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LNC has provided news and commentary since February 2008, providing industry-leading information and insightful analysis, principally focuses on Airbus, Boeing, Bombardier and Embraer but also including emerging challengers to the Big Four OEMs, the leading engine manufacturers, suppliers and airline news.
LNC has been a leading resource of news and comment throughout the commercial aviation industry and its professional followers in the aerospace supply chain, investment analysts and the media.
Since the first of this year, LNC increasingly provided more and more technically-based content. This content is valuable and supplements the industry-leading news and reporting that has been provided since 2008. We are pleased to announce the addition to our staff, Bjorn Fehrm, who focuses on technical evaluation and complements the strategic expertise of Scott Hamilton, the founder of LNC and Leeham Co. consultancy.
First of two parts.
Earlier this year, Airbus officials said they will concentrate on improving existing airplanes once the A350 enters service.
Boeing followed by saying it would not take any “moonshots” and develop new airplanes, at least for some indeterminate time.
The sentiment on the part of both companies is understandable if not disappointing for aviation purists who want to see new and innovative airplane models rather than made-over sub-types.
This is one of those cases where both schools of thought are right. (Text continues below photo.)
New airplanes are, to state the obvious, very expensive to develop and in this increasingly technological age and demand for “smarter” airplanes that are more fuel efficient and which try to improve passenger experience while cramming as many revenue-paying passengers into the airplane as possible, becoming more and more challenging. Where it once was possible to bring an airplane to market within four years of launch, today airframers routinely look at seven years and even eight. Even derivative airplanes are now taking six or seven years to enter service from launch.
Major orders last week for Bombardier and Mitsubishi and the release of the Airbus Global Market Forecast provide an opportunity to look at market segments that don’t get a lot of attention in the shadow of the greater focus on the A320/737 and medium-twin aisle sectors.
These over-shadowed sectors are the 70-99 seat regional jet; the 100-149 seat single-aisle market; and the Very Large Aircraft.
Due to the scope and length of each examination, we will detail these sectors in three parts.
• Embraer and Mitsubishi will dominate the 70-99 seat sector;
• Embraer and Bombardier will dominate the 100-149 seat sector;
• Airbus and Boeing have largely withdrawn from the 100-149 seat sector;
• Airbus clings to unrealistic 20-year forecast in the VLA sector, but Boeing is a non-player today and in the future.
Part 1: 70-99 Seat Sector
This is a shrinking market for the regional jet as increasing fuel prices make it more and more difficult for regional jets to be economical. Nonetheless, there are several established and new entrant players in the market:
• Bombardier, with the CRJ-700, CRJ-900 and CRJ-1000
• Embraer, with the in-production E-170/175 and E-190/195
• COMAC/AVIC, with the ARJ-21 70 and 90-seat models
• Mitsubishi, with the MRJ-70 and MRJ-90
• Suhkoi, with the SSJ-100
Air France-KLM trims cargo fleet: Steve Wilhelm of The Puget Sound Business Journal reports that Air France-KLM group is sharply trimming its cargo fleet, with the company declaring the capacity continues to shift to the belly capacity of passenger airplanes. This further validates what we have been writing for some time and, in our view, further bolsters our argument that the demand for new-build, dedicated freighters continues to fall. This in turn means Airbus won’t see recovery for the A330-200F nor will Boeing see recovery in demand for the 747-8F or 777-200LRF.
ExIm Bank Countdown: September 30 is the date the US ExIm Bank runs out of money. Although there is talk of a short-term extension of a few months (conveniently taking it past the election and perhaps defusing some of the Tea Party angst over the agency), Emirates Airlines said it will still buy Boeing airplanes even if ExIm isn’t renewed.
This can’t help Boeing’s argument that ExIm should be retained.
Left unsaid in Emirates’ statement, however, is something we heard in the market: Boeing’s deal for the 150 777Xs with Emirates nearly fell apart over the ambiguity over the Bank. We’re also told Boeing agreed to backstop the Emirates deal.
Neither Boeing nor Emirates comment on financing support.
