Filling the production gap at three OEMs

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Airbus, Boeing and Embraer face production gaps of several years in three key product lines. Two of these, Boeing and Embraer, relate to transitions from current generation airplanes to new derivatives. Airbus faces a large gap for its ambition to continue one popular airliner well into the 2020 decade.

Airbus wants to continue production of the A330 at least to 2022 and perhaps later. Boeing last year launched the 777X to succeed the 777 Classic. Embraer also launched a new derivative, the E-Jet E2, to succeed the E-Jet E1. Based on current production rates, the OEMs’ current backlogs produce the following picture:

Airplane

Backlog

At 12/31/13

Production

Rate Today

Per Month

Current Backlog Ends

EIS of New

Airplane

Production

Gap

A330

267

10

May 2016

2022*

6 yrs

777 Classic

314

8.3

Feb 2017

2020**

3 ½ yrs

E-Jet E1

279

8

Nov 2016

1H2018

1 ¼-1 ½ yrs

* Publicly identified continued production goal

** Boeing says 2020;we assume 1H2020; Market Intelligence indicates Boeing would like to achieve a 2019 EIS.

Leeham Co. Chart. Sources: OEMs.

The key, and obvious, question is what do the three OEMs do to bridge this production gap.

 Embraer arguably is in the best shape. EMB’s chief executive officer told Bloomberg News last week that he sees about 150 E-Jet orders through 2015—but the news report didn’t specify how many might be today’s E-Jet E1 or the re-engined, next generation E-Jet E2. If these 150 turn out to be the E1, the production gap is basically filled. If these 150 are a mix of E1s and E2s, EMB could still have challenges. EMB could, like Airbus and Boeing, combine current and next generation deals into one.

 EMB officials have also gone on record that they won’t cut prices to spur sales of the E1. What else can they say publicly? They are certainly not going to say they’re open to bidding wars, and we’re not at all convinced there isn’t sharp discounting in EMB’s future. Bombardier has famously refused to offer discounts demanded by potential customers and mediocre CSeries sales reflect this. Boeing and Airbus claimed they would maintain pricing on the 737NG and A320ceo families in advance of the re-engined derivatives, but both complained about price cutting by the Other Guy and our Market Intelligence certainly tells us each has engaged in sharp, sharp discounting against each other (and in Airbus’ case, against Bombardier’s Cseries).

 We fully expect Boeing to offer discounted package deals to customers to sell the 777 Classic with the 777X and Airbus certainly expects Boeing will cut the price of the 777 Classic to close the production gap.

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Click this link: Airlines beginning to push for discounts on 777 Classic.

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 Airbus has the greatest challenge: currently a six year gap between today’s backlog and the previously stated goal to maintain production to at least 2022. Airbus has been more successful with the A330 than officials ever expected (helped in no small measure by the 787 program debacle). With a production line long-since paid off (which is also true for the 777 Classic), Airbus has a lot of pricing flexibility (as does Boeing). But while Boeing has a successor product for the Classic, Airbus positions the A330 as a complementary airplane to the A350, not a successor. The launch last year of the A330 Regional is an effort to refresh the line and add sales, but so far none has been announced. Proceeding with an A330neo would breath new life into the program, probably adding 10-15 years to production.

 Another way to bridge the production gap is to reduce rates and spread out delivery dates. But this repositions cash flows and profits, and it’s something we don’t think the OEMs will want to do.

 We think price discounting, as with the 737NG and A320ceo, will be the more likely solution.

 

Airbus, Boeing production backlogs stretch to late this decade, early next decade

Airbus and Boeing production backlogs stretch to late this decade and into the beginning of next decade for most of their commercial aircraft, based on today’s production rates.

We previously wrote about the waning sales of the 777 Classic and the A330. Some mainstream media subsequently examined 777 Classic sales but not the A330 sales.

Both OEMs will be challenged to meet intended production timelines for select currently in-production models.

  • Airbus and Boeing officials each said they plan to build the A320ceo and 737NG families two years into the entry-into-service of the A320neo and 737 MAX families. Airbus’ ceo backlog appears to meet this desire, but the 737NG currently has a backlog that only matches the 2017 EIS of the 737 MAX.
  • Airbus says it plans to produce the A330 into the 2020 decade (most statements suggest until about 2022).
  • Boeing has a 2020 EIS for the new 777X program, but the backlog of the 777 Classic currently extends only to 2017.
  • The USAF wants replacements for its 747-200 presidential fleet in 2021 but Boeing’s backlog for the 747-8 only extends to 2017.

