Boom times leads to looming cash flow shortfall across OEMs

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Introduction

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.

Summary

  • With so many development programs in the works, the prospect of new airplane and engine programs are being trimmed.
  • Most airframe and engine OEMs under pressure.
  • The full impact of the pending cash flow squeeze hasn’t been appreciated by the markets yet.

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New UTC CEO throws cold water on PW GTF growth

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:

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737 MAX 8 could be enabler for some LCC Long Haul

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By Scott Hamilton and Bjorn Fehrm

Introduction

737-8 range

Figure 1. Nominal range of 737 MAX 8 from Oslo Source: Great circle mapper, Boeing. Click on Image to enlarge

Dec, 8, 2014:The Boeing 737-8 MAX is the successor to the 737-800 and has largely been thought of in this context.

Our analysis, prompted by Norwegian Air Shuttle (NAS) plans to use Boeing 737-8 MAXes to begin trans-Atlantic service on long, thin routes, comes up with a conclusion that has gotten little understanding in the marketplace: the 8 MAX has enough range and seating to open a market niche below the larger, longer-legged 757, and the economics to support profitable operations for Low Cost Carriers interested in some trans-Atlantic routes or destinations beyond the range of the -800.

Summary

  • We based our analysis on our proprietary, economic modeling, assumed Norwegian cabin configuration standards.
  • We compared the operating costs of the 737-8 with Norwegian’s present long haul aircraft 787-8 in a similar cabin configuration.
  • The comparison range is the max endurance range for an LCC long haul 737-8, eight hours or 3,400nm air distance (no wind included).

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Fundamentals of airliner performance, Part 5; Approach and landing

By Bjorn Fehrm

Dec. 2, 2015: The time has now come to cover descent and landing in our Leeham logo with Copyright message compactarticles around airliner performance. As many aspects of descent are similar to climb we will repeat a bit what we learned in Part 4:

  • For high speed operation the pilots fly on Mach as this gives him maximum information around possible effects on the aircraft when he is close to the high speed limit, the maximum Mach number. Beyond this the aircraft gets into supersonic effects like high speed buffeting or unsteady flight.
  • For operations under the cross over altitude for Mach 0.78 to 300 kts IAS the pilot flies on Indicated Air Speed (IAS) which gives him maximum information how the aircraft reacts should he go close to the aircraft’s lower speed limits.

Lets now start to go through the steps that our 737 MAX 8 performs after leaving its cruise altitude.

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Oil heading toward $40? Economist still thinks so, with caveats; and: NTSB issues 787 battery report, Azul’s A320/CFM order

Dec. 1, 2014: Adam Pilarski, an economist for the consulting firm Avitas, predicted several years ago that the price of oil would drop to $40bbl. Few believed him.

Oil hit $66 this week, on a steady decline over the past months, and, according to an article by Bloomberg News, could be on its way to $40.

Pilarski, who originally made his prediction in 2011 at a conference organized by the International Society of Transport Aircraft Traders (ISTAT). He predicted this price by October 2018.

In an interview with Leeham News today, Pilarski concurs that oil may hit $40 soon, though he believes the low end will be in the $40-$50 range. The low price will not for the reasons he outlined in 2011 and neither will it stay at or near $40 for long.

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Fundamentals of airliner performance, Part 4

By Bjorn Fehrm

Nov. 25, 2014: In our article series around the performance of a modern airliner we have now come to the climb after takeoff. Leeham logo with Copyright message compactWe started with cruise as this was simplest because the aircraft is flying in steady state, then we looked at the modern turbofan and how this is affected by both altitude and speed. We then examined how this affects the takeoff and today we continue with the climb after takeoff.

Before we start, let’s sum up a few points we need for today:

  • Drag is the one thing we always need to be aware of as this regulates how much excess power we have in different flight situations and therefore if we can stay on our altitude or climb.
  • Drag diminishes with altitude as the airs density diminishes and thereby our dominant drag component, air friction against our aircraft’s skin. This is the major component of the aircraft’s dominant drag, parasitic drag.
  • Our lift force is generated by forcing air downwards and this causes induced drag as this downwash cost energy to generate and maintain. Induced drag is mitigated by a wing with a large span.

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Lufthansa to use A340s in “lower cost” operation; our analysis against the 787

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By Scott Hamilton and Bjorn Fehrm

Introduction
Low cost long haul service is gaining traction, but previous efforts proved difficult to be successful.

Dating all the way back to Laker Airways’ Skytrain and the original PeoplExpress across the Atlantic, airlines found it challenging to make money.

More recently, AirAsiaX retracted some of its long-haul service, withdrawing Airbus A340-300 aircraft when they proved too costly. The airline recast its model around Airbus A330-300s as an interim measure, unable to fly the same distances as the longer-legged A340. AirAsiaX ordered the Airbus A350-900 and now is a launch customer for the A330-900neo.

Leeham logo with Copyright message compactCebu Pacific of the Philippines is flying LCC A330-300 service to the Middle East. Norwegian Air Shuttle famously built its entire LCC long haul model around the Boeing 787, initiating service with the 787-8 and planning to move to the 787-9.

Canada’s WestJet is leasing in four used Boeing 767-300ERs to offer LCC service,

Legacy carrier Lufthansa Airlines plans to use fully depreciated A340-300s to begin “lower cost” (as opposed to “low cost”) long haul service. LH says the fully depreciated A340s come within 1%-2% of the cost per available seat mile of the new, high capital-cost 787s.