Bombardier vs Embraer: Here is an interesting thought piece on the financial returns of Bombardier vs Embraer. One obvious error in the article: Malmo Aviation didn’t cancel its order for the CS100; it just decided not to be the launch operator.
Neither do you: Flight Global writes this about the end of plans between COMAC and Bombardier to have a common cockpit between the C919 and the CSeries:
“Basically in the development of the C919, Bombardier is not involved,” says [CAAC}. “They have experience in building regional jets, but not so much in narrowbodies.”
We can’t help but think the Chinese learned what they wanted to learn and moved on.
787 safety: This is one of those stories for which we have skepticism but which is already getting enough press that we don’t feel we can ignore it. Al Jazeera America has a special Wednesday night about the safety of the Boeing 787. AJM previously did an investigation of the safety of the Boeing 737. The Seattle Times has an early review. We’ll hold our opinion until after watching the program.
Ryanair finally orders 737 MAX: Once Boeing announced the launch of the 200-seat 737-8 MAX at the Farnborough Air Show, an order from Ireland’s Ryanair was only a matter of time. It became official today: Ryanair ordered 100+100 of the new version, the 737 MAX 200.
Two news items popped up today on emerging aircraft.
MC-21 subsidy: Government subsidies for commercial aircraft development have been a sore point between the US and Europe (i.e., Boeing and Airbus) for decades. Although the US and Europe went through years of international disputes at the World Trade Organization on behalf of Boeing and Airbus, with adverse decisions now under appeal by both sides, and even though Canada and Brazil previously won cases over illegal subsidies to Embraer and Bombardier, nothing has come of the decisions–and nothing has been done about government subsidies by Japan and China to their aerospace industries. No complaints to the WTO have been filed against either country, which are members of the WTO.
This article updates some information about Russian aid to Irkut, which is developing a competitor to the Airbus A320 and Boeing 737 families. The MC-21 and China’s COMAC C919 are directly sized against the best-selling single-aisle airplanes. Russia is not a member of the WTO, so there is no legal basis (that we know of) to file a complaint.
Long-time readers know we disdain the entire WTO process anyway as more political than practical. The WTO has no enforcement powers and sanctions that might be authorized by the WTO against offenders don’t have to be implemented (as in the case of Canada and Brazil) or even applied against the offender’s products–another industry altogether may be sanctioned, a silly and unfair prospect.
C919 assessment: This article provides an assessment of the prospects for the COMAC C919. What’s especially interesting in this article is what we aviation geeks have known all along, and that is China uses Western technology to develop its airplanes (and trains, the article points out). Airbus and Boeing identify China as the next viable competitor in the airliner field, albeit perhaps a generation in the future. But the technology is coming from Airbus, Boeing, Embraer, Bombardier, the engine makers and the supply chain. They are creating their own future competitors.
While China’s industrial espionage contributes to its understanding and acquisition of Western technology, most of it comes from joint ventures between Chinese companies and the Western OEMs and suppliers.
ExIm countdown: The authorization for the US Export-Import Bank expires next month, and Boeing is pulling out all stops to get a recalcitrant Republican Party to agree to extend the life of the bank, reports The Hill, one of the specialty publications that covers the US Congress.
Killing ExIm will put Boeing at a disadvantage to Airbus, which uses and will continue to use European Credit Agencies (ECAs) to support sales of its aircraft. Boeing will have to fall back on its internal Boeing Capital Corp. or attempt to help customers find private financing if ExIm tanks.
Maintenance and power-by-the-hour parts and support contracts are increasingly becoming the deciding factor in deciding which engines and which airplanes will be ordered—it’s no longer a matter of engine price or even operating costs, customers of Airbus and Boeing tell us.
Ten years ago, 30% of engine selection had power-by-the-hour (PBH) contracts attached to them. Today, 70% are connected, says one lessor that has Airbus and Boeing aircraft in its portfolio, and which has ordered new aircraft from each company.
“We’ve seen a huge move in maintenance contracts,” this lessor says.
