Odds and Ends: Safran benefits from engine after-market; ExIm could back Airbus; Paine Field future

Engine After-market: Safran, which owns 50% of CFM International with GE Aviation owning the other half, is positioned in the “sweet spot” of the engine after-market, according to a recent  report by Bernstein Research.

The report further supports our own analysis posted August 25 and the growing importance of MRO support in winning engine orders.

According to Bernstein, Safran “has the best positioning in the aircraft engine after-market” in the investment bank’s coverage. This position is “driven by two engine families with strong growth ahead and low exposure to older engines that are at risk of early retirement.”

Bernstein notes that more than 95% of Safran’s after-market sales are derived from the CFM56, which powers 75% of the narrow-bodied aircraft, and the GE90, which powers the Boeing 777-200LR/LRF and 777-300ER.

Future programs include the CFM LEAP, GEnx and GP7200. Past programs, in decline, are the first generation CFM56 and the CF6 on earlier wide-bodies.

ExIm and Airbus: In a statement surely to inflame those opposed to renew ExIm Bank authority, the president of the bank said it’s possible it could back funding of the Airbus A320 family built in Mobile (AL).

Paine Field future: It’s a little parochial but The Everett Herald has an article looking at the future of Paine Field, where Boeing’s wide-body airplanes are assembled. The article necessarily looks at the future of the Boeing 747, 767 and 777 Classic production.

Congress is now talking about a nine month extension of ExIm.

 

 

 

After-market support becoming key to winning engine orders

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.

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No more moonshots stifles innovation

Boeing CEO said there will be no more “moonshots” at Boeing when it comes to future airplane development. Airbus says it will focus on derivatives rather than new airplanes.

After the program debacles of the Airbus A400M and A380 (plus the development cost of the A350) and Boeing 747-8 and 787, we can appreciate the sentiment. However, Boeing CEO Jim McNerney’s statement that doing a new airplane every 25 years is, essentially, bad policy, is disheartening.

Boeing used to be the shining example in the US of innovative technology: The B-17, B-29, B-47, B-52, 707, the versatile 727, the 747, the ETOPS 767, the incredibly reliable 777 and now the 787 (even as troubled as it has been). The 737, best-selling airplane that it is, was not a ground-breaking technology and neither was the 757. But each became solid stable mates in the 7 Series line up.

Airbus also offered ground-breaking technology and concepts. Fly-by-wire. Common cockpits across the family line. Re-engining the A320 family (forcing a reluctant Boeing to do the same with the 737). A technologically impressive A380, even if it’s hardly been the sales success Airbus hoped for.

Innovation and the willingness to taking industrial-leading chances make a company great.

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Looking ahead to 2014

Here’s what to look for in 2014 in commercial aviation.

Airbus

A350 XWB: The high-profile A350 XWB program continues flight testing this year. Entry-into-service has been a sliding target. The program is running about 18 months behind original plan and EIS was intended for mid-year following initial delays. Even this has slipped, first to September and then to “the fourth quarter.” Currently first delivery is scheduled in October to launch customer Qatar Airways, which is slated to get four A350-900s this year. Emirates Airlines is listed as getting two of the total of six scheduled for delivery.

A320neo: Lost in the shadow of the A350 program is the A320neo. Final assembly of the first aircraft is to begin in the spring and first flight, followed by testing, is scheduled for this fall. The Pratt & Whitney Geared Turbo Fan is the initial variant. First delivery is scheduled in the fall of 2015.

Others: Airbus continues to evaluate whether to proceed with developing an A330neo. Based on our Market Intelligence, we expect a decision to proceed will come this year. Concurrently with this, we expect most if not all of the remaining 61 orders for the A350-800 to be upgraded to the A350-900 and the -800 program to be officially rescheduled if not dropped. The -800 is currently supposed to enter service in 2016, followed by the A350-1000 in 2017. But recall that as delays mounted on the A350-900, Airbus shifted engineers to the -900 and the -1000 at the expense of the -800. Salesmen have consistently shifted orders from the -800 to the larger models. We long ago anticipated the -800’s EIS would be rescheduled to 2018, following the -1000. The -800’s economics aren’t compelling enough just justify the expensive list price. So we expect Airbus to upgrade the A330 to a new engine option, using either or both of the Trent 1000 TEN and GEnx with PIPs (Performance Improvement Packages) or with some modifications. EIS would be about 2018. This precludes Pratt & Whitney from offering a large version of the Geared Turbo Fan, which wouldn’t be ready by then.

We also expect Airbus and the engine makers to look at re-engining the A380, driven by desires of Emirates Airlines to see a 10% economic improvement. Emirates announced an order for 50 A380s at the Dubai Air Show but instead of ordering the incumbent engine from Engine Alliance for these, Emirates left the engine choice open. This leaves open the possibility the A330neo and the “A380RE” could share an engine choice.

Boeing

After many years of turmoil, 2014 should be quiet for Boeing (now that the IAM issues have been resolved—see below).