The following chart is based on current backlogs reported by Airbus and Boeing in respective data charts; and it is based on the current production rates of each program. For the new airplane programs, the chart assumes the current production rate and does not take into account the stepped ramp-up for the A320neo, the 737 MAX, the A350 XWB or the 777X. For the latter two, production rates are assumed at the A350′s announce plan of 10/mo and the 777 Classic rate of 8.3/mo. The 787 rate is assumed at 10/mo, although the rate is not quite there yet.

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Boeing in Puget Sound after the IAM 777X vote: bleak, unless something changes

With the rejection last week by the International Association of Machinists Local 751of the Boeing contract offer that would have located the 777X airplane assembly and wing production in Puget Sound (Seattle), the inevitable question arises: What is Boeing’s future here?

Seattle media and state elected officials are worried that if Boeing locates the 777X outside Washington State, and given the toxic relationship between the machinists and Boeing as well as within its own union, that this could be the start of an exodus from the state.

We agree, although we believe it will be a slow, downward spiral, not a rapid exodus–unless something dramatic changes with the current situation.

The chart illustrates our forecast of Boeing’s gradual departure from Puget Sound based on the current set of circumstances.

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DXB13 Day 1: Airbus scores big orders, Boeing launches 777X

From the Dubai Air Show, Day 1:

Airbus

Emirates orders 50 A380s

Qatar orders A330s

Qatar would buy A350-1000 stretch

Etihad Orders A350, A320

Boeing

777 Launched: Boeing New Airplane;

Montreal Gazette, reporting from Dubai

Aviation Week: 787 influence on 777X

FlyDubai orders MAX, NG

Boeing leads Airbus after first day

Other news:

Ilyushin Finance targets Middle East

The Seattle Times has a behind-the-scenes article on the divide between IAM 751 and its International headquarters and within IAM 751.

Boeing has lessons learned from 787 for 777X

The implications of the American-US Airways merger for OEMs

The agreement between American Airlines, US Airways, the US Department of Justice and the states suing to block the merger to settle their lawsuits clears the way for AA-US to merge.

This has implications for the Big Four airframe and the engine manufacturers who have been living in some uncertainty. Here’s the rundown:

Airbus

American and US Airways have large orders with Airbus: American for the A320ceo and neo family and US Airways for the A320ceo family and A350-800/900.

American is taking delivery of the A319ceo and A321ceo. The neo comes several years into the future. American has been taking a large number of A319s, while US Airways have been up-gauging its Airbus single aisle orders, passing on the A319 in favor of the A320ceo or A321ceo. US Airways management, which will take over the New American Airlines, may elect to change the mix within the 18 month lead time limitations.

The more interesting question is what US Airways will do with its A350-800 order. US Airways, along with Hawaiian Airlines, is now the largest customer for the -800. Airbus has been shifting customers from the -800 to the -900 and the -1000, in part to de-risk the program and in part because the larger models are more profitable for Airbus. But some customers elected to switch because the economics of the larger capacity -900 are better than the smaller -800 while operating costs are about the same.

Now that AA and US will combined, the -800 seems surplus when the large order held by American for the Boeing 787-8/9 is considered. The US Airways management could elect to drop the -800 in favor of the 787. Such would unlikely be a total loss for Airbus, however: New American would likely up-gauge to the A350-900 or even the A350-1000, or order more A320neos to keep Airbus “whole.”

Boeing

US Airways hasn’t ordered a Boeing airplane since the days of the 737 Classic or 757/767, and the current management has been retiring all of them as fast as they could. Now they’re solidly back in Boeing territory. “Old” American has a large order of 737NGs and 737 MAXes in addition to the 787 orders. Old American is only taking the 737-800 and the New American will continue this type and probably select only the 737-8 MAX to fulfill that commitment. But we don’t look for any burst of new orders.

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Lion Air’s massive orders continue to raise doubts

The news that Asia’s Lion Air might be planning an order for the Bombardier CS300 energized the media and those that follow the OEM. If Lion Air follows through, this would be a major defection from Airbus and Boeing, which have large backlogs with this Low Cost Carrier.

It would be a major breakthrough for Bombardier.  But there are key questions about the prospective order.

