GE analysis post Farnborough

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 Boeings $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”. Continue reading

Odds and Ends: Some FAS leftovers–a big CSeries order?; EMB lands 60; and more

Farnborough Air Show leftovers:

Big CSeries order coming? Flight Global reports that lessor Macquarie Airfinance is about ready to sign a deal for 50 Bombardier CSeries. If true, this would be a major departure for the lessor, which historically hasn’t placed speculative orders–and it would be a major boost for Bombardier. The Flight Global report doesn’t say if this would be 50 firm or a combination of firm and options. BBD and MAF didn’t comment for Flight. We reached out to MAF and received this response:

“The Flightglobal release was concocted on a rumour and we don’t comment on rumours. You know how it is with lessors. We’re constantly considering every aircraft type that could provide us with value-adding opportunities.”

Bombardier has been selling the CSeries in small numbers, often to second or third tier, and even start-up carriers, a path Boeing took in the early days of the 737-200 program. Airbus relied heavily on lessors for early A320 orders. Boutique lessor LCI was a launch customer for the airplane, and Falko Regional Aircraft Leasing became a customer at FAS.

BBD now has 513 orders and commitments for CSeries.

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Farnborough Air Show, July 15: Orders summary

Here are the orders and commitments announced today that we saw–there could be others we haven’t seen:

  • Airbus: Avolon (a lessor) ordered 15 A330neos; CIT Aerospace, MOU for 16 A330-900s, five A321neos; SMBC Aviation (lessor), 110 A320neo and five A320ceo aircraft; BOC Aviation, 36 Airbus A320ceo and seven A320neo family 17 of which will be fore the A321 family; AirAsiaX, MOU 50 A330-900s.
  • ATR: Air Lease Corp. purchased seven ATR-72-600s.
  • Boeing: Intrepid Aviation, 6+4 777-300ERs; Air Lease Corp, six 777-300ERs, 20 737-8s; CIT Aerospace, 10 787-9s.
  • Bombardier: One Q400 from Horizon Air; revealed an unidentied customer, Abu Dhabi Aviation, for two Q400s; LOI from Falcon Aviation for five Q400s.
  • CFM: Air Lease Corp. ordered the LEAP-1A for 20 A320neo family aircraft.
  • Embraer: Azul Air, LOI for 30+20 E-195 E2 (and becomes launch customer for this sub-type); Fuji’s Dream Airlines, 3+3 E-175s, a previously unidentified customer.
  • Mitsubishi: six MRJ90s from Air Mandalay.
  • Pratt & Whitney: SaudiGulf Airlines orders the V2500 to power four A320ceos; Philippine Airlines executes a previous LOI to a firm order for the GTF for 10 A320neos; BOC Aviation, V2500 for eight of the A320ceo family listed above; International Airlines Group (Vueling Airlines), V2500 for 30 A320ceo family.
  • Viking Air: Air Seychelles, two Twin Otters.

Items of note:

  • Airbus’ John Leahy says he expects a total of 100 A330neo orders from FAS;
  • BOC Aviation endorsed the launch of the A330neo but didn’t (yet) order any.
  • Boeing said its new 777X will have a cabin altitude of 6,000 ft, the same as the 787, larger windows than its 777 Classic and the A350; features borrowed from the 787 and many that go beyond the 787 passenger experience; and lower noise.
  • Bombardier launched its Q400 Combi, seating 50 passengers and carrying 8,200 lbs of cargo.
  • Steven Udvar-Hazy, CEO of Air Lease Corp, which has a large order book for the ATR-72-600, says, the Q400 is a good aircraft, but “much more expensive to operate” vs ATR. [However, that's at the Q400's high cruising speed. If it's throttled back, the operating costs are said by BBD to be comparable.--Editor.]

Farnborough Air Show, July 15: E-Jet program analysis

Embraer Monday at the Farnborough Air Show revealed its new interior designed the for E-Jet E2, the re-engined and re-winged airplane scheduled to enter service in 2018 through 2020 in the 195, 190 and 175 subtypes each year.

