A320 v 737: the sales winner is….

It’s one of the bitterest rivalries in the industrialized world: Airbus vs Boeing.

Despite being world-class companies, executives at each often snipe at each other’s airplanes, claiming superiority in economics and passenger appeal. Like lawyers arguing a court case, data is typically selectively used to advance the claims.

One of the most hotly debated issues between the two companies is which is the best single-aisle airplane, the ones that fly the most routes in the world and which carry more passengers than any other type: the Airbus A320 or Boeing 737 families.

Boeing’s marketing and communications team has done a superb job of claiming its 737 is the best selling jetliner of all time and with 12,257 firm orders since the first program, the 737-100/200, was launched in 1964. The 737 edges out the A320 family’s 11,021 orders. (These figures exclude options and MOUs.)

But the A320 was launched in 1984, 20 years after the 737. A even-up comparison should begin in March 1984 comparing the A320 family with the 737 Classic from then to the end of the Classic’s production run; and with the 737 Next Generation from its program launch in November 1993; followed by the A320neo and the 737 MAX.

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Odds and Ends: Goldman Sachs on CSeries; Embraer in China; A350 gets FAA certification;

CSeries: Bombardier presented to the Goldman Sachs Industrial conference this week. Goldman’s take:

  • CSeries test flight: BBD believes it can achieve the significant acceleration in flight test hours per month required to get to EIS because more aircraft are moving in to testing and because it did testing during the grounding. FTV4 is supposed to be in the air in weeks, and FTV5 in early 2015. BBD does not see any one or two major challenges remaining in flight test, rather just a need to get through total hours.
  • CSeries demand: BBD says it is on track for its 300 firm order by EIS target. When asked if anything could come from the current Zhuhai Air Show it said it is not a place for signing, and China tends to order in service jets.
  • CSeries impact on P&L: BBD says the CSeries is likely to be dilutive to the P&L as it ramps from unit 1 to full rate production, which could be a near three year process. Early aircraft would be more dilutive than later aircraft.
  • CRJ update: BBD believes they can maintain current CRJ production rates, but will clearly need success in current order campaigns to do so.

Goldman has a Sell rating on BBD.

Embraer in China: Embraer is shifting its sales strategy in China, failing to gain much traction with the mainline carriers, according to Bloomberg. Now it’s going to concentrate on start-up airlines.

EMB appeared at the same Goldman conference as BBD. Goldman’s take:

  • Overall Embraer continues to believe it can keep production relatively flat from current E-Jets to E2. It thinks 2015 and 2016 currently look solid. 2017 is a bit more of a question mark, but the timing of EIS of each E2 aircraft helps – largest E-Jet backlog (E175) has latest E2 EIS, and all aircraft are built on the same line. 2015 delivery mix will be similar to 3Q14 mix. Orders are likely to be in the 5-15 per range, or come from conversion of US options. ERJ says in the scenario where Bombardier does not refresh CRJ, E-Jets could become a substantial piece of the regional jet market, along with Mitsubishi (which it says is a solid aircraft).

Goldman has a Neutral (Hold) on EMB.

A350 certification: Airbus obtained certification for the A350-900 from the Federal Aviation Administration Wednesday.

Odds and Ends: Rescuing a polar bear cub; new turbo-prop, sort of

Rescuing a polar bear cub: Long-time readers of this column know we’re fascinated with polar bears, so when we received the following press release, we couldn’t help but share the story with you.

Mi-26 saves polar bear cub

The crew of a Russian Mi-26 military helicopter from the Eastern Military District Army Aviation airbase saved a baby polar bear from starving to death in the Arctic, after the young bear became separated from its mother.
Polar bear cubThe Mi-26 was carrying out a routine transport flight in the Arctic zone, delivering goods from Anadyr to Wrangel Island, when one of the crew spotted a lone polar bear cub wandering along the Chukotka shore. The crew carried out several sweeps of the area, but there was no trace of the cub’s mother. The decision was therefore taken to pick up the polar bear cub.