787: Barring any untoward and unexpected issues, Boeing seems at long last to be on an upward trajectory with this program—but we’ve said this before. There are still nagging dispatch and fleet reliability issues on the 787-8 fleet to resolve, but flight testing of the 787-9 appears to be going well. Certification and first delivery should come without trouble this year, to launch customer Air New Zealand.

737: Nothing to report on the Next Generation program except ramp-up to a production rate of 42/mo is to take effect this year. Development continues on the 737 MAX.

Others: The 777 Classic is humming along. Now that the 777X is launched, we’ll be closely watching sales for the Classic; Boeing has a three year backlog but six years to 777X’s EIS. How is Boeing going to fill this gap, and what kind of price cuts will be offered to do so?

The 747-8 continues to struggle, barely holding on. Boeing says it thinks the cargo market will recover this year, boosting sales of the 747-8F. We’re dubious.

The 767 commercial program continues to wind down. The 767-based KC-46A program ramps up.

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Production wars coming: Airbus v Boeing

If some industry observers are concerned about the prospect of over-production now, the current state of affairs may only be the tip of the iceberg.

Airbus CEO Fabrice Bergier says he expects to boost production of the A320 and A350 families over the next few years, overtaking Boeing by 2018.

Airbus currently produces the A320 at a rate of 42 per month. The A330 rate is 10/mo and the A380 at 3/mo. Production of the first customer-destined A350 is to begin by the end of this year, with a targeted delivery in the second half of next year. Ramp-up to an initial production target of 10/mo is planned over a four year period, but the wing factory in Broughton, Wales, has a capacity for 13/mo, inferring a greater rate is already planned. Airbus is considering a second A350 production line, largely focused on the A350-1000.

Boeing currently produces the 737 at 38/mo, going to 42/mo next year. The 777 rate is 8.3/mo and the 747-8F/I rate is 1.75/mo. The 767, driven by the USAF tanker, is 1.5/mo. The 787 is ramping up to 10.mo, with a target by year end, but we believe this will be more likely in Q12014.

Boeing has notified the supply chain to consider higher rates for the 737, 767 and 787. We posted the chart below last June, reflecting the higher planning rates.

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Boeing’s future in Puget Sound, Washington–maybe Airbus, too

Yesterday we opined that the Boeing “exodus” from Washington State is a tad overblown so far. Here’s why we think so.

  • As long as the airplane programs are derivatives of in-production aircraft, Puget Sound’s place in aerospace is solid. We don’t think the 777X will be assembled anywhere but here, just as MAX–a derivative of the 737 NG–was certain to be assembled here (and it was). The debate, such as it was, over where to assemble the MAX was in our view nothing more than making the airplane a pawn in the labor dispute with IAM 751 and the NLRB lawsuit over the second 787 assembly line. IAM dropped the suit in exchange for the MAX. Or so it appeared.
  • So what if the 787-10 is assembled in South Carolina? Boeing has to take production to 14 a month, in our view, in order to accommodate the 787-10 and to open up delivery slots for the 787-9 and 787-8. We think this means seven 787s a month at Everett and seven at Charleston.
  • Demand for the 737NG and 737 MAX is such that Boeing has to take production rates higher. The Renton factory has the capacity for 63/mo.
  • Demand for the KC-46A tanker may boost rates on the 767 line. Also, as we previously reported, Market Intelligence tells us FedEx is preparing to order the civilian freighter version of the KC-46A, the 767-2C. This also means higher rates.
  • In fact, our Market Intelligence tells us Boeing is already reaching out to the supply chain to plan on production boosts for the 737, 767 and 787 lines.

Production Rates

Source: Leeham Co. Market Intelligence. 777 and 747 rates not included.

Will Boeing continue to shift jobs from unionized Washington to non-union states? You betcha. But if these production rates come to pass (and the supply chain will have to gear up to meet these rates), not only will Boeing be adding jobs but so will the suppliers.

Airbus is talking to suppliers about similar rate hikes. For Washington, this means more jobs, to0, because our state is the No. 2 US supplier to Airbus by company count.

The Seattle Times reports that Airbus may consider opening an engineering center in Washington.

Note the comment about the USAF tanker in the story. We asked Gov. Jay Inslee about his relationship with Airbus during a conference call Wednesday, the final one held by the State to recap its daily activities at the Paris Air Show. Inslee bowed out of the trip to deal with Washington’s lack of a budget.

When he was in Congress, Inslee was one of the most vociferous opponents of the Airbus/EADS bid for the USAF tanker in competition with the Boeing KC-767. Inslee introduced legislation to require the Air Force to take into account WTO findings that Airbus received illegal subsidies for the A330, the plane on which its tanker design was based. Even the US Trade Representative’s office said such legislation violated WTO rules and the effort went nowhere.

Inslee’s efforts at the time offended Airbus officials, who were considering holding a suppliers fair in Washington, which is the No. 2 US supplier to Airbus. Because of the vitriolic opposition by Inslee and other members of the Washington delegation, Airbus shelved consideration of the fair.