We had the opportunity to preview the prototype for this interior in May while visiting EMB’s Florida offices, but the viewing was put off the record in anticipation of the FAS reveal. We were impressed.

The YouTube video linked above shows the most notable feature at about 1:45: the staggered first class section. For anyone who has flown the current generation E-Jet, you will know that first class is 1×2, a reduction in the 2×2 coach seating. We’ve always complained that the overhead bin on the one-seat side was reduced to a fairly useless size (we joked that it barely could accommodate a water bottle). The design for first now allows for 2×2 seating.

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Next new, clean sheet airplane around 2030, says Airbus

Airbus currently is planning for the next new, clean sheet airplane around 2030 and now are focusing on incremental improvements to the existing product lines, officials said at the Innovations Days annual media briefing last week in Toulouse.

Fabrice Bregier, CEO of the Airbus commercial aircraft unit, said that “innovation is on a case3-by-case basis,” with a successor to the A320 family requiring an engine “with great benefit.” He did not define this, but previously Airbus indicated a successor needs a combined 30% airframe/engine improvement to make an entirely new airplane design worthwhile.

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PW works toward 10% fuel efficiency gain for 2020’s GTF

With the Airbus A320neo expected to enter flight testing this fall, equipped with the Pratt & Whitney P1000G Geared Turbo Fan and the Bombardier CSeries, also with the GTF, already in testing, PW is already engaged in research to improve fuel efficiency by up to 10% by the middle of the next decade.

During the PW Media Days last month, we sat down with Robert Saia, vice president of Next Generation Product Family, to discuss how this will be accomplished.

Saia describes what he calls a 10-year technology road map PW follows in its development process.

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Airbus Innovation Days, Part 3: the A320neo

Klaus Roewe, SVP of the A320neo Family:

There are 2,700 A320neos in the backlog. Roewe provided a program update during the Airbus Innovation Days. Here is a paraphrased synopsis.

  • The first flight remains on target for 3Q2014. Final assembly began in the spring.
  • No further modification will be required to meet the target of 15% fuel burn improvement.
  • The GTF has been delivered to Toulouse; the LEAP-1A is in testing at the CFM factory.
  • Production rate is shown at 46/mo from mid-2016 through 2019.  We are investigating rate 50 and above.
  • Within the supply chain, the first NEO components are 70% better than target. More than 2,000 lessons learned from the A380 and A350 are incorporated into the NEO program. We are already testing control laws for the neo, a lesson learned from previous programs.
  • Airbus has discussed with regulators to determine that evacuation of the A320 for up to 200 passengers is possible but a configuration of 189 passengers is more feasible.
  • Maximum capacity A321neo (240 pax) reduces per-seat fuel cost by 6%.
  • Slim line seats at 28 inches feels like 30 inch seat pitch.
  • A321neo could carry 25 more passengers on a 2,500nm route departing Phoenix or Las Vegas, two hot airports that were challenging for the A321ceo (based on the CFM56 engine).
  • We are “well below” weight targets.
  • Meeting 95% commonality target.
  • There has been an increase of airlines configuring the A321 with more than 200 seats from 5% to 40%, which drove the larger-capacity design of the A321neo.
  • Flap extension will go up from 27 degrees to 34 degrees, and some changes to spoilers will be incorporated into the neo.

Airbus Innovation Days, Part 2: No order bubble and a lot more

Airbus lifted the embargo on John Leahy’s presentation, allowing immediate publication.

There is no aircraft order bubble, says John Leahy, COO-Customers of Airbus. Emerging markets and passenger traffic doubling every 15 years, bolstered by GDP growth, means orders will hold up, he said, leading off the Airbus Innovation Days Tuesday.

