The case for an A330neo

With the increasing possibility that Airbus will defer or even drop the A350-800, the case for an A330neo becomes much stronger. Absent the A358, Airbus has no effective competition to the Boeing 787-8. The current A330, which we will call the A330 Classic, is a very good airplane but it is not as fuel efficient as the 788. The Airbus argument that the A330 Classic is competitive is based on the most favorable of assumptions and rests in part on the key capital cost assumption and moderate fuel prices.

In a story on Friday Reuters confirmed our December 23 e-newsletter report (which subsequently was published at Leeham News and Comment December 29) that Airbus is seriously considering an A330neo. This certainly clears the air on this score.

A332 cost per seat

 Source: Airbus

Airbus argues that the lower capital cost offsets the higher operating costs of its A330s vs Boeing’s 787-8 and forthcoming 787-9.

The following table includes Airbus’ assumption as well as 2013 lease rates reported by the appraisal firm Collateral Verifications (CV). Airbus assumes a higher lease rate for the 787-8 than CV reports. CV does not yet have an estimated lease rate for the 787-9.

Current Market Value is the price an airplane can be expected to sell for in today’s environment. Current Base Value is the theoretical price in a stable supply-and-demand market.

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Airbus’ A350-800 dilemma

Last week we discussed Airbus’ A350-1000 dilemma. The -1000 will be a fine airplane, but we concluded the company needs to go forward with a larger capacity “A350-1100″ to match the size of the Boeing 777-9X, but take the Boeing 787-10 approach and be content with sacrificing range in lieu of designing a new wing and engines.

Airbus’ A350 dilemma doesn’t end there. What’s it to do with the A350-800? One fleet planner told us a year or more ago that the “-800 is an expensive A330-300″ with the same operating costs as the larger capacity A350-900.

Airbus has been encouraging customers to move up to the larger A350-900, with Hawaiian Airlines and US Airways the key hold outs. Conventional wisdom says US Airways will swap its order once the merger with American Airlines goes through (which is looking more and more likely, given settlement talks with the Department of Justice). American has a large order for the Boeing 787-9, making the -800 unnecessary in a combined carrier fleet plan.

There are now around 80 -800s in Airbus’ backlog, and even officials at Airbus have been ambiguous about green-lighting production of the -800, which is supposed to enter service in 2016 (after the -900 but before the -1000). We have written several posts in which we concluded the -800 would be re-sequenced to 2018, after the 2017 EIS of the -1000.

We believe there is a very good chance the A350-800 will be dropped in favor of proceeding with an A350-1100.

So what’s Airbus to do in the 250-300 seat space now occupied by the -800 and the aging A330 family?

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Airbus adds to information about A330/A350 “Lite”

Airbus provided some answers to some (but not all) of our additional questions posed in our post a week ago about the A330 and A350 “Lite” versions.

We noted that Airbus had provided Direct Operating Cost (DOC) comparisons for the A330-200/300 vs the Boeing 787-8/9 but only Cash Operating Cost (COC) comparisons for the A350-900 vs the 787-10.

Airbus provided a detailed explanation, which is below.

But we also asked Airbus what are its assumptions underlying the DOC and COC conclusions. We specifically asked about the following assumptions, since they are important elements of reaching the conclusions Airbus did:

  • Number of seats on the Airbus and Boeing aircraft;
  • Fuel price per gallon;
  • The stage length used; and
  • The Capital Cost of the aircraft in lease rates.

Airbus responded with the seat assumptions for its aircraft but not for the Boeings:

  • A330-200: 246 pax;
  • A330-300: 300 pax;
  • A350-900: 315 pax

Airbus also provided the assumed lease rates for the A330 and 787-8/9 but not the A350 nor the 787-10:

  • A330-200:         800K$/mo
  • A330-300:         900k$/mo
  • 787-8:               1.1M$/mo
  • 787-9:               1.25M$/mo

The A333 and 789 lease assumptions have been used since Airbus first revealed them at Innovation Days in 2011, and we wrote about those at the time. The A332 and 788 lease rates are new information.

“We have not included figures for the A359 vs 787-10 because Boeing’s own figures are currently sketchy,” Airbus said in excluding this data.

“I do not have any more info to give you at this time, but I have been advised that we may have more visibility around October,” an Airbus spokesman wrote in an email.

Because of the “sketchy” information on the 781, the spokesman wrote that absent 781 list prices (which Boeing has yet to publish), Airbus can’t calculate a DOC with capital cost.

“The A350-900 has 4% lower trip cost (COC) than the 787-10 (comparable per seat),” the spokesman wrote. “The A350-900, in its regional variant, has been specifically optimised to offer the same payload range characteristics as the 787-10. The design weights of both aircraft are very similar. In fact, in operation, with its slightly larger number of lower-comfort seats and additional passengers and stretched fuselage the 787-10 is actually heavier than the A350-900.”

Airbus also said that the A350-900’s wing is optimized for this design while the 781 wing is the same used on the smaller and lighter 788, “resulting in compromised aerodynamics that penalise fuel burn in such a large aircraft.”