  1. How big will it be? Lion Air’s president was quoted as saying up to 100, but this leaves a huge spread of 10 to 100, presumably in a combination of orders and options. Ten wouldn’t mean much in the all-important momentum/image battle. Fifty would. One hundred would be great. But…
  2. How can Lion Air, a carrier that has spotty financial results and a safety record that earned it banishment from flying to Europe and a raft of accidents within Asia, afford, support and staff another order?
  3. How can Lion Air, with 550 Airbus and Boeing A320 and 737 family jets on order, absorb yet another fleet type?

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Low Cost Carriers dominate Top 10 single aisle customers at Airbus, Boeing

 Low Cost Carriers (LCCs) dominate the backlog of the Top 10 single-aisle customers for Airbus and Boeing, data from the two OEMs show through August.

 

The importance of LCCs to the OEM backlogs has been increasing during the past decade, as has been the shift over the past 20 years from a dominance by US airlines to non-US carriers.

 

The backlog of LCCs today demonstrates the shift toward this sector as well as the shift toward non-US airlines. 

 

 

 

 Boeing 737 (All Models)

 

 

 

Airbus A320 (All Models)

 

1

Southwest

317

18%

 

1

Air Asia

351

21%

2

Lion Air

313

17%

 

2

Lion Air

234

14%

3

American

187

10%

 

3

Indigo

196

11%

4

Ryanair

175

10%

 

4

ILFC

165

10%

5

United

172

10%

 

5

Lufthansa

146

9%

6

Norwegian

162

9%

 

6

easyJet

145

8%

7

Air Lease

151

8%

 

7

American

130

8%

8

GECAS

120

7%

 

8

Qantas

129

8%

9

Delta

100

6%

 

9

Spirit

115

7%

10

GOL

99

6%

 

10

Norwegian

100

6%

 

August 2013

 1,796

 

 

 

August 2013

 1,711

 

 

LCC Total

 1,066

59%

 

 

LCC Total

 1,141

67%

Sources: Airbus, Boeing

 

For Boeing, 59% of the Top 10 single-aisle order backlog is with LCCs–more than 1,000 737NGs and MAXes. Over at Airbus, the dominance of LCCs is even greater: 67% for all A320 family members, including ceos and neos.

 

As we reported last week, Asia’s LCC, Lion Air has more firm orders for single-aisle aircraft than any other customer: 547. Lion Air is said to be planning to place an order as early as year end for a “double-digit” number of Bombardier CSeries. The next closest: the USA’s Southwest Airlines, at 317 737s, and American Airlines, with a combined 317 from Airbus and Boeing.

 

Europe‘s Norwegian has a combined 262 single-aisles on order from the two OEMs.

 

The dominance of LCCs in the backlogs reflect the changing nature of the airline industry, both in terms of service demand but also with the increasing growth in developing nations, with major growth coming out of Asia–the domain of Lion Air and AirAsia. 

 

It also reflects the strategy of flipping aircraft around the end of the maintenance holidays in six or seven years after delivery, which may be a decent strategy for the airline but one which hazards lease rates and residual values and a potential imbalance of supply-and-demand at that sixth or seventh year. With a much greater reliance on LCCs than Boeing, Airbus’ A320s are most at risk on the RVs and lease rates. 

 

Airline Passenger Experience: PEDs, in-flight entertainment, expanding services

Stowage and Retention of PEDs: The US government shutdown will delay rules from the Federal Aviation Administration on the trend toward allowing gate-to-gate use of Personal Entertainment Devices, or PEDs. A special FAA committee sent its recommendations to the FAA on Sept. 30, the day before government operations ground to a halt for non-essential services due to the budget impasse in Congress.

The possibility of allowing expansion of the use of PEDs came up at the Aircraft Interiors Expo-US organized by Reed Exhibitions (Flight Global). We attended on behalf of APEX, the Airline Passenger Experience magazine, and filed several stories with APEX.

Here is one on the PED issue, and the factors that must be considered for the stowage and, more importantly, retention of PEDs. What’s the difference? Stowage is just that. Retention is keeping the PED where it is stowed in the event of an emergency (aka, crash) so the PEDs don’t become flying objects.

Embedded IFE or Bring Your Own? With the proliferation of Bring Your Own Devices (BYOD), the question arises: how long will airlines continue to embed in-flight entertainment systems, and how long with OEMs provide them?