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Zhuhai Airshow begins Tuesday: order announcements expected

The Zhuhai Air Show begins next Tuesday and a visit by President Obama to Beijing for a regional summit starts on the last day of the show, Nov. 16. Accordingly, we expect at least some orders to be announced during the show by Airbus, Boeing and perhaps the other airframe OEMs, including the home-grown COMAC, developer of the C919 and parent of AVIC, the developer of the ARJ21.

The Zhuhai Air Show has evolved into China’s premier show. While not on the international reputation and prestige of the long-established Farnborough, Paris and Singapore air shows, it’s become an important must-attend for OEMs and others wanting to do business in China.

Here is our forecast for next weeks’ event.

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Part 3: Boeing 757 replacement: 757 and Airbus A321neoLR versus clean sheet designs.

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By Bjorn Fehrm

Part 3 of 3

Introduction

In Part 2 of our three-part 757 Replacement analysis, we took a close look at Airbus’ new 97 tonne take-off weight A321neo, revealed in a world exclusive by Leeham logo with Copyright message compactLeeham News and Comment October 21. We analyzed the A321neoLR’s capabilities and limitations when compared to Boeing 757-200W and we saw that it could do the international flights that the 757-200 does with about 25% better efficiency. In this final Part 3, we will now compare the 757 and A321neoLR against what can be Boeing’s reaction, a clean sheet New Single Aisle, NSA, or New Light Twin Aisle, (NLT). First the conclusions from Part 2:

  • When using the United Airlines-configured 757-200W international as benchmark, we came within seven seats of the 757 capacity for an A321neoLR. It covered the same range and had trip fuel costs that were 25% lower.
  • The per seat fuel costs gave a 22% higher efficiency, which was within 2% of Airbus own figures.
  • 737 MAX9 is not suitable for stretch to an international version, not because the wing is not good enough but because the MAX9 cannot bring the wing to an angle at take-off where it can work efficiently; the landing gear is too short.

Summary
For Part 3 we can summarize:

  • A New Single Aisle (NSA) or New Light Twin (NLT) which would enter the market in 2025 would be sized at around 200 passengers with subsequent variants covering the 175-225 seat market, all numbers with OEM standard two-class seating. Figure 1 shows the fuselage cross sections we have used in our modelling of NSA and NLT to cover this market segment.

NSA and NLT cross sections

Figure 1. Fuselage cross sections of our models of NSA and NLT. Source: Leeham Co.

  • In order to cover the market segment of the 737, A320 and 757 it would have a range in excess of 4,100nm. We will use 4100nm for our modeling to maximize the comparative efficiency information.
  • Its efficiency would be higher than an A321neoLR, primarily due to better engines and a more modern wing.
  • The New Light Twin (NLT) wins on comfort and ground turn-around time but pays with a larger fuselage cross section due to the extra aisle. This causes more drag and structural weight, net effect is a reduction in efficiency of around 2.5%.

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CASM Paradigm: Lower Seat Mile Cost or Higher Yield; Evaluating the GOL competition

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Introduction

As Brazil’s budget airline GOL reportedly evaluates whether to acquire 20 Boeing 737-7s or Embraer E-195 E2s, the principal of the “CASM Paradigm” is a concept worth examining.

Leeham logo with Copyright message compactThis head-to-head evaluation of the E-195 E2 and the 737-7 MAX is a rarity. Typically the head-to-head involves the Bombardier CS300 and the Airbus A319neo. All three have the same seating capacities. The E-195 E2 has slightly fewer passengers than the 737-7 with similar seat pitch.

The competition is also what might be seen as a contrary competition. Airframers agree: the airline industry is upgauging. Capacity discipline, long elusive until after the global financial collapse of 2008, has been driving load factors higher. But lowering unit costs, or the Cost per Available Seat Miles (CASM) has long been the principal measure by which airlines, OEMs and aerospace analysts measure efficiency.

Although Trip Costs of aircraft operating over a route is important, the trend toward upgauging at all levels clearly is the driving force.

