JetBlue defers A320s: This US airline announced at its investors’ day that it is deferring Airbus A320s from this decade into next. JP Morgan had this commentary November 19:
JetBlue…announced a deferral of 18 A320-family aircraft from 2016-18 to 2022-23. While having a $900m positive impact on cap-ex through 2018, we believe the deferral should also limit near-term speculation on widebodies and Transatlantic expansion for several years. The reason? We believe the deferral was driven in large part by Airbus’ continued study of an ‘A321neoLR….’ Airbus continues to explore the development of a long-range version (3,900 nm) of its flagship narrowbody aircraft to serve as a fuel-efficient competitor to the Boeing 757-200W, with potential entry in to service by 2018-19. We believe such an aircraft would fit exceptionally well into JBLU’s longer-term expansion plans, though it does imply a Transatlantic future somewhere down the road, in our view.
JetBlue has expressed interest in entering long-haul, over-water routes, but it doesn’t have ETOPS qualification. If it were to do so sooner than later, it would have to either wetlease aircraft (as did WestJet of Canada) or lease the four-engine A340-300, a cheap lift with a modest capacity.
KC-46A update: Aviation Week has an update on the status of the Boeing KC-46A tanker. Among other things, first fight has now been moved from June to November at the earliest.
A400M in the US: Airbus thinks it’s possible to sell hundreds of its A400M to the US Armed Forces to replace the Lockheed Martin C-130 and Boeing C-17, according to this article by Reuters.
A320neo first flight: Is the Airbus A320neo first flight going to run behind schedule? Airbus won’t say but Reuters suggests that it might. So does Aviation Week, like Reuters, pointing to an issue with the engine.
Southwest no longer an LCC: Bloomberg writes that Southwest Airlines is no longer a low cost carrier, with Cost per Available Seat Mile now approaching the legacy carriers. Years ago we characterized Southwest as the first legacy LCC, as costs increased, low fares began to disappear (it’s often easier to find a low fare on a competitor today) and routes took it into big city airports previously eschewed.
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.
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.
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. Read more
Aerospace analysts split in their reaction to Boeing’s second quarter earnings. Many were upbeat on the commercial aircraft results, while others didn’t like the higher-than-expected, continued deferred expenses for the 787 program and a big charge on the KC-46A program.
Bloomberg News was quick to point to the KC-46A program charge and the implications that this is yet another costly new airplane program for Boeing.
Traders didn’t like the news, either, with stock falling more than $3 despite higher profits for the period and higher profit guidance going forward.
The Bloomberg article cites several analysts who didn’t like elements of the earnings report.
Here are initial notes, pre-earnings call, based on the press release:
Should manufacturers be counting options and letters of intent toward program certainty? We’ve always thought this was pretty cheeky, but in reality there is a reasonable foundation and history for doing so. Years ago Boeing regularly ridiculed Airbus for announcing “commitments,” denigrating these as not being “real” orders (and, of course, literally they weren’t). But then came the losing battle between the A320neo and the 737 MAX. Lo and Behold, Boeing touted “1,000 orders and commitments” for the MAX in a PR effort to bolster the competitive position of the MAX. Of course, these “commitments” (in the form of options, MOUs and LOIs) converted to orders eventually.
Reuters is reporting that the European Union may challenge the $8.7bn in tax breaks Washington legislators voted to grant Boeing in return for locating assembly of the 777X and its wing in the state.
Readers know we worried about this when the Legislature voted for these in a hurry-up session. We were blown off by the state and even the mainstream media in raising these concerns.
State officials asserted at the time that the State was merely “extending” the 2003 tax breaks voted for the 787, totaling $3.2bn, for the 777X. The 787 tax breaks had been ruled illegal by the World Trade Organization, and state officials brushed this aside saying the ruling was under appeal.
We found this to be an astounding position, particularly considering that Gov. Jay Inslee, as a Congressman, demanded that the WTO findings of illegal tax breaks to Airbus be considered during the KC-X USAF tanker competition, despite a pending appeal.
In the Reuters story, Tim Hepher writes:
Boeing said tax decisions by Washington were meant for the whole industry in the state, including some Airbus suppliers, and have been designed to comply with WTO rulings.
“The $8.7 billion figure that’s mentioned is the state’s estimate of the total value of its incentives for the entire commercial aerospace industry over 16 years,” Boeing spokesman Charlie Miller said. “The benefit to Boeing will only be a fraction of that amount.”
The first statement is certainly true. We’re a bit flabbergasted by Miller’s claim that Boeing will receive only a “fraction” of the tax breaks.
The tax breaks have come under much after-the-fact criticism when Boeing announced that more engineering jobs would be moved out of state. Critics of the tax breaks noted that there had been no job guarantee provisions in the Legislation, freeing Boeing to move jobs–and it is doing just that.
Although Boeing hasn’t said how many jobs will be associated with the 777X in Washington, it’s clear that more automation and robotics will be used on the X than on the 777 Classic.
A330neo decision: Aviation Week reports that a decision to proceed with the Airbus A330neo could be “imminent.” The report also discusses the advocacy by Tim Clark, COO of Emirates Airlines, to re-engine the Airbus A380. As with the Reuters and Bloomberg articles we previously linked, the Aviation Week piece also confirms much of what we were the first news outlet to report in December. We have a launch in 2014 rather than 2015 reported in Aviation Week, although we both have a decision to proceed for this year. Aviation Week and Bloomberg report that the decision could come as early as March.
