Last year yielded a few surprises in an otherwise predictable year.
Jim Albaugh shocked the aviation world when he retired unexpectedly at age 62. He was expected to remain in his position as CEO of Boeing Commercial Airplanes until mandatory retirement at 65.
EADS CEO Tom Enders unleashed a surprise merger proposal with BAE Systems. The deal didn’t work due to German government opposition, but he ultimately accomplished a governance restructuring—a key objective of the merger—that will reduce government meddling in the future.
Those were about it. Boeing’s much-anticipated Authority to Offer the 777X didn’t happen. ATO for the 787-10 was stealthily granted. Airbus and Bombardier, to no surprise, delayed the A350 and CSeries by a few months. Boeing came roaring back to become sales leader for the first time in about a decade, on the strength of 737 MAX sales.
What’s ahead for 2013? Here’s what we see.
With the spurt of 737 MAX sales over, narrow-body sales competition between Airbus and Boeing should return to normalcy. Will twin-aisle sales become the next growth market because of the first flight of the A350 and the program launch of the 7870-10? Will ATO of the 777X evolve into a program launch as well? Will Bombardier’s first flight of the CSeries and subsequent testing validate its claims for the new technology airplane and finally spur a large number of sales of the “show me” crowd?
Here’s our OEM-by-OEM rundown.
Airbus had its huge sales year in 2011 when the neo out-performed all expectations, including Airbus’. 2012 wasn’t a laggard in a normal year, with the A320ceo and neo making up the bulk of the more than 800 gross orders for the year. The final number won’t be announced until the annual Airbus press conference January 17. Will John Leahy’s famed “fifth quarter” reveal a few hundred more orders? We wouldn’t be surprised.
Going forward to this year, available sales slots for the A320ceo are down to fewer than 300, according to press reports, citing Airbus. With the neo sold out to late this decade, Airbus will be managing its skyline and offering early delivery slots through over-booking and from airlines deferring or canceling orders. We don’t look for a huge number of orders simply because of the availability issues.
Airbus can relieve this a bit by upping production. Will it? Don’t be surprised if it makes the decision to do so but it would be 2015 before it happens—which is the same year the new Mobile (AL) plant opens.
The A319ceo/neo was a goose egg.
This is the plane that keeps on giving. Boeing vowed the 787 would kill the A330, but delays and Airbus’ ability to price the airplane low gave it new life. Boeing has again vowed the 787-10 will kill the A330-300, but don’t count on it. Airbus is improving the range and economics of the -300 and the lower capital costs keep it competitive.
The idea that Airbus will re-engine the A330 won’t die. Airbus says it won’t and as long as the A350-800 is offered, this is likely going to be the case. But Tony Fernandes, CEO of AirAsia Group, wants the airplane and he’s become one of the leading Airbus customers and carries a lot of weight. We know of at least one other airline fleet planner who thinks it will eventually happen. But as of a few months ago when we last checked with the engine makers, there were no inquires from Airbus about the prospect.
Just look for continued PIPs for the A330. It’s a long way off before Boeing’s wish of killing the A330 will come to pass, and we think it will simply be a natural death. After all, look how long it took for the A330 to kill the 767.
Sales became stagnant after a fast start of nearly 600 sales. Delivery slots are sold out to the end of the decade, so why does anyone want to place an order now?
The public whining of Emirates Airlines and Qatar Airways over the A350-1000 on top of Boeing’s effective campaign casting doubts about the airplane helped stall sales as well. These efforts placed Airbus on the defensive. Qatar’s whining relates more to envy of Emirates CEO Tim Clark than substance, because the -1000 accomplished all mission requirements for Qatar. Qatar converted orders for the -800 to the -1000, so apparently CEO Akbar Al-Baker found the airplane acceptable after all.
Clark wants a plane capable of doing Dubai-Los Angeles non-stop with a full payload, something that falls in the last 5% of any aircraft mission requirement. Airbus and Boeing have been clear they don’t see the ROI in building a “5% airplane.” But Clark continues to pressure both OEMs.