Summary

  • AirAsiaX’s A340 LCC long haul service proved unprofitable. Can Lufthansa’s similar service with fully depreciated A340s work?
  • Our analysis shows that it can. It can even support the lease rates that would be charged for a 10 year old A340 if the fuel price remains at the present level.
  • When doing the research for this article and going through the results of our proprietary model we started to ask ourselves, is the A340-300 the ugly duckling of the airline market?

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Fundamentals of airliner performance, Part 3

By Bjorn Fehrm

In our first article about how to understand the performance of a modern airliner we defined the main forces that are acting on an aircraft flying in steady state cruise. In our clinic we use the ubiquitous Boeing 737 in its latest form, the 737 MAX 8, to illustrate our case. Leeham logo with Copyright message compactIn the second article we introduced the aircraft’s engines and understood how they function by pumping air backwards faster than the aircraft’s speed and therefore generating thrust as air is in fact quite heavy. We also looked at the influence of flight altitude on the performance of the aircraft.

In short we can conclude our findings so far:

  • For cruise lift is the same force size as weight, only opposite. To understand the cruise phase we can therefore focus on how much drag this lift force and the aircraft’s friction against the air create.
  • When we have this drag we also know the engine thrust and we can calculate the cruise fuel consumption from the engines fuel consumption per unit of thrust and hour.
  • We also found that it is beneficial to fly high as the airs density diminishes and with this the airs friction against our aircraft’s skin.
  • Our lift force is generated by forcing air downwards and this causes drag due to weight as this downwash cost energy to generate and maintain. The air resists being downwashed and slinks up on the side of the wing thus generating large vortice sheds which consumes energy. This drag we call induced drag or drag due to weight.
  • We diminish this re-circulation of the air by spreading our wings as wide as we can, in fact we get double reward for increases our span, it counts twice in induced drag reduction.
  • Our limit to fly high for our cruise is set by the increase in induced drag, we are seeking a flight level where we have a drag minimum when adding the diminishing friction drag and the increasing induced drag.
  • We also have a problem with climbing to a to high cruise flight level, our engines lose power both due to the thin air and due to the aircraft’s forward speed.
  • Finally there are supersonic phenomena which stop high cruise altitudes. As the air gets thinner the wings need to throw the air downwards with higher speed (increase wing canting or alfa angle). This means the air on the top side of the wing has to speed up and is therefore going deeper into supersonic flow on parts of the wings overside. This causes disturbances called buffeting when these supersonic areas grow to strong.

Having covered the most important aspects of cruise we will today look at takeoff, a subject with a lot of aspects. Read more

Fundamentals of airliner performance, Part 2.

By Bjorn Fehrm

In our first article on how to understand the fundamentals that make up airliner performance we defined the main forces acting on an aircraft flying in steady state cruise. We used the ubiquitous Boeing 737 in its latest form, the 737 MAX 8, to illustrate the size of these forces. Leeham logo with Copyright message compact

Here a short recap of what we found and then some more fundamentals on aircraft’s performance, this time around the engines:

When flying steady state (Figure 1) we only need to find the aircraft’s drag force to have all important forces defined.

Lift with downforce

Figure 1. Elementary forces acting on an aircraft at cruise. Source: Leeham Co.

The lift force is given as equal to and opposite to the aircraft’s weight and the tail downforce that we need to add to this was small. We also presented the two classes of drag that we will talk about:

  1. Drag independent of lift or as we often call it drag due to size as almost all drag components here scale with the aircraft’s size.
  2. Drag due to lift or drag due to weight as we call it as this drag scales with weight when one flies in steady state conditions.

We could see that the aircraft’s flight through the air created a total drag force of 7900 lbf, Figure 2 ( lb with an f added as we prefer to write it as this is a force and not a measure of mass. Mass we denote with just lb or the metric units kg or tonne = 2205 lb).

Drag components

Figure 2. Drag of our 737 MAX 8 and how it divides between lift and non lift drag. Source: Leeham Co.

We also learned that if the drag is 7900 lbf then the engine thrust is opposite and equal. It is then 3950 lbf per engine when cruising at our mean cruise weight of 65 tonnes or 143.000 lb on our 1000 nm mission. Drag due to size consumes 63% of our thrust and drag due to weight 37%. Read more

Zhuhai Airshow: China’s aircraft industry is gaining speed

The 10th Chinese airshow at Zhuhai opened today. It was a day with fewer announcements than expected from the usual suspects (Airbus, Boeing…) but the Chinese industry did not disappoint. China is now showing more and more of its coming might as a player on the aeronautics arena.

The most prominent displays at this show were on the military side, where China has two stealth aircraft projects flying (the large Chengdu canard J-20 and the smaller Shenyang J-31) while their canard Chengdu J-10 was flying the display circuits overhead (Figure 1).

J-31 Kopie

Figure 1. Chinas latest fighter developments; the J-31 and J-20 stealth fighters and the canard J-10. Source: China internet.

All aircraft are of latest structural and aerodynamic design if not in engines and systems. This is a big difference to previous shows where the Russian Sukhoi and MIG aircraft and their local copies did the flying display until 2008. Since then everything has changed and now China and USA are the only countries in the world with two different stealth designs flying. USA has one in operation (F-22) and one close to (F-35) whereas China still has many years to go until they have their new aircraft operational. But it is significant that the old aeronautical behemoths Europe and Russia have none respective one (PAK-50) stealth fighter in flight test.

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