Aviation Week confirms our report that Pratt & Whitney would be unlikely to bid on the project because the short time lime precludes development of the big engine version of the Geared Turbo Fan.
KC-46A at ‘high risk’ for delay: A US government report suggests the Boeing KC-46A tanker is at ‘high risk’ of a six month delay.
These are not unusual for military programs, nor, it seems, is it any longer unusual for new or derivative aircraft programs. Boeing believes the program is on time, but even if a six or 12 month delay does emerge, by today’s standards, this indeed is “on time.”
Countdown to Super Bowl: Boeing painted a Boeing 747-8F test plane in the Seattle Seahawks livery and this week “skywrote” the number 12 on a flight. The Seahawks play the Denver Broncos Sunday in New Jersey for the Super Bowl. The number “12” represents “the 12th man,” of the collective Seahawks fan base.
We think it would be super for the 747 to overfly the game Sunday, the ultimate 12th man appearance. Alas, Boeing says there are no plans to do so.
A400M: Cool picture. No other words needed.
CSeries timeline: Bombardier last week announced a third delay in the CSeries program, this time for as much as a year.
This probably should have been expected. BBD originally planned a five year period between program launch and entry-into-service. As we saw with the Boeing 787, launched with a four year timeline, even five years was too ambitious.
The EIS period for the 787 turned out to be the standard seven years, almost eight–and even then, the EIS was anything but smooth.
Airbus’ launch-to-EIS for the final A350 version is somewhat more than eight years. Even though BBD is a sub-contractor on the 787 program and said it benefited from lessons learned, it’s clear officials were far too ambitious.
KC-46A roll-out: Boeing’s first tanker for the USAF based on the 767-200ER will roll out this summer. The Everett Herald has this story. The airplane is a somewhat revised 767-200ER called the 767-2C. In addition to upgrades with the airframe, the Pratt & Whitney PW4000 engines will have upgrades which improve fuel consumption.
China’s new airplane: China isn’t just developing the ARJ21, C919 and some military airplanes. It’s also developing the world’s largest amphibian.
Here’s what to look for in 2014 in commercial aviation.
A350 XWB: The high-profile A350 XWB program continues flight testing this year. Entry-into-service has been a sliding target. The program is running about 18 months behind original plan and EIS was intended for mid-year following initial delays. Even this has slipped, first to September and then to “the fourth quarter.” Currently first delivery is scheduled in October to launch customer Qatar Airways, which is slated to get four A350-900s this year. Emirates Airlines is listed as getting two of the total of six scheduled for delivery.
A320neo: Lost in the shadow of the A350 program is the A320neo. Final assembly of the first aircraft is to begin in the spring and first flight, followed by testing, is scheduled for this fall. The Pratt & Whitney Geared Turbo Fan is the initial variant. First delivery is scheduled in the fall of 2015.
Others: Airbus continues to evaluate whether to proceed with developing an A330neo. Based on our Market Intelligence, we expect a decision to proceed will come this year. Concurrently with this, we expect most if not all of the remaining 61 orders for the A350-800 to be upgraded to the A350-900 and the -800 program to be officially rescheduled if not dropped. The -800 is currently supposed to enter service in 2016, followed by the A350-1000 in 2017. But recall that as delays mounted on the A350-900, Airbus shifted engineers to the -900 and the -1000 at the expense of the -800. Salesmen have consistently shifted orders from the -800 to the larger models. We long ago anticipated the -800’s EIS would be rescheduled to 2018, following the -1000. The -800’s economics aren’t compelling enough just justify the expensive list price. So we expect Airbus to upgrade the A330 to a new engine option, using either or both of the Trent 1000 TEN and GEnx with PIPs (Performance Improvement Packages) or with some modifications. EIS would be about 2018. This precludes Pratt & Whitney from offering a large version of the Geared Turbo Fan, which wouldn’t be ready by then.
We also expect Airbus and the engine makers to look at re-engining the A380, driven by desires of Emirates Airlines to see a 10% economic improvement. Emirates announced an order for 50 A380s at the Dubai Air Show but instead of ordering the incumbent engine from Engine Alliance for these, Emirates left the engine choice open. This leaves open the possibility the A330neo and the “A380RE” could share an engine choice.
After many years of turmoil, 2014 should be quiet for Boeing (now that the IAM issues have been resolved—see below).
787: Barring any untoward and unexpected issues, Boeing seems at long last to be on an upward trajectory with this program—but we’ve said this before. There are still nagging dispatch and fleet reliability issues on the 787-8 fleet to resolve, but flight testing of the 787-9 appears to be going well. Certification and first delivery should come without trouble this year, to launch customer Air New Zealand.
737: Nothing to report on the Next Generation program except ramp-up to a production rate of 42/mo is to take effect this year. Development continues on the 737 MAX.
Others: The 777 Classic is humming along. Now that the 777X is launched, we’ll be closely watching sales for the Classic; Boeing has a three year backlog but six years to 777X’s EIS. How is Boeing going to fill this gap, and what kind of price cuts will be offered to do so?
The 747-8 continues to struggle, barely holding on. Boeing says it thinks the cargo market will recover this year, boosting sales of the 747-8F. We’re dubious.
The 767 commercial program continues to wind down. The 767-based KC-46A program ramps up.