In focus: the 777 Classic

This week we take a look at the Boeing 777 Classic primary and secondary markets as a follow-on to our report last week in advance of the A340 Summit hosted by Airbus, Rolls-Royce and CFM International with additional presentations by Lufthansa Airlines and HiFly. We have a follow-up of this meeting on Leeham News and Comment.

The 777 Classic presents a very different picture compared with the A340. As a reminder, here is the current status of the A340 program, which is now out of production:

Status

A340-200

A340-300

A340-500

A340-600

In Service

19

175

20

90

Stored

6

27

14

7

                        Source: Ascend                                                Leeham Co Chart

On the other hand, Boeing has delivered 1,156 777 Classics and has a current backlog of 318. There are 259 orders and commitments for the 777X, officially launched last month at the Dubai Air Show, for a total of 1,415.

The Ascend data base, which tallies Letters of Intent, Options and Option LOIs, (and calculates orders and commitments somewhat differently than Boeing), has 2,059 units listed.

 

777-200 (All)

777-300 (All)

777 Classic TBD

777-8

777-9

777X TBD

In Service

637

504

 

 

 

 

Orders

43

272

 

8

45

 

Options

35

68

1

 

 

62

Option LOIs

20

5

15

 

 

 

LOIs

42

75

6

35

179

 

Stored

6

1

 

 

 

 

Total

783

925

22

43

224

62

Source: Ascend

 

 

 

 

Leeham Co. Chart

The 777 program has been more successful than Boeing’s wildest dreams, and the 777X is off to a promising start.

While Airbus faces challenges with the A340 family on the secondary market, Boeing doesn’t have any similar issues today. There are just seven Classics stored, according to Ascend: six 200s and one 300, compared with 54 A340s of all sub-types, or 15% of the total fleet compared with 0.6% for the 777 Classics.

Most of the Classics remain with the original operators. Only a few -200ERs and five -200LRs have traded, the latter a special case because the original operator, Air India, was in financial distress and elected to dispose of the airplanes at a distressed price to raise cash.

What is the secondary market potential for the Classics? Market Intelligence suggest very little-to-no market for the 86 777-200 “standards,” the light-weight, 545,000 lb, 5,240nm initial version of the Classic family. The heavier weight 777-200ER at 656,000 lbs and 7,725nm range is a secondary passenger market and a freighter conversion candidate. Boeing has been studying a P2F conversion for the 200ER, but this potentially is a costly option, according to the Market.

The -200ER was optimized for passenger service and includes composite floor beams that will have to be replaced with steel beams, according to a 2012 Boeing briefing. Major structures and component work will be required. Then, Boeing assumed early -200ERs would be priced in the high $20m range, and the conversion would cost in the low $30m, for an out-the-door price of the low $60m.

Kostya Zolotusky, managing director for Capital Market Leasing at Boeing Capital Corp., tells us that nothing has changed in P2F timing. Feedstock values, however, are too high and a weak cargo market means there are plenty of Boeing 747-400s and MD-11s surplus today. Boeing does not expect the freighter market being strong at least for a couple years.

He believes there is a potential market for the 777-200 standard for package carriers outside the mature USA market. A 777-200ER P2F would be a different airplane vs the new-build 777-200LRF: an 80 tonne airplane vs 100T.

Zolotusky notes that the 777 “has one of the lowest movements out of the original operators out of all the wide-bodies. There is nothing that is parked or in distress.” All 777s are within 90 percentile of original operator, he tells us and compared the Airbus A330s in 80s and the A340s in 70s.

One of the issues with the A340s are the Power By Hour arrangements with Rolls-Royce for the A340-500/600 engines. “We are talking to engine makers to be sure we don’t have A340 situation that limits the liquidity with PBH situation,” Zolotusky tells us.

While this is a follow-on to the A340 report of last week, Zolotusky urged that we “decouple the conversation from A340. The A340 became economically unviable.”

Airbus, engine OEMs make the case for A340 future

Airbus held a summit December 4 for stakeholders in the A340 to explain how there continues to be life after production ended and despite being a four-engined airplane in a two-engine world.

Key to the future of this out-of-production airliner is increasing the capacity of the A340-600 to an exit-limited 475 seats and for Rolls-Royce to alter its Total Care engine maintenance Power-by-the-Hour terms and conditions to reduce costs.

Airlines, financiers, appraisers and the engine makers were invited by John Leahy, chief operating officer-Customers of Airbus. Engine providers CFM International, Rolls-Royce, Lufthansa Airlines and Hi Fly, a small European airline, made presentations in addition to Airbus.