Highlights of Leahy’s address:

  • There are 42 mega cities accounting for 99% of the long-haul traffic. Aircraft size is moving up and in 15 years, Leahy says RPKs will double, requiring aircraft like the A380.
  • Leahy predicted the A320neo will maintain a greater market share than the Boeing 737 MAX of about 60%-40%.
  • He claims the A320neo is 1.6 tons lighter than the 737 MAX.
  • Leahy said the A320neo and A321neo now seat 189 and 240 seats respectively (in maximum capacity configuration). The former matches the 737 MAX and the latter has 25 more seats than the 737-9.
  • He predicts China will become a competitor in 25 years.
  • The competitor to the 787-10 is the A350-900 at 331 pax vs 315 pax with more range and cargo capability or derating the A359 gives a lighter aircraft at the same range.
  • The 35 more seats of the 777X means the larger airplane than the A350-1000 is 35t heavier than the latter aircraft.
  • The A380 hasn’t been fully optimized by many airlines; it could easily take 50 more seats.
  • The A330neo is an interesting idea; we have to look at the money we have to spend and cannibalizing our A350 program. It will be the same size as the 787-9, which will have 1,000 mi more range. We could cover 92% of the routes with a wider seat and much lower capital cost. We have to look at the resources. It may not happen by Farnborough.
  • No A350 slots are available until 2019-2020. Effectively sold out through 2019 though could move some positions around.
  • In a walking press “scrum,” we asked Leahy, “if there is a potential market for 1,100-1,200 A330neos, why wouldn’t you do the airplane?” Leahy replied that the answer may be self-evident but once more noted that cost and resources will be important considerations. Talks with the engine makers, Rolls-Royce and GE, continue to determine the potential cost split between Airbus and them.

Appraisal firm sees little impact on Classic values from A330neo

With apparent momentum building for the launch of the Airbus A330neo, widely expected at the Farnborough Air Show, the appraisal firm Collateral Verification Tuesday issued a note expressing the likely affect on values of the A330 Classic.

Impacts to values on the in-production Airbus A320 and Boeing 737 families was a widespread concern when the Big Two moved to re-engine these aircraft types.

Airbus and Boeing each defended the values of the in-production models, saying that until the re-engined aircraft in service reach about half of the installed base of the current models, values of the latter shouldn’t be negatively impacted. We’ll see if this is the case, with the A320neo entering service next year and the 737 MAX in mid-2017. But if this theory holds, then the same should be true for the A330 Classic.

The values of the Classics have emerged as a worry going forward. Market forces believe Airbus will have to hold the line on pricing the A330neo, foregoing much if any of a premium for the new airplane. Airbus has promoted the Classic as the less expensive alternative to the higher priced, newer technology Boeing 787, and from the IATA AGM earlier this month in Doha, John Leahy, COO-customers for Airbus, called a low-cost A330neo “unbeatable” in economics.

Collateral Verifications doesn’t believe there will be much of an impact on Classic residual values. The company writes:

Over the last several months, the A330NEO has been a big part of the industry discussions. Although not yet launched, it seems more and more apparent that this may be announced in the near future. Due to this, many of our clients have approached us to find out how this may impact residual values of the existing A330 fleet. Based on the historical data we have collected on the A330-300 and Boeing 767-300ER, we have compared the impact of the A330-200 when it first entered service. Although not 100% similar to the introduction of an A330NEO, it does provide some guidance as to the potential impact of newly introduced aircraft to other in-production aircraft. The value impact on the A330-300 and the Boeing 767-300ER was about ~5-7% over their normal rate of depreciation which was not that much different from the impact on the 737 classics when the 737NG was introduced. As with any other older generation aircraft, the real value impact will be during a downturn. A330s and B767s dropped in value by 15-25% after 9/11 and dropped in value by 15-35% after the financial crisis. Overall, the initial impact of the A330NEO should not be greatly significant, unless the aircraft enters service during the next downturn.



Counting options, Letters of Intent

Should manufacturers be counting options and letters of intent toward program certainty? We’ve always thought this was pretty cheeky, but in reality there is a reasonable foundation and history for doing so. Years ago Boeing regularly ridiculed Airbus for announcing “commitments,” denigrating these as not being “real” orders (and, of course, literally they weren’t). But then came the losing battle between the A320neo and the 737 MAX. Lo and Behold, Boeing touted “1,000 orders and commitments” for the MAX in a PR effort to bolster the competitive position of the MAX. Of course, these “commitments” (in the form of options, MOUs and LOIs) converted to orders eventually.

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