(Of course, the same principals could be applied to the smaller A350-800 and the larger A350-1000, which use the same wing at the A359.)

“The newer engines of the A350-900 burn less fuel than those of the 787 which are still struggling to deliver a fuel burn level close their specification,” the Airbus spokesman adds. He said initial test flights of the A359 show fuel burn results at spec level, which he says is lower than the 787.

“Operating at a lower rating of 75,000 lbs (vs 84,000 for basic spec) for regional applications, the engines of the A350-900 will also benefit from significant reduction in maintenance cost compared to the 787-10 engines that will be operating very close to their maximum thrust capability that was designed for the 787-9,” the spokesman wrote.

 

Analyzing the Airbus plan to offer A350, A330 “Regional” aircraft

Note: The Blog by Javier takes an analytical look at the 20 year forecasts for the twin-engine, twin-aisle aircraft here.

Airbus will offer “Regional” versions of the A330-200/300 and the A350-900 that will reduced the Maximum Take Off Weight (MTOW), engine thrust ratings and range to better match most routes flown by airlines that don’t need the 8,500nm range and weights.

We revealed earlier that Boeing is planning a lighter weight 777-8, reducing the planned 9,400nm range to 8,500nm to more closely match the A350-900’s weight and specification. While the 777-8 “Lite” has substantially longer range and weight than the “A350-900R,” the concepts bring airplanes to the market that are more closely aligned with airline realities than with maximum performance.

The A330 originally was designed as a “regional” airliner, with ranges in the area of 4,000-5,000 miles. Since the airplanes entered service in the early 1990s, Airbus has undertaken a number of Performance Improvement Packages, bringing the A330-200 to a range of 7,200 miles and the A330-300 to around 6,000 miles. But Airbus also says that a majority of the flights of the aircraft are 2,000nm or less—“regional” service within Asia, Europe and the Middle East.

We live in Seattle and most of our international travel is to Europe. Most of this service was operated with the A330/340 and the Boeing 747-400; no Boeing 777s are used to Europe. Over the years, as Airbus improved the A330-300, carriers began using this sub-type for the first time on the routes, reflecting the range improvements in the aircraft. The A330 series is also now used across the Pacific from Seattle as range improved.

But the PIPs made the A330s “more” airplane than most airlines needed, and this is what is driving Airbus to return to the aircraft’s roots, so-to-speak.

The A350-900’s 8,500nm range is far more than is needed for many routes, as is the similar range of the Boeing 787-8 and 787-9, and is one reason Boeing settled on 7,000nm for the 787-10. At one time, Boeing planned a larger wing for the 787-10 to maintain the 8,500nm range of the smaller sisters, but more than a year ago said that airliners didn’t need or want the range. Initially Boeing planned a 6,750nm range but at the urging of Steven Udvar-Hazy, CEO of Air Lease Corp, and some key Middle East carriers, the range crept up slightly.

John Leahy, COO-Customers of Airbus, is quoted extensively in this Aviation Week article.  An Airbus spokesman told us, “We have the A330 workhorse today. We’re looking at A330 as a regional optimized spec[ification] today and its part of a larger strategy. [The A350 and A330] aircraft will be the same physical hardware.

“In both cases there is a slight engine derate, optimizing capacity and payloads for regional routes. We aren’t permanently changing hardware. There will be a software change.”

The spokesman said “Airbus has products that will be at least as cost effective as anything Boeing puts out.”

A key part of this will be the lower capital cost/lease rate than the 787 family. Our assessment is that if capital costs were the same, the 787 would have a significant economic advantage. We further believe that the price-point difference has to be significantly lower for Airbus to have an economic advantage. With the A330 family, which has been amortized in the production system for years, there is considerable pricing flexibility but as fuel prices rise, Airbus will have greater challenges to offset the economic disadvantage with capital costs. The new A350’s economics are, according to our analysis, competitive but the lighter-weight 787s make the economic advantages of the larger-capacity A350-900 (to the 787-9) challenging.

Aircraft

Today’s MTOW

(Tonnes)

Regional MTOW

(Tonnes)

Today’s Thrust

(Lbs)

Regional’s Thrust

(Lbs)

A330-200

242

205

64,000-68,000

A330-300

240

205

70,000

64,000-68,000

A350-900

268

250

84,000

75,000

Flights for the A330 will be up to six hours and up to eight for the A350-900. The lower MTOW will reduce landing fees.

“Operating flexibility full range can easily be restored with software and paperwork back to full range, so can go back to maximum flexibility if customer wants it,” Airbus says.

The changes for the Regional are all done via software and FADEC (the engine software) changes, or as Boeing’s Mike Bair said with respect to the 777-8 “Lite,” it amounts to “papering” the weight.

This permits the operator the flexibility of re-papering the weight to return to a long-range, maximum weight/payload aircraft.