The first flight of the A350-900 will happen this year. The suspense is whether it will happen in time for the Paris Air Show. EADS wants it. Airbus wants it. The French government wants it. Will it happen? We think it will be down to the wire. But if it does, Toulouse is only 90 minutes from Paris and look for an appearance at the show if Airbus can pull it off.
What about the future of the A350-800? Just about everyone but Airbus thinks this model will be dropped. If it is, we think the A330 will be re-engined. Airbus insists it won’t but it’s been encouraging customers to switch to the -900, adding to the doubts about the future of the airplane.
COO Customers John Leahy told us long ago that switching customers is more profitable for Airbus since the -900 has a higher list price (and presumably a truly higher sales price as well). But those in the know tell us there is more to it than that. One customer who switched said it is a way Airbus is mitigating the program delays and de-risking the program. Resources are being sucked up by the -900 to meet schedule. Assigning engineers to the -800, which is the second model scheduled out the door, risks the -900 schedule. Airbus can also offer earlier deliveries by concentrating on the -900. So there are some practical considerations.
For all the dissing of the -800, it had more orders than the -1000 until recently, a combination of switching -800 customers to the larger -900 and, from Qatar, also to the -1000. Airbus did win an important order for the -1000 from Cathay Pacific Airways. Still, one key person close to the A350 program characterizes the -800 as “an expensive A330,” not exactly a ringing endorsement—and a comment that further lends to the unending speculation that the A330neo would one day emerge.
Technologically, it’s a marvel. Passenger acceptance has been great. But the A380 continues to be a drag on earnings and the wing rib brace cracks, while not a safety issue, proved costly to fix and demands by customers for compensation add to the financial challenges for the airplane. After large financial write-offs in the past, Airbus still says it will start posting profits on the airplane from 2015.
But sales continue to be below goals and orders from Kingfisher Airlines are gone (even if through November not yet off the books) and Hong Kong Airlines is talking about swapping its 10 orders for A330s. Book-to-bill is well below 1:1.
The Very Large Aircraft forecast by Boeing is only 590 over 20 years and Airbus forecasts 1,300. We think Airbus will ultimately sell between 700-800 A380s by capturing 85% of the VLA passenger market. The 747-8I doesn’t have much of a future, in our view.
Boeing, at this writing, needs to book 31 more orders last month to hit its goal of 1,000 sales for the MAX and when the year-end tally is announced, we expect that to happen or to be very, very close. (Update: Even as we were posting this, Boeing announced Aviation Capital Group firmed up a previously announced commitment for the MAX, increasing it from the original 35 to 60; sales now passed 1,000 for 2012.)
Design freeze for the MAX is scheduled this year. Boeing is working very hard to meet field performance of the NG despite the heavier weights for the MAX. There will be a thrust bump on the CFM LEAP-1B to make the performance, but Boeing hasn’t revealed what this will be.
NextGen sales slots are filling up, just like the A320ceo. The 737-900ER continued to be a good sales performer. The 737-700 (and the 737-7 MAX) proved to be no-shows.
Boeing is considering taking NG/MAX production to 60 per month through the transition but most view this as a typical Boeing options-study exercise. The supply chain would be strained and the ever-present worry about a bubble continues to hover. But never say never. We don’t think any decision on this rate will happen this year.
We view this as a program in trouble, not because of any technical issue, but because of the softening cargo market (which has led to some new cancellations of the freighter) and a 747-8I that has proved to have little demand despite some reported if unconfirmed dramatic price drops. The 747-8I is a niche within a niche (the latter being the VLA category). It is squeezed from the top by the A380 and from below by the 777-300ER. When Boeing launches the 777X, and if the -9X at the conceptual 407 passengers becomes a reality, we think the 747-8I will be dead; we view it on life support already. But no action to kill the program will happen this year or any time in the immediate future.
Sales of the 747-8I will limp along with VIPs and Air Force One. Sales of the 747-8F will also limp along. But the backlog is down to 67 at November 30 with production rates of 24 a year. The math says it all.
The passenger model is dead. There will be some continued life in freighters. But the future is entirely in the USAF KC-46A program.
