By Bjorn Fehrm
Part 3 of 3
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 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.
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.
- 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%.
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.
This 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.
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.
- 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.
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.
By Bjorn Fehrm
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.
- 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.
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.
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.
- 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.
Embraer is now the #3 commercial airplane manufacturer, after Airbus and Boeing and supplanting Bombardier, capturing 50% of the orders and 60% of the deliveries in recent years.
We examined the relevancy of the 100-149 seat sector Monday. Embraer is playing an increasingly important role in this sector.
The Brazilian company entered the regional jet field after Bombardier, designing its ERJ (Embraer Regional Jet) to go up against the BBD CRJ (Canadair Regional Jet), at a time when the latter created an entirely new market.
Deciding that the ERJ was no longer competitive, EMB rolled the dice and in the 1990s designed a clean-sheet jet, the E-Jet, that brought mainline cabin standards to the 70-120 seat sector.
More recently, with its CRJs outclassed by the E-Jets, Bombardier took the gamble and designed a clean-sheet CSeries for the 100-149 seat sector, a decision that still draws controversy. With the E-Jet facing economic obsolescence by BBD’s move, this time Embraer decided to bypass a new design and went with an extreme makeover, the re-engined, re-winged E-Jet E2.
- Embraer’s E-Jet E2 is less than 50% common to the legacy E-Jet.
- EMB claims the E2 is as efficient as a clean-sheet airplane for a fraction of the cost to develop.
- EMB has more than 500 orders and commitments for the new E2.
- Airbus, Boeing are also-rans in the 125-149 seat sector.
- Mitsubishi, Sukhoi gaining strength.
Leeham News and Comment (LNC) today launched a Premium subscription plan as a companion to free content.
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.
Embraer is days away from the roll-out of its biggest airplane project yet and one that has the potential to make its biggest inroads yet into the global defense market: the KC-390.
The airplane, with a fuselage cross-section the size of the Boeing 767, challenges the Lockheed Martin C-130, a venerable aircraft that has been updated throughout the decades since it first entered service in 1956. Despite this modernization, Embraer believes the time has come for a modern design and a multi-mission capability that far surpasses that of the C-130, with higher productivity of a jet aircraft vs a four-engine turbo-prop.
- Embraer sees a market for 728 KC-390s in 77 countries, excluding the US, Russia, China and Europe.
- The KC-390 is half the price of the Airbus A400M and about the size of the Lockheed Martin C-130.
- Launched with paid development and an order for 28 aircraft from Brazil to fulfill the country’s unique requirements.
- Typical mission capabilities will be: Cargo 7 pallets, Displacement of 80 soldiers, air dropping of 86 paratroopers, transporting 1 Black Hawk helicopter or one LAV25 or 3 Humvees, Rescue missions, Air tanking of 2 aircraft or helicopters.
- The KC-390 flies at M0.8 and will therefore finish missions in two thirds the time of the C-130 Hercules (which flies as M0.5). This will also result in more missions flown per day i.e. more airlift capacity.
The 100-149 seat market sector has long been criticized as irrelevant because of a string of poor-selling aircraft. Boeing officials even labeled this a Bermuda Triangle. The critics fail to recognize, however, that except for the Bombardier CSeries and the Embraer E-195 stretch based on a clean sheet design, there hasn’t been an airplane specifically designed for this sector since 1983. That was the British Aerospace BAe-146, which despite being powered initially by poor engines and having a cramped cabin, sold moderately well.
The early derivatives, the Boeing 737 Classic, and the McDonnell Douglas MD-80, did well. (The MD-80, while capable of seating up to 172 in shoe-horn configuration, was principally operated within the 130-150 seat layout.) But as fuel prices increased, derivatives began to lose their appeal because they weren’t optimized for the market. Engines then in use couldn’t keep up with the rising cost of fuel and airframes designed in the 1960s/70s/80s were no longer aerodynamically efficient as required for the changing fuel environment.
• Until the Bombardier CSeries and Embraer E-Jet, there hadn’t been an airplane specifically designed for the sector since 1983.
• Engine technology and airframe aerodynamics didn’t keep up with the demands of rising fuel prices for derivative designs.
• Airbus and Boeing are ceding the sector.
• Bombardier and Embraer will “own” the sector.
• There is a valid market for the 100-149 seat sector.