Embraer and Bombardier: the tale of different companies, histories and fortunes

Last month we did a situational analysis of Boeing and Airbus and we promised to do the same for Embraer and Bombardier. Our follow-up article took longer than planned, as we wanted to include the rather significant changes that have transpired at Bombardier in recent weeks. Material for the analysis is the first half 2014 financial and operational results of the aircraft manufacturers but also information we got when we sat down with the Marketing managers of the two companies at Farnborough, Embraer’s Claudio Carmelier and Bombardier’s Philippe Poutissou. Unfortunately, the latter is no longer in his job, having been replaced in a series of management and corporate restructurings at Bombardier.

Status first half 2014

The situation in the two companies could not be more different. Embraer is financially healthy with well-selling aircraft programs, both on the commercial aircraft side (E-jet) and the business aircraft side (Phenom, Legacy). Embraer is well positioned for the future with a well-received update to its E-jet program (E-jet E2 ) . Bombardier on the other hand, has problems. Its financial situation is strained with too many new aircraft programs eating up cash (CSeries, Learjet 85, Global 7000/8000) and their currently active programs have in some cases seen their zenith in the market (CRJ, Challenger 600 and, arguably, the Q400). Continue reading

Odds and Ends: Air France/KLM trims cargo fleet; ExIm Bank countdown; BBD v EMB; More

Air France-KLM trims cargo fleet: Steve Wilhelm of The Puget Sound Business Journal reports that Air France-KLM group is sharply trimming its cargo fleet, with the company declaring the capacity continues to shift to the belly capacity of passenger airplanes. This further validates what we have been writing for some time and, in our view, further bolsters our argument that the demand for new-build, dedicated freighters continues to fall. This in turn means Airbus won’t see recovery for the A330-200F nor will Boeing see recovery in demand for the 747-8F or 777-200LRF.

ExIm Bank Countdown: September 30 is the date the US ExIm Bank runs out of money. Although there is talk of a short-term extension of a few months (conveniently taking it past the election and perhaps defusing some of the Tea Party angst over the agency), Emirates Airlines said it will still buy Boeing airplanes even if ExIm isn’t renewed.

This can’t help Boeing’s argument that ExIm should be retained.

Left unsaid in Emirates’ statement, however, is something we heard in the market: Boeing’s deal for the 150 777Xs with Emirates nearly fell apart over the ambiguity over the Bank. We’re also told Boeing agreed to backstop the Emirates deal.

Neither Boeing nor Emirates comment on financing support.

Bombardier vs Embraer: Here is an interesting thought piece on the financial returns of Bombardier vs Embraer. One obvious error in the article: Malmo Aviation didn’t cancel its order for the CS100; it just decided not to be the launch operator.

Neither do you: Flight Global writes this about the end of plans between COMAC and Bombardier to have a common cockpit between the C919 and the CSeries:

“Basically in the development of the C919, Bombardier is not involved,” says [CAAC}. “They have experience in building regional jets, but not so much in narrowbodies.”

We can’t help but think the Chinese learned what they wanted to learn and moved on.

787 safety: This is one of those stories for which we have skepticism but which is already getting enough press that we don’t feel we can ignore it. Al Jazeera America has a special Wednesday night about the safety of the Boeing 787. AJM previously did an investigation of the safety of the Boeing 737. The Seattle Times has an early review. We’ll hold our opinion until after watching the program.

Ryanair finally orders 737 MAX: Once Boeing announced the launch of the 200-seat 737-8 MAX at the Farnborough Air Show, an order from Ireland’s Ryanair was only a matter of time. It became official today: Ryanair ordered 100+100 of the new version, the 737 MAX 200.

 

Odds and Ends: Russian MC-21 subsidy; C919 assessment; ExIm countdown

Two news items popped up today on emerging aircraft.

MC-21 subsidy: Government subsidies for commercial aircraft development have been a sore point between the US and Europe (i.e., Boeing and Airbus) for decades. Although the US and Europe went through years of international disputes at the World Trade Organization on behalf of Boeing and Airbus, with adverse decisions now under appeal by both sides, and even though Canada and Brazil previously won cases over illegal subsidies to Embraer and Bombardier, nothing has come of the decisions–and nothing has been done about government subsidies by Japan and China to their aerospace industries. No complaints to the WTO have been filed against either country, which are members of the WTO.

This article updates some information about Russian aid to Irkut, which is developing a competitor to the Airbus A320 and Boeing 737 families. The MC-21 and China’s COMAC C919 are directly sized against the best-selling single-aisle airplanes. Russia is not a member of the WTO, so there is no legal basis (that we know of) to file a complaint.

Long-time readers know we disdain the entire WTO process anyway as more political than practical. The WTO has no enforcement powers and sanctions that might be authorized by the WTO against offenders don’t have to be implemented (as in the case of Canada and Brazil) or even applied against the offender’s products–another industry altogether may be sanctioned, a silly and unfair prospect.

C919 assessment: This article provides an assessment of the prospects for the COMAC C919. What’s especially interesting in this article is what we aviation geeks have known all along, and that is China uses Western technology to develop its airplanes (and trains, the article points out). Airbus and Boeing identify China as the next viable competitor in the airliner field, albeit perhaps a generation in the future. But the technology is coming from Airbus, Boeing, Embraer, Bombardier, the engine makers and the supply chain. They are creating their own future competitors.

While China’s industrial espionage contributes to its understanding and acquisition of Western technology, most of it comes from joint ventures between Chinese companies and the Western OEMs and suppliers.