The 777-300ER sales slowed in 2012 from a banner year in 2011, which we view as more reflective of normal cycles than any obsolescence of the airplane. We picked up some anecdotal evidence some customers are holding off ordering the 777 while waiting for clarity on the 777X.
The 777-200ER has been dead for several years. The 777-200LR has probably run its course as a highly niche aircraft. The 777-200LRF will probably have a long life.
The future, of course, is the 777X. ATO had been expected in 2012, but when Albaugh unexpectedly retired, the program timeline slipped to 2013. ATO may come before or at the Paris Air Show, but October has also been tossed about as the target date. Market reaction to the 777-8X has been cool. This model as conceived is 350 passengers, identical to the A350-1000 but smaller than the 777-300ER. Cost assumptions have not wowed customers. There is some discussion that that -8X could become the next freighter but as a passenger airplane, there doesn’t seem to be a lot of support.
The -9X is conceived as 407 passengers, which puts it in the very low end of the VLA category and in a class by itself, much larger than the A350-1000 and 777-300ER but much smaller than the 747-8I. Seat mile costs are projected to be outstanding. But Boeing is still a fair distance from having a concept that’s ready to offer to the customers.
Still, we believe this year will see ATO.
Through December 26, Boeing delivered more 787s than it had forecast and it was trying to hit 50 for the year. We’re waiting for the announcement any day now.
Rework continues to be a challenge. Boeing said it will be going on to 2015. New production airplanes are rolling out in good shape, though we continue to hear Charleston still has challenges.
The big news will be the program launch of the 787-10, now expect shortly before or at the Paris Air Show, accompanied by a host of orders. British Airways, Singapore Airlines, Lufthansa Airlines and Air Lease Corp are expected to be launch customers.
Delivery slots are sold out to the end of the decade. Boeing has an announced production rate of 10/mo by the end of this year, but it’s trying to figure out how to get to 14 or even 17.
2011 was a dismal year for these sales. BBD had a better year in 2012. WestJet placed a large order for the Q400 and Delta Air Lines a large one for the CRJ. This year will see strong competition for a jet order from American Airlines after it emerges from bankruptcy. Scope Clause restrictions will prevent American from considering the CSeries or E-190, but the CRJ-900 and E-175 will face off again as these did at Delta. The CRJ has a significant cost advantage, while the E-Jet has better passenger comfort.
American has a large, mixed fleet of aging, small ERJs and CRJs.
SkyWest of the USA surprised the industry when an MOU for 100 Mitsubishi MRJs was announced at the Farnborough Air Show. This order was firmed up late last year. Observers viewed this as a blow to Bombardier and Embraer. We thought then this view was wildly overblown.
SkyWest has a fleet of nearly 700 RJs and turboprops. Even with the MRJ order for 100 there is plenty of opportunity left for BBD and EMB to win orders. Watch SkyWest. We don’t know if it plans another round of orders this year, but if it does, BBD and EMB will face off again.
First flight slipped from December to June. We think BBD will try to get first flight before or during the Paris Air Show, which would give the program a high-profile PR boost. If so, and if Airbus and Boeing make Air Show splashes with the A350 and 787-10 (and potentially the 777X), the PAS could become a pretty exciting event.
Contrary to all the naysayers, sales of the CSeries have been respectable when compared with other new airplane programs in its class and it’s been sweeping the 100-149 seat sales compared with the 737-700/7 MAX and A319ceo/neo in the last two years. The latter airplanes simply cannot compete with the CSeries economics.
At the same time, sales have been slower than the market would like. BBD boasts more than 350 orders and commitments, a characterization made popular by Boeing when it got skunked by A320neo’s outstanding performance and Boeing was playing catch up with the MAX. But we still maintain orders and orders and commitments aren’t and we’d like to see more CSeries orders and commitments converted to orders.
Once the first flight is accomplished and flight testing begins, we think the orders will start to flow. Given the dismal performance by Airbus and Boeing with their new and derivative airplane programs, the market wants proof BBD can make good on its promises on its most ambitious airplane program yet.