Airbus produced 246 A340-200/300s and 131 A340-500/600s; 227 and 131 respectively are in operation or parked.

Status

A340-200

A340-300

A340-500

A340-600

In Service

19

175

20

90

Stored

6

27

14

7

Airbus guaranteed the residual value on an unknown number, and has strong motivation to see these airplanes continue in service, according to one person familiar with the situation.

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Odds and Ends: 787 software; Hazy on 777X; 787 reliability; A340 lemon; 777X won’t be built in WA: MO politician; Chinese war games

787 software: Aviation Week reports that continuing software issues bedevil the Boeing 787.

AvWeek also takes a closer look at Japan Airlines’ decision to take the 787 off certain routes due to the icing issues of the GEnx engines. Most incidents occurred on the 747-8 but one happened on the 787. The 747-8 also uses the GEnx engine.

Hazy on 777X: Steve Udvar-Hazy, CEO of Air Lease Corp and one of the most influential people in commercial aviation, offered his assessment of the 777X specifications in an interview with Aviation Week. He also commented on the future of the A350-800 and the prospect of an A350-1100.

787 reliability: Aviation Week also reports about Boeing’s efforts to improve the reliability of the 787.

A340 Lemon: Bloomberg News, tipped by our select e-newletter distribution yesterday, wrote this story about an Airbus summit to discuss the future of the A340 family in the secondary market. We’ll publish our e-newsletter for general readership with an expanded version next Monday in this column.

Boeing will nix WA for 777X: So says a Missouri politician. KOMO TV (ABC Seattle) ran a piece yesterday in which a Missouri politician said all indications they’ve had from Boeing is that the 777X won’t be built in Washington State. The clip is not on the KOMO website, however, but we saw it while watching the news.

Pacific War Games: “War is Boring,” a blog, ran a war game involving the current Chinese action declaring a defense identification zone in airspace between China and Japan. We’ve no clue over the quality of this blogger or the war game, but we were reminded that the Pentagon had war game scenarios that were important in the KC-X competition. This was one reason the Northrop Grumman-EADS KC-330 MRTT won the competition (later overturned)–because of the vast distances involved in the Pacific and the assumption that China may be successful in a conflict of what’s called Anti-Access, Access Denied (A2AD) that would have isolated US bases in Guam and Japan. The USAF concluded the EADS KC-330′s longer range vs Boeing’s KC-767, greater loiter time and greater refueling capacity was important to the selection.

Odds and Ends: Looking toward the South; Lion Air updates CSeries interest; 787 fuel advantage

Looking toward the South: As a follow-up to our previous post, Implications of the IAM-Boeing talks on 777X, here is a commentary from The Wall Street Journal about the migration of US industry to the South, were unions have a more difficult time.

Lion Air and CSeries: Indonesia’s Lion Air, which made news a few months ago with the prospect of a large order for the Bombardier CSeries, poured cold water on the prospect of placing one any time soon, according to this article in Aviation Week. Seeing actual flight test results from the larger CS300 is key, the airline’s head told AvWeek.

We previously raised our own doubts about the prospect of another large order because of the prospect of over-commitment of existing orders from Airbus and Boeing.

But Lion Air told The Wall Street Journal that an order for 50 CSeries could come by the end of the first quarter. A key piece of information in the AvWeek and WSJ articles is this, from the WSJ:

Mr. Kirana said Bombardier claims the larger of two CSeries models with 160 seats will be able to fly with the same economics as much larger Airbus A320neo jets, which carry around 160 to 180 passengers. He said the Bombardier CS300 jet’s range and economics makes it attractive for new longer international routes to smaller cities in China.

787 Fuel Advantage: In the never-ending war of words between Airbus and Boeing, readers know we always connect with airlines to cross-check what the OEMs say.

As readers also know, Boeing promotes its 787 as being 20%-25% more fuel efficient than today’s airplanes. With the (also) never-ending prospect of Airbus proceeding with an A330neo, the question arises over what the delta is between the A330 and the 787. We asked a fleet planner. The answer: 10% in favor of the 787, a gap that an A330neo could narrow considerably (but be unlikely to close altogether) with new engines and sharklets. So how about that 20%-25%? These figures compare with the 767 and A340 respectively, the fleet planner tells us.

Latest twin-aisle orders shift market share; Plus Odds and Ends

The flurry of orders in September and this month from Lufthansa Airlines and Japan Air Lines tightens the wide body race between Airbus and Boeing.

Airbus and JAL on Monday announced a firm order for 31 A350s and options for 25 more. Last month, Lufthansa announced a firm order for 34 777-9Xs and 25 A350-900s.