This was one of the questions raised at the Aircraft Interiors Expo in Seattle this week. Here is a story on the subject we did for APEX magazine. Don’t look for embedded IFE to disappear any time soon, and not for reasons you would think.

Expanding passenger experience: Airlines are trying to alter the in-cabin passenger experience (not always for the better, in our view, but we digress). It’s not that easy, given regulations, different vendors and more. Industry experts answered questions about the challenges of integrating in-flight entertainment systems into aircraft. The event was the Aircraft Interiors Expo-US by Reed Publishing. We recorded a couple of short segments that give the flavor of the challenges.

L to R: Jose Pavida, VP Engineering, TIMCO; Zuzana Hrnkova, Head of Aircraft Interiors Marketing, Airbus; Alan Wan, Product Manager, Thales; Sage Secimis, Electrical Engineering Manager, Northwest Aerospace Technologies.

Recordings by Scott Hamilton

737NG-to-MAX production Plans and comparing the 737 with the A320/321

Boeing is gearing up for the transition from the 737 Next Generation to the 737 MAX at its Renton plant in Washington State.

During pre-Paris Air Show briefings at Boeing last month, embargoed until today, Boeing officials detailed how they will transition the production facility in a continuous flow. When Boeing introduced the 737NG, sales of the 737 Classic were terminated. Boeing expects a two year transition period this time, meaning the NG will continue production 2019, two years after the 737-8 MAX first enters service.

The exception will be the P-8A assembly line, which is based on the 737NG and which is in the so-called “saw tooth” building to the west of the primary 737 assembly plant. The saw tooth building is seen at the far right of this Boeing illustration.

Renton 737-MAX Factory Renderings

The primary plant above shows the current NG assembly lines to the left and right. The line on the left produces 21 737s a month and the one on the right will be at this rate next year. The line in the center will initially be the MAX transition line, where the test aircraft will be assembled and the workforce learns the differences between assembling the NG and the MAX, which will have substantial differences compared with the NG.

Eventually, the MAX will fully integrate on the two NG lines.

At previous air show briefings, Beverly Wyse VP and GM of 737 Program, said the center line will have the capacity to match the assembly rates of the other two lines, or 21 per month, giving Renton the capacity to produce 63 737s a month.

At last month’s briefing, Wyse displayed this chart that suggests production rates will maintain at 42/mo from implementation next year.

737 Production

However, we know from our own market intelligence that Boeing is considering sharply higher rates by the end of the decade.

Wyse, in the recent briefing, said the workforce is a key advantage for Boeing with flow-through benefits for Boeing’s customers.

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Leahy skeptical of Boeing plan to add 737 seats, vows to maintain 60% share of neo-MAX sector

 Airbus’ chief operating officer-customers, John Leahy, dismisses the idea that Boeing can add more seats to its 737 family to gain competitiveness over the A320 family.

 In a press briefing in advance of the air show discussing the 737 MAX (not subject to embargo), a Boeing official revealed that the company is considering changes to the galley/aft lavatory design and the use of slim line seats to add 6-9 seats to the entire 737 NG family. These changes would migrate to the 737 MAX. Airbus previously announced similar changes to the A320, gaining three seats, and more recently to the A321—which also required the addition of exit doors—to boost capacity to 236 passengers in shoe-horn configuration.

But in an interview with Leahy, was skeptical about Boeing’s possibilities.

“That’s more problematic, we’ll see,” he said. “Is this the O’Leary option where they stand at the back of the airplane?” he quipped, referring to Ryanair CEO Michael O’Leary, who has proposed a standing seat configuration.

“I’d be very surprised if they did that,” Leahy said, getting back on point. “I don’t know if they could do that (6-9 seats) but remember, we have 236 seats in the A321, so why should I be concerned if they squeeze a few extra seats in? I’d be surprised if they can. I think [the 737-900ER] is at its exit limits right now. It’s also at its performance limits.

Leahy believes that the A320neo will maintain a 60% market share vs the 737 MAX.

“We’re outselling the MAX 2-1 with a 65% market share. We’re not talking about the first couple of hundred airplanes, we’re talking about the first couple of thousand that the neo will have 60% of the market and they’ll have 40%. We’ll give them 40% of the market. It looks right now that the [neo] market will go higher than that but we’ll stay there.”