It became public last year that BBD has a high density version of the CS300, a 160-seat configuration we call the CS300HD (BBD hasn’t officially named it as far as we know). BBD hasn’t said much about the airplane publicly, such as range, weights, etc., except in generalities. It’s not even on the company’s website. Our affiliate, AirInsight, in 2010 concluded that BBD needs a 150-seat, two class CS500 and we still think BBD needs it for a full family. But offering a CS300HD is a welcome addition to the otherwise two-member family. We hope to hear more about the CS300HD this year.
We think the E-Jet is in trouble. It’s a fine airplane, but EMB has essentially said it’s outmoded by announcing in 2011 it plans to re-engine the aircraft and stopping there. No definitive announcement of an E-Jet RE program has been forthcoming. No engine selection has been made that we know of. We haven’t heard of any concepts with performance assumptions being shown the market.
Aerospace analysts who follow EMB note that there are major gaps in orders at the current production rates and call for EMB to cut production as early as this year.
We believe EMB has to poop or get off the pot this year, as the saying goes.
ATR’s 72 continues to sell well, but the company–half owned by EADS–wants to proceed with a 90-seat new turbo-prop. Whether EADS will consent is a big unknown. Airbus continues to have prodigious demands of R&D funding for the A350 and A320neo and the A380 and A400M continues to drain cash.
Delay after delay continue to dog this dog. The ARJ-21 will be a commercial failure, but that’s hardly the point: this is a makee-learn airplane for the emerging Chinese aerospace industry. But will this be the year the ARJ-21 is finally certified and enters service? China better hope so, because certification of the ARJ-21 is a prerequisite for the development of the C919.
This copy of the Airbus A320 won’t be nearly as capable but, again, this is hardly the point. The C919 will be an advance over the ARJ-21 and lays the basis for future, more competitive airplanes.
COMAC claims 380 orders for the aircraft, all but a handful from home-market customers and 200 of these from lessors. But there are few that the West would characterize as true “firm” orders, with deposits and binding contracts, according to Chinese press reports.
The program will indeed proceed because the government has a national goal of a viable, competitive international aerospace industry. The captive home market will be forced to acquire the aircraft whether they want it or not.
We don’t see much of note this year, though.
The MS-21 seems shrouded in the old Kremlinology mist. Little news emerges about the MS-21 development—maybe for a good reason, such as it, too, is encountering issues?
The MRJ order with SkyWest (see above) last year was a real stunner. SkyWest ultimately selected the MRJ-90 over the MRJ-70, a sub-type we think have much of a future. Even EMB isn’t selling many E-170/175s and it’s not even talking about re-engining the smallest family member. We’re waiting for Mitsubishi to proceed with a 130-seat MRJ, but we don’t know if it will be this year.
Sukhoi failed to deliver the SSJ100 on its planned schedule and we expect performance to be slower than desired again this year.
Pilot error was found to be the cause of the demonstration flight crash in Indonesia last year–no surprise here–which removes a bit of a cloud of doubt over the airplane. Although Sukhoi is making noises of a larger variant, we don’t really expect any action this year.
Pratt & Whitney’s new GTF is well ahead of CFM International’s LEAP in development and testing. By the time the first LEAP is ready to enter service in 2016 (on the A320neo rather than the COMAC C919, we believe), GTF will already have millions of hours of testing and in-service experience and be well on its way toward Performance Improvement Packages that should keep it ahead of LEAP in fuel burn performance. The key question is whether PW, through its International Aero Engines network or on its own, will be able to match the world-class product support CFM has built up. As we’ve reported several times, customers and engineers we talk to like the GTF technology better than LEAP but have more confidence in CFM product support than with PW. PW, of course, is well aware of all this and since GTF is its ticket back as a major player in engines, it can’t afford to fall short.
Rolls-Royce, meantime, continues development of its own small engine with hopes of winning the Embraer E-Jet RE. But it’s battling GE incumbency (which is a double-edged sword) and the PW GTF, which has an early engine version to offer EMB.
RR’s big engines, the Trent 1000-Plus for the 787-10 and the Trent XWB for the A350, are the focus and high-profile programs. The Trent 1000-Plus could be a candidate for an A330neo (along with the GEnx), but as noted above, so far there are no discussions going on with Airbus. Ditto for the prospect of a big GTF.