Our wrap up of Farnborough would be incomplete without looking closer at the world’s leading engine supplier, GE Aviation, which together with partners (like SAFRAN in CFM joint venture) garnered more than $36 Billion in orders and commitments during the show. This figure was only significantly bettered by Airbus ($75 Billion) and it came close to Boeing’s $40 Billion. With such level of business the claim by GE Aviation CEO, David Joyce, that the Airbus A330neo engine business was not the right thing for GE as they have more business than then they know what to do with, was certainly no case of “sour grapes”. Read more
GAO report on ‘Boeing’s bank:’ The US Government Accounting Office, a non-partisan investigating agency, completed a study of the funding and guarantees provided by the US ExIm Bank, which is under criticism from Congressional Republicans, and concluded non-US airlines do benefit from what amounts to subsidies.
These put US competitors at a disadvantage, GAO concludes. The full 29 page PDF may be found here.
The study period covered the global financial crisis, during which a good deal of private capital funding dried up. Airbus and Boeing each relied more heavily on export credit agencies for customer financing–ExIm in Boeing’s case and collectively European Credit Agencies, or ECAs, for Airbus.
The GAO found that ExIm funded or guaranteed financing for 789 Boeing wide body aircraft while the ECAs supported 821 Airbus wide-bodies.
Parenthetically, this statistic alone should demonstrate to Congress the need for ExIm to continue to be available for Boeing airplanes.
The Farnborough Air Show is just around the corner, and we don’t expect the event to be especially newsworthy.
Here are our expectations for the show:
Market expectations are that Airbus will launch the A330neo at the air show, and we know John Leahy, COO of Customers, would like to do so at this event. His bosses, Fabrice Bregier and Tom Enders, have been less than encouraging that this announcement could come at the show.
Although news stories last week indicated Airbus’ board may green light the program in advance of the FAS, it was nonetheless reported that a formal public launch may not be made at the show. So what might happen? An “Authority to Offer,” or ATO, might be how Airbus proceeds. We don’t think there will be firm orders ready to go when the FAS begins July 14—although certainly Airbus could also take Boeing’s 777X approach and announce “commitments” as was done at the Dubai Air Show.
We are skeptical whether there might be any A330 Classic orders announced, as customers await the neo. We certainly expect the usual orders for the A320 Family. We expect A350 orders. We’re doubtful of A380 orders.
LEAP vs GTF: Reuters has a story looking at the intense competition between CFM and Pratt & Whitney for the market dominance of the LEAP vs Geared Turbo Fan engines.
The only airplane where there is competition is on the Airbus A320neo family; CFM is exclusive on the Boeing 737 MAX and COMAC C919 and PW is exclusive on the Bombardier CSeries, Embraer E-Jet E2 and Mitsubishi MRJ. PW shares the platform of the Irkut MC-21 with a Russian engine. PW says it has sold more than 5,000 GTFs across the platforms. CFM has sold more than 6,000 across the three models it powers.
On the A320neo family, the competition is 50-50 at this point, with a large number of customers yet to decide on an engine choice. However, 60 A320neos (120 engines) ordered by lessor GECAS never were in contested (GECAS buys exclusively from CFM) and 80 A319/320neos from Republic Airways Holdings (160 engines) were part of a financial rescue package for then-ailing Frontier Airlines.
PW’s joint venture partner, International Aero Engines, shares the A320ceo family platform with CFM. Late to the market, IAE caught up to CFM in recent years.
On platforms where they compete, the sales figures so far show a neck-and-neck competition between CFM and PW.
Update, 12:30: The link has been fixed. Update, 9:30 am PST: Flight Global has this story reporting that PW plans a Performance Improvement Package on the GTF that will further cut fuel consumption by 3%.
CSeries flight testing: Bombardier’s CSeries flight testing has been slow to this point, but it’s beginning to ramp up. Aviation Week reports that FTV 3 should be in the air by the end of this month and FTV 4 should follow in April. FTV 3 is the avionics airplane and FTV 4 focuses on GTF engine testing.
Mitsubishi MRJ: Aviation Week also reports that the Mitsubishi MRJ airplane #1 is nearing final assembly.