It's an age-old debate: the cost per available seat mile (CASM) vs trip cost. CASM typically wins, and the airline industry is migrating toward larger aircraft. Embraer, not surprisingly, thinks this has gone too far. Graphic: Embraer, reprinted with permission.

Figure 1. It’s an age-old debate: the cost per available seat mile (CASM) vs trip cost. CASM typically wins, and the airline industry is migrating toward larger aircraft. Embraer, not surprisingly, thinks this has gone too far. Graphic: Embraer, reprinted with permission. Click on image to enlarge.

Embraer takes a different view, arguing that trip costs and a smaller airplane should trump the CASM obsession. A smaller airplane will mean higher yields, EMB says. A larger airplane provides lower trip costs but drives yield lower.

We visited Embraer’s headquarters earlier this month and received a full briefing on what EMB calls the CASM Paradigm. In our report today, we detail the presentation and discuss other considerations beside CASM vs Trip Costs that drive the size of the aircraft acquired.

Summary

  • The CASM Paradigm becomes a vicious, circular cycle, driving airlines to larger aircraft but lower yields.
  • Extra seats on larger aircraft mean lower unit costs but at the cost of profits.
  • Scope Clauses remain an issue in the US.
  • Connecting traffic, pay scales also are issues.
  • We analyze the operating costs of the E-195 E2 vs the 737-7.
  • We discuss the GOL competition.

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Odds and Ends: MTU on A380; lessons learned; Alaska Air v Delta; GOL looking for airplanes; Boeing downgrade and upgrade

MTU on A380: The German company MTU, which is a key supplier on a variety of Airbus and Boeing engines, questions the potential market for an A380neo, according to this article from Reuters. Our Market Intelligence indicates Airbus is moving toward a re-engined airplane, although an Airbus official denied this to us this week. Reuters’ sources suggest work is ramping up.

Tapping lessons learned: The Puget Sound Business Journal has a somewhat different approach to the story earlier this week on the groundbreaking for the Boeing 777X wing factory. Steve Wilhelm focuses on Boeing’s tapping of lessons learned on the 737 and 787 programs.

Alaska Air v Delta Air: Months and months ago (almost a year), we were the first to write that hand-wringing over Delta Air Lines’ growth at Seattle, viewed as a major run at Alaska Airlines, was over-wrought. The growth was to support Delta’s growing international hub and while the growth came on many Alaska routes, Alaska’s dominance would prevail. A few months later, we pointed out that Delta’s growth was coming at the expense of Southwest and United airlines; Alaska was solidifying its position. (It also posted record 3Q earnings this week.)

The Puget Sound Business Journal has this story about how the three generations of the Boeing 737 is helping Alaska face off Delta.

GOL looking for planes: Brazil’s GOL is looking at the Boeing 737-7 and the Embraer E-195 E2 to renew its 737NG fleet, according to this Bloomberg report. Next week we’ll be taking another in our series of looks at EMB’s approach to the market with a discussion of the CASM Paradigm.

Boeing downgrade and upgrade: Credit Suisse yesterday downgraded Boeing from Outperform to Neutral (Buy to Hold) on the basis of 787 deferred costs and lower free cash flow. Wells Fargo reiterated its Hold rating. Zacks went from Neutral to Buy. Stern Agee reiterated its Buy.

E-Jet, the project that shaped Embraer

By Bjorn Fehrm

Introduction

In a recent visit to Embraer in Brazil we got a thorough brief on the background and decision making around the E-Jet and E-Jet E2 programs. We have written about these programs before but we will now cover how they came about, what was the program objective when the decision was taken and how it panned out. Both programs have had and will have a profound influence not only on Embraer but the whole civil aviation segment between 70-150 seats. It is worth looking into how Embraer, once an also-ran in the regional market, rose to the top three spot in civil aviation after Airbus and Boeing and how EMB intends to stay there.

Summary

  • American Airlines was part of changing history in regional jets, long before in single aisle.
  • E-jet started as a product program and soon put Embraer on a steep learning curve how to support an E-jet in the market above 50 seat regional jets.
  • Embraer today rates their support second only to Boeing and Airbus.
  • The requirements for the mid-life update of their E-jet, the E2, is all about delivering a mature product. This has shaped all aspects of the program, from cooperation with suppliers to how testing and qualification is done.