We asked Inslee Wednesday how he might mend fences now that he is governor, seeking to expand our supply chain business with Airbus. Inslee was beginning to answer when US Rep. Rick Larson, who was leading the State’s Paris Air Show delegation in Inslee’s absence, interrupted to say he had talked with McArtor, who said the tanker wars were over.

Airbus has a suppliers event scheduled here next month.

Looking ahead to 2013 in Commercial Aviation

Last year yielded a few surprises in an otherwise predictable year.

Jim Albaugh shocked the aviation world when he retired unexpectedly at age 62. He was expected to remain in his position as CEO of Boeing Commercial Airplanes until mandatory retirement at 65.

EADS CEO Tom Enders unleashed a surprise merger proposal with BAE Systems. The deal didn’t work due to German government opposition, but he ultimately accomplished a governance restructuring—a key objective of the merger—that will reduce government meddling in the future.

Those were about it. Boeing’s much-anticipated Authority to Offer the 777X didn’t happen. ATO for the 787-10 was stealthily granted. Airbus and Bombardier, to no surprise, delayed the A350 and CSeries by a few months. Boeing came roaring back to become sales leader for the first time in about a decade, on the strength of 737 MAX sales.

What’s ahead for 2013? Here’s what we see.

Overview

With the spurt of 737 MAX sales over, narrow-body sales competition between Airbus and Boeing should return to normalcy. Will twin-aisle sales become the next growth market because of the first flight of the A350 and the program launch of the 7870-10? Will ATO of the 777X evolve into a program launch as well? Will Bombardier’s first flight of the CSeries and subsequent testing validate its claims for the new technology airplane and finally spur a large number of sales of the “show me” crowd?

Here’s our OEM-by-OEM rundown.

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Odds and Ends: Airbus and Boeing BBJs; Oops by Sen. Cantwell; positive SPEEA talks

MAX BBJs: Boeing is offering 737-8/9 MAX BBJs but not, as yet, a 7 MAX BBJ. Boeing says it is still studying a 7 MAX BBJ. there have so far been no orders for the 7 MAX.

Airbus ACJ A318: Airbus says it’s offering an enhanced A318 Airbus Corporate Jet. Improvements are mainly to the interior, though the press release says, “These include Sharklets on the wingtips, which make the aircraft look nicer….” The Boeing and Airbus announcements were at the NBAA trade show.

Oops by Cantwell: Sen. Maria Cantwell (D-WA) is running for reelection. One of her TV ads is called The Hub, in which she promotes Washington State as the Hub for aerospace and her work in Congress on behalf of Boeing.

Only there was a big Oops in the first version: it opened with stock footage of US Airways Airbus A320s. Not only were these not Boeing airplanes, US Airways hasn’t ordered a Boeing since Steve Wolf was CEO–nor has America West, now combined with US Airways, ordered a Boeing aircraft since the 757.

The ad ran for some time on KING 5 (NBC-Seattle) until it was scrubbed and replaced with opening stock footage of a Boeing 767.

All YouTube videos containing the Airbuses have been “removed by the user.” Here is the revised ad.

Someone in Cantwell’s campaign really muffed this one.

Positive SPEEA talks: Last Friday, Boeing and SPEEA each released statements indicating negotiations have taken a positive turn. The Seattle Times sums it up here.

The mid-size, twin-aisle battle

The mid-size twin-aisle battle

While a plethora of new entrants are nipping at the heels of Airbus and Boeing in the single-aisle market, the battle in the twin-aisle segment is strictly between the two behemoths.

The two OEMs differ on the size of the market by a wide margin. Airbus, in its 2011 20-year Global Market Outlook, the most recent available, forecasts a need for 6,525 twin-aisle airplanes: 4,518 “small” twin aisles and 1,907 “large” twin-aisles. Boeing, which does not publicly distinguish this segment, forecast a need for 7,950 twin-aisles. This is in the 200-400 seat segment (Airbus uses 210-400 for its forecast).

Given their methodology differences in the total market forecast, both nonetheless come to the same market share—24%–of the mid-size, twin-aisle segment.

The line-up is:

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Understanding appraisers in aircraft values

There has been an active discussion in the comment section on the “Rate 35” post and the relative merits of appraisals and appraisers with respect to the Airbus A320 and Boeing 737NG.

We’ve been involved in the airline business since 1979 and from 1990, when we co-owned Commercial Aviation Report (CAR), have followed the appraisal business. Given the discussion in “comments,” we think a dedicated post is worthwhile.

CAR created the industry’s first commercial appraisal conference in 1990. ISTAT–the International Society of Transport Aircraft Traders–at that time was still largely a small, professional organization, far difference than what it is today.

CAR’s first conference brought together nearly every appraisal company then in existence in the US to compare and discuss appraisals of what was called Enhanced Equipment Trust Certificates (EETCs) and appraisals published by the firms.

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