Airbus views the competitive line up thusly:

  • A330-200 vs 787-8
  • A330-300 vs 787-9
  • A350-900 vs 787-10

Because Airbus is focused on the A350-900 at this point, the spokesman said he has no information about offering a Regional aircraft for the A350-800 and -1000 sub-types.

The spokesman says the economics shape up this way:

  • The economics of the A330-200 at standard max MTOW is 4% lower than 788 per trip;
  • The A330-300 has 6.5% DOC vs 789; and
  • The A350-900 has 4% COC per trip vs 781.

Note the distinction between Direct Operating Costs (DOC) and Cash Operating Costs (COC) Airbus claims.

We’ve asked Airbus for the assumptions that go into these figures; if we get them, we will update this post. Key to the assumptions are the fuel cost and lease rates. In 2011, Airbus used a fuel assumption of $2.50 per gallon, a range of 2,000nm and lease rates of $900,000/mo and $1.2m/mo for the A330-300 and the 787-9 in arguing the A333 contributed a net $113,000/mo to revenue more than the 789. We challenged the assumption of $2.50 fuel as unrealistic, unaware as we were of anywhere fuel could be purchased for this price. We also know that lessors were charging $1m/mo for the A333, which essentially made the calculation advanced by Airbus at $2.50 fuel a break-even proposition and a net negative to the 789 at $3.50 fuel.

Thus the assumptions used in reaching the above calculations are critical to know.

Airbus is emphasizing the greater passenger seat comfort in coach in its airplanes vs the narrower 787: 18 inches vs 17 inches in nine abreast.

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787-9 Paint hangar  rollout

Boeing 787-9. Boeing photo

Airbus’ A330 improvements aimed at maintaining market position vs 787

Airbus last week announced additional gross weight upgrades and improvements to the A330-200/300 that increase range and reduce fuel burn. Aviation Week has this story about the enhancements.

This is the latest in a series of improvements taking advantage of the four year delay in the Boeing 787 program that Airbus believes will enable the airplane, which first entered service in 1994, to remain viable well into the 2020 decade.

Boeing launched the 787 in December 2003 and promptly claimed the aircraft would kill the A330. Had the aircraft entered service in May 2008 as originally planned, Boeing might have been able to make strides to do so. But delays allowed Airbus time to incorporate several Performance Improvement Packages (PIPs). The European company has sold more A330s post-787 launch than it did before.

The latest improvements give the A330-300 an anticipated range of more than 6,000nm, compared with less than 4,000nm when the airplane entered service.

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787-10 decision anticipated very soon, perhaps within days

Boeing’s Board is expected to be asked very soon, perhaps at its meeting in October, to grant Authority to Offer the 787-10 to customers, according to two sources.

A Boeing spokeswoman said that ATO for the 787-10 is expected to occur before the ATO for the 777X, since the -10 is a more straight-forward project than the X, but could not confirm the October timeline.

The straight-forward stretch of the 787-9 will have less range (about 6,900nm) than either the -8 or -9 models, which comfortably top 8,000 nm but it is expected to carry around 323 passengers, putting it squarely in the class of the 777-200ER and the A350-900.

At 6,900nm, the airplane will cover most missions required by airlines. By foregoing a new wing and added fuel tankage, the operating weight of the airplane is expected to be roughly equal to the 787-9. A slightly higher-thrust engine will be required. Rolls-Royce announced a higher thrust version of the Trent 1000 now powering the 787 at the Farnborough Air Show, and insiders said this engine is specifically intended for the 787-10.

The 787-10 is billed by Boeing as the airplane that will “kill” the Airbus A330-300, but the 787 was also billed as the airplane that would kill the A330-200. The delays in the 787 program have given Airbus time to enhance the A330 family and the rival announced gross weight, range and engine Performance Improvement Packages to the 300 (and which are anticipated for the 200) at the Farnborough Air Show.

Airbus is also selling the A330 family at discounts to the 787 family today and this will continue in the future. The lower capital costs, Airbus believes, allows the A330 to remain competitive. Airbus COO-Customers John Leahy told us that Airbus expects to sell the A330 beyond 2020.

The 787-10 would replace the 777-200ER, which has largely been killed by the A350-900.

Airbus and Mobile: Implications and analysis

Before getting to the meat of things, a couple of key stories:

Mobile Press-Register, June 30. Details of the plan.

Wall Street Journal: Boeing complains.

It’s now one of the worst-kept industrial secrets: Airbus will announce at 10am CDT July 2 that it will construct a $600m A320 Family Final Assembly Line (FAL) in Mobile (AL).

This is a major strategic and tactical move in the intense, often bitter competition between Airbus and Boeing.

Even before the plans became official, Boeing issued a pissy slam, harking back to the World Trade Organization dispute, rather than stating that it is in a position to compete against Airbus and its A320 with what Boeing otherwise routinely characterizes a better airplane with the best workers in the world.

Perhaps the pissy statement was chosen because in many respects, Airbus has mouse-trapped Boeing—and there is very little the company can do about it.

Before explaining, here are some facts to keep in mind. Click on the graphic to enlarge.

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