KLM E-jet

Figure 1. KLM Cityhopper E-jet taking off. Source: KLM

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Mitsubishi rolls out MRJ90

Mitsubishi rolled out its MRJ90 regional jet, the first passenger airliner to be produced in Japan since the YS-11 turbo-prop in 1962.

The MRJ90 challenges the Embraer E-175/190 and E2 and the Bombardier CRJ900. The smaller MRJ70 won’t be developed until after the MRJ90 is well on its way. The MRJ90 faces six months of ground testing before the first flight test. Entry into service is now scheduled for June 2017, some four years late.

The MRJ90 is a 2×2 configuration with 18 inch wide seats and aisle, making it nearly as wide as the E-Jets, which are fractionally wider. The MRJ will have better passenger comfort than the CRJ, a ground-breaking airplane in its day but increasingly outmoded when it comes to passenger comfort.

The Mitsubishi is a clean-sheet design, but Embraer claims its new E-Jet, with a new wing, the same Pratt & Whitney GTF engines, a new fly-by-wire system, a smaller tailplane, and aerodynamic improvements, will nonetheless beat the MRJ’s economics.

Regardless, we believe the MRJ and Embraer will dominate the 70-99 seat market. BBD’s share of this sector continues to decline. The Sukhoi SSJ100, while posting reasonably good orders, is and will remain handicapped by its Russian lineage and overhang of Russian politics. Production and delivery rates haven’t lived up to promises.

Mitsubishi, while discovering that being an airplane integrator is much more difficult than being a supplier (it designed and built the wings for the Boeing 787, which produced challenges in its own right), should in the end produce a solid airplane.

The company has been looking into this long enough. We recall that at least 15 years ago Mitsubishi made the rounds of US regional airlines getting input about what a new airplane might be. At that point, the 50-seat market was still viable. We were retained by a consultant to Mitsubishi to facilitate a meeting with a regional airline–so we know how far back this goes, and what Mitsubishi was asking. (We thought at the time Mitsubishi needed to go “up,” rather than do a “me too.”)

Mitsubishi has already talked about an MRJ100, but there are no firm plans.

Indigo order raises questions of demand in India, elsewhere

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Introduction

The Indigo order announced this week for 250 Airbus A320neos raises once again questions of whether Indian airlines in particular and the greater Asian region in general are over-ordering airplanes.

We’ve written in the past that we believe Asia and India are dicey markets for which a shakeout is yet to come.

The USA entered deregulation in 1979/80. There was a proliferation of new airlines that started service–by some counts, more than 200. Nearly all failed through a combination of poor business plans, under-capitalization, mergers, economic and travel collapses due to Middle Eastern wars, fuel price hikes and other factors.

Even legacy airlines collapsed. Eastern Airlines, Pan Am, TWA and Braniff–all storied names in US commercial aviation–are gone. (The new Eastern Airlines hopes to start service this year, 23 years after the original one ceased operations.) Northwest Airlines and Western Airlines merged out of existence.

The US airline industry is down to American, Delta and United as the holdovers from a by-gone era. Southwest Airlines now carries more domestic passengers than any of these legacies. Alaska Airlines remains. jetBlue, Spirit Airlines and Frontier Airlines are a new breed of Ultra Low Cost Carriers (ULCC).

In Europe, a shakeout of airlines has occurred but arguably it has hardly gone far enough. During our trip last week to Brazil to visit Embraer, officials pointed out that there are 40 airlines in Europe serving a market similar in size to the USA, where essentially there are 10 carriers.

In Asia and India, the shakeout is only beginning.

Summary

  • Shakeout of airlines in US has occurred.
  • Shakeout in Europe has occurred, but it hasn’t gone far enough.
  • Shakeout in Asia is only just beginning.
  • “LCC Evolution” is shrinking.
  • ASEAN region is over-ordered.

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