. I have no reason to be optimistic from an operators perspective. As far as I can see Goldcare fails to attract customers and airlines are struggling to get some costs guarantees, the MRO industry is refusing to give.

      ” keesje :
      Those 787s did not go to their contracted customers for a reason. They rejected them. Why?

      The answer is simple: because there was a better solution… If Boeing delivers a “teenager” to an original launch customer, the …………………. new guarantees drafted at the actual level of performance for that teenage frame. When that happens, everyone is happy. And that’s the reason we see this happening.”

      What a creative and rosy way to explain a drama. IMO it starts with customers rejecting 787s for lack of performance and being sub standard. Boeing is forced to remarket them under undisclosed conditions and discounts. How happy everybody is, is unclear.

      Whats the source for your reliability data, if its Randy, I want to know all assumptions and conditions.

    • One has to be careful looking at OR stats. There are different accounting methods applied between the OEMs. For example, Airbus will count a late dispatch in its stats even if the snag could have been dispatched under the MMEL (I understand that this is not the case with Boeing). Also, the fleet ages and sizes, the percentage of fleet reported, all tend to create distorting effects. And sure, when there are only a few aircraft, one snag can make the stats swing wildly.

      Still, it would be very interesting to know the actual 787-8 OR, CM. I think it was reported to be around 96pc when there were about 3 frames in service (would seem a little low given the light schedule and heavy support). Has it gone up since?

      • Interesting little tidbit there.
        Don’t believe any statistic you haven’t faked on your own.
        .. and not unsurprising.
        A knowledgeable Boeing employee is an ambivalent gift to the discussion.

        When ANA started flying their freshly delivered frames the given numbers on dispatch reliability appeared to be abysmal.

        _Only_ ANA’s fleet dispatch rate was only slightly better.
        _And_ in relation to that rate the given value was good enough.

        So one would have to look into how ANA establishes dispatch reliability.

      • Both Airbus and Boeing exchange operator reported fleet-level dispatch reliability data. While it was once true the two OEM’s presented data prepared in different ways (Airbus included deferrals but Boeing did not and Boeing included air-turnbacks and diversions but Airbus did not), that is no longer the case. Today, the exchanged reliability numbers are prepared using an agreed to methodology called the “Houston READI rules”. The data counts every delay greater than 15 minutes, cancellations, air-turnbacks and diversions, with a cause attributable to the airplane. No deferrals are included by either OEM. The numbers are apples-to-apples.

  19. One wonders what the hold up with the deliveries were for may, how many will get delivered in june? What is the problem? They have many frames now that have been finished, shortage of manpower? Customers not villing to accept?
    Also how fast will the LN50-65 go through rework? Thay had a lot less tasks to be done something like 500 compared to 6000 for the first 20..

  20. The real key to the 787 is to get production up into the 7 to 10/mo range without significant rework as soon as possible. The delay costs and available slots will be just brutal if they can’t make a dent in the backlog.

    Rework is very expensive, but does anyone know if the manhours per plane on the production line are getting near the budgeted rate. ie is the anticipated labor to build #100 still way over what was budgeted?

    • AFAIK the official planning was based on 10 frame a month on a single line.
      i.e. a snap together LEGO plane from cheap modules.
      Looks like it is acccepted wisdom that modules nor assembly don’t ( now, future )
      come as cheap as planned. The original production cost are not achievable.

  21. CM #37
    ??? What nonsense are you talking?

    Duplicity – Synonyms: deceit, deception, dissimulation, fraud, guile, hypocrisy, trickery

    Airbus *clearly* stated what their assumption is! The fact that you disagree with it, is a different matter. Airbus are free to make that assumption (which is closer to today’s situation) as much as you are! Duplicity would be deliberately bending facts about competitors products to your advantage, something Airbus has cried out before (and I am sure you must be just as outraged about that):
    – A380 v 748
    http://www.eads.com/dms/eads/int/en/investor-relations/documents/2010/Events-Reports/DB-Presentations/DB-Presentation3.pdf (Page 21)

    – Or the A320 v B737 comparisons where Boeing does not take into account product improvement since the launch of the A320, as discussed on this site recently.

    You are clearly a knowledgeable person and therefore it is disappointing when you create an ‘us vrs them’ angle to this discussion. You know that all those colorful presentations are printed in the marketing departments of each OEM with an express aim of selling their products, by making theirs look better. Therefore I fully side with Scott, that the best judge of the products and their competitiveness is the market, not OEM’s brochure.
    There is weekly debate here about each OEM presentation *and* their assumptions, recently related to the NEO v MAX. Therefore I don’t understand this – “Silence which speaks volumes”. What silence?

  22. Please refrain from such lines as nonsence, when we get an insider here we should be happy to gain some more insight other than from reporters.

    I hope more insiders from both OEMs come here to write. Dont scare them away please!

  23. CM,

    That bit about substituting a later frame to early customers sounds quite impressive and logical. I wonder how come it does not happen more often?

    The one hitch in the whole logical chain you presented is that I don’t see the early customers being too happy about being forced to take a later slot (unless they demanded that later slot, but why would they do such a thing?).