Twin Aisle Market Share 093013Sources: Airbus and Boeing

Airbus traditionally has significantly trailed Boeing in the twin-aisle sector, but so far this year the race is running about even through September. The Lufthansa orders for the Boeing 777-9X and the Airbus A350-900, announced in September, are not reflected yet, nor is the Japan Air Lines order for A350-900s and -1000s. None of these orders has been booked yet by either OEM. Airbus would take the lead.

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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.

.

787-9 Paint hangar  rollout

Boeing 787-9. Boeing photo

Odds and Ends: Air France v Rolls-Royce for A350; Virgin America rejigs; Last A340s sold; Heading South with SPEEA

Air France v Rollsr-Royce: The saga continues-see this Bloomberg story. We understand there is more to it than just maintenance. Rolls wants AF to order the Trent 1000 for the 787 order, too.

Virgin America: This airline, headquartered in San Francisco, has been an airline in search of a business plan. Its operations don’t have a niche and didn’t fill a void (like jetBlue created and filled at NY-JFK). It’s lost hundreds of millions of dollars. And, finally, the losses have caught up. Bloomberg has this story about aircraft order deferrals and cancellations. The deferrals are Airbus A320neos (note to Alabama: VA was going to take the first neos from the new Airbus Mobile plant in 2016).

Virgin is seeking to restructure aircraft leases, according to two industry sources. Failing to do so could lead to a Chapter 11 filing, the sources say.

Last A340s Sold: The remaining two Airbus A340-500s, originally destined for ailing Kingfisher Airlines, have been sold.

SPEEA and Boeing: Things appear to be heading south with SPEEA. This could affect Boeing’s year-end push to deliver as many as 50 787s as well as the other 7-Series.

Odds and Ends: Taking airplanes in on trade; Q400 scores

Taking airplanes in on trade: Much is being made of Boeing taking five Airbus A340-600s in on trade to secure an order for 20 777-300ERs from China Eastern. While trade-ins are not common, neither are they unknown. Boeing has done this before, including what was then a particularly controversial deal: taking brand-new A340s off the hands of Singapore Airlines even before they had been delivered as part of a 777 deal. Those A340-300s went straight to Boeing from Airbus, much to the consternation of John Leahy at the time.

The OEMs don’t like to take airplanes in on trade; after all, they are in the business of selling new airplanes, not used ones, but Airbus, Boeing and Bombardier all have active used airplane units to remarket aircraft they have in their own portfolios–usually originating from their customer financing.

Bombardier wins Q400 deal: WestJet of Canada will order 20 Q400s and option 25 more in what was a hotly contested deal between ATR and Bombardier. Although many believe this was a slam-dunk for Bombardier, the competition was intense; WestJet sent the parties back to re-price the deal late in the game.

This order gives BBD 28 firm and 45 options for the Q400 so far this year, compared with a mere seven in 2011.

The Russians Are Coming, the Russians Are Coming! Boeing imports Russian engineers to work in the Seattle area, much to the consternation of SPEAA, Boeing’s engineer’s union. Now the practice has caught the attention of a US Senator.

Outsourcing is a sore point for Boeing’s unions. While Boeing says it does so to reduce costs and to offset work in exchange for sales, there is a larger issue: the US simply doesn’t produce enough engineers to meet demand, and 50% of Boeing’s engineers reach retirement age in the next five years or so. We don’t like Boeing using Russian or Chinese help to produce airplanes–after all, these two countries are developing competitors to Boeing aircraft and it strikes us as pretty silly to help your competitor (why not hire French or German engineers, for Pete’s sake?). But the USA’s failure to place a high priority on developing engineers is a national disgrace and Boeing has to find the help where it can get it.

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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A330 vs 787

Another in the continuing reports from the Airbus Innovation Days….

Airbus provided an A330/A340 market update during its Innovation Days presentations in Hamburg earlier in May.

The A340 has become irrelevant to the new airplane market, with only a handful of new orders remaining and virtually none forthcoming in the last several years. Airbus is tweaking the A340 with some aerodymic improvements designed to reduce fuel burn by 1%. Along with maintenance procedure changes to the A330, the A340 increases the interval on the A Check to 800 flight hours from the current 600; C Check intervals go from 18 months to 21-24 months; Intermediate Checks increased from five years at EIS to the current six years and remains unchanged; and Structural Checks increase from 10 years to 12 years.

We resisted asking whether the A340′s Product Improvement Package includes a large Parking Brake sign in the cockpit.

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