    Supposing they had not demanded a later slot, would that imply a further, or greater, delay penalty for Boeing to pay?

    • The penalty is on delay and not on slot position, right ?
      Further penalty is on underperformance.

      Boeing will go for best “lowest value” in compositing deliveries then.
      ( The only problem I see is early customizing. But horizontal stabs can be
      painted over, that problably is B’s least difficult problem

      Saddling some unfortunate third world airline with those
      underperforming frames is a brilliant move.

  24. KDX125 :Share your thoughts. I just wouldn’t underestimate the Canadian guys. Selling 500 planes with discounts and frivolous performance guarantees is easy. Looks like they don’t want to go there.

    I agree with you there. I also noted once that Bombardier’s targets are not 500 or 1000 planes, although they certainly would like to sell at least that much. I also believe the orders will start coming once the aircraft is certified or very close to it.

    I can certainly understand that, after the latest experiences of on time delivery from both AIrbus and Boeing, many customers are unwilling to commit to such a “risk” on the, compared to the big two, relatively unknown Bombardier, intil they can see some positive results.

  25. KDX125 :Seriously, you want Boeing and Airbus ‘officials’ to make their sales & marketing pitches in your forum?

    Even if I don’t totally agree (or am slightly skeptical) of CM’s arguments, I agree with Scott in that it is much better than many of the tit for tat comments that have frequently been posted here. As to CM being a sales and marketing type, I am not so certain.

    I am quite curious as to what CM actually does. Having helped designed all of the frames and having good knowldege of the certification documentation, one would suspect an engineer. But seeming to have detailed knowledge of sales contracts and performance numbers, would indeed imply sales.

    One thing seems clear, CM seems to have a better knowledge of the 787 program details than either Mr. Albaugh or Mr. Mcnerney!

    CM is a puzzle, smilar to Uwe and keesje. Uwe has spoken frequently about Lufthansa operates but seems to be an accountant.
    Keesje seems to work for an airline, or has indeed worked for more than one. The big question is which one(s) and in which capacity?

    It is all fascinating to read various comments and try to guess the backgrounds of the characters involved.

    I might as well come out myself. I am Canadian, have an aersopace engineering degree and have worked at Bombardier, Bell Helicopter, Embraer, Boeing, Airbus and Lufthansa. Mostly as a designer.

    • Uwe:accountant? Never! try again.
      You could find my name tag in some hidden places on SOHO, CASSINI and ROSETTA

      CM shows long time accrued knowledge that is up to date ( and well beyond what I could manage to learn as an outsider and from a more or less hobbyist involvement.

      in general: some posters are easy to read others for me present a hurdle in differentiating between (miss or not) informed, fanboyism or spin and giving quantity to those tastes.

  26. Pingback: Price matters in Airbus vs Boeing comparisons | AirInsight

    • A33-300 and 787-9 have nearly identical list prices, but the Airbus claim implies a substantially larger discount for the A330. My question is whether the actual manufacturing cost is that much lower than that of the 787-9 (assuming a future airframe, not the terrible teens), allowing Airbus to discount more heavily and still make a profit. How much more does it cost to build a 787?

      • Yeah that would be interesting to know, what is the cost of cfrp vs aluminium? Aluminium would be more coupled with the world economy as it has many other applications.

      • It is not only the manufacturing costs. The Long Range Program (A330/A340) is paid for, the tooling is paid for, rate is going to 11/month in 2013, lowering the cost/frame further. In the last years Airbus have been extracting above target margins for the A330, showing that it is a very desirable frame in the market, at this moment in time. Against the 787, Airbus has two weapons: early delivery slots and price.

        Further small development is on the cards, FAS will reveal all, and everything points to the fact that the A330 is far, far from being dead. No NEO though…

  27. en590swe :
    Yeah that would be interesting to know, what is the cost of cfrp vs aluminium? Aluminium would be more coupled with the world economy as it has many other applications.

    By volume CFRP is much more expensive than Al-*.
    But think about how voluminous an Al-* billet you have to start with to machine a finely detailed part from. 90++% shavings?

    Demand:
    Everybody is into CFRP today. demand is rising fast. Which should drive down cost in the long run but raises them in the direct future. This requires growth in production capabilities.
    ( Just look at the solarelectric market ecology.)
    Aluminium is a very energy intensive product in original manufacture. Rising energy cost has a significant impact here.

    • I believe that recycling the Al scrap is very time intensive as it requires collection of the different alloys separately. Otherwise in remelt the blend is off and so too the mechanical properties. Can’t have a ductile part go brittle.

      If co-mingled the scrap is then going to the lower grade alloys, reducing its value.

  28. en590swe :
    It seems like many americans have this attitude and it will bite them one day or it already has. The A320 has taken market share from the 737, no worries we are the best and brightest, no need to do anything, just keep them dividens coming. A bit of that Roman empire smug attitude that led to its demise. Not saying EU is better, I think the western world is fubar really, we dont want to wake up and see the reality.

    Amazing how folks can read what’s not there.
    Try again, boys, and this time concentrate.
    Then if you want to challenge anything I’ve said, have at it, Sparky.

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