ExIm countdown: The authorization for the US Export-Import Bank expires next month, and Boeing is pulling out all stops to get a recalcitrant Republican Party to agree to extend the life of the bank, reports The Hill, one of the specialty publications that covers the US Congress.

Killing ExIm will put Boeing at a disadvantage to Airbus, which uses and will continue to use European Credit Agencies (ECAs) to support sales of its aircraft. Boeing will have to fall back on its internal Boeing Capital Corp. or attempt to help customers find private financing if ExIm tanks.

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.

Continue reading

Odds and Ends: Airbus regional A330, IAG orders and Bombardier reviewing options

Airbus A330 regional might get sales after all, Airbus is negotiating a large order with China against local off-sets (assembly or final configuration, the experts are divided) according to Wall Street Journal. We reference Ben Sandilands writeup of the story to avoid the WSJ paywall. As we were told at Farnborough by Airbus the A330 regional is a de-papered A330ceo with an adapted interior. It does not make sense to wait for a neo variant for this aircraft as the fuel costs are a less important factor on sub 5 hour missions. It will be interesting to see if some other market will pick up on this 200 tonne aircraft, to some extent it is back to the roots for the A330-300, it started off as a medium haul complement to the long haul A340-200 and -300 at 206t maximum take-off weight.

IAG has given Airbus a cheer up signal after the bad news around SkyMark. In their second quarter report call IAG CEO Willie Walsh declare their A380 as “fantastic aircraft when you can fill it”, they see 98% load factors on their most popular routes (e.g. LHR-LAX). IAG also announced better results in their Spanish daughter Iberia, consequently it is allowed to order 8 A330-200 (ceos as the neo comes to late) and convert 8 of IAGs A350-900 options to firm orders for their airline.  Right now IAG is satisfied with the 12 A380 they have on order for BA according to Walsh.

Bombardier is re-examining its options for the recently created Aerospace divisions according to FlightGlobal; they want to leverage the Aerostructures divisions capabilities more when Boeing and Airbus looks for further partners for their booming supply chains. They also need to guard their bets on Russia as partner to drive sales of Q400 and Cseries, given the mounting political problems between Russia and the west. This results in renewed activity in the China / Comac discussions, initially for cooperation on the after sales side in addition to the present fuselage deliveries, but come a worsened situation with Russia such talks could find new depth we think.

Odds and Ends: GAO report on ‘Boeing’s bank;’ C919; Airbus widebody strategy

GAO report on ‘Boeing’s bank:’ The US Government Accounting Office, a non-partisan investigating agency, completed a study of the funding and guarantees provided by the US ExIm Bank, which is under criticism from Congressional Republicans, and concluded non-US airlines do benefit from what amounts to subsidies.

These put US competitors at a disadvantage, GAO concludes. The full 29 page PDF may be found here.

The study period covered the global financial crisis, during which a good deal of private capital funding dried up. Airbus and Boeing each relied more heavily on export credit agencies for customer financing–ExIm in Boeing’s case and collectively European Credit Agencies, or ECAs, for Airbus.

The GAO found that ExIm funded or guaranteed financing for 789 Boeing wide body aircraft while the ECAs supported 821 Airbus wide-bodies.

Parenthetically, this statistic alone should demonstrate to Congress the need for ExIm to continue to be available for Boeing airplanes.

Continue reading

Farnborough Air Show preview

The Farnborough Air Show is just around the corner, and we don’t expect the event to be especially newsworthy.

Here are our expectations for the show:

Airbus
Market expectations are that Airbus will launch the A330neo at the air show, and we know John Leahy, COO of Customers, would like to do so at this event. His bosses, Fabrice Bregier and Tom Enders, have been less than encouraging that this announcement could come at the show.

Although news stories last week indicated Airbus’ board may green light the program in advance of the FAS, it was nonetheless reported that a formal public launch may not be made at the show. So what might happen? An “Authority to Offer,” or ATO, might be how Airbus proceeds. We don’t think there will be firm orders ready to go when the FAS begins July 14—although certainly Airbus could also take Boeing’s 777X approach and announce “commitments” as was done at the Dubai Air Show.

We are skeptical whether there might be any A330 Classic orders announced, as customers await the neo. We certainly expect the usual orders for the A320 Family. We expect A350 orders. We’re doubtful of A380 orders.

Continue reading

The case for an NSA in 2025 — successor to 737-8 MAX — (continued)

 Editor’s Note: Given the amount of interest in the prospect of replacements for the single-aisle airplanes, including the Boeing 757, our Guest Columnist provided a follow-up think piece.

By James Krebs

With the reengined Boeing 737 MAX and Airbus A320 neo families selling like gangbusters, it may seem premature, before one even flies, to be considering a New Small Airplane (NSA) successor to enter service beginning in 2025. But I’m convinced the NSA will come before conventional wisdom expects. The marketplace will demand them.

A combination of market forces could make a compelling case for a NSA in service in 2025.

-   Continuing high fuel prices

-   Increasing urgency to reduce aviation carbon emissions

-   Availability of technology for 20% fuel savings vs 737-8 max and A320 neo (at same seat number) at acceptable risk

-   Traffic growth calling for more seats for 2025 and beyond.

-   Growing pressure from the airlines later in this decade for cleaner, more economical short haul NSA’s

-   Huge global market potential for NSA families — with their performance improved through the years

-   A short haul market share by 2017-18 (neo’s and MAX in service) very disappointing to Boeing.

Continue reading

Odds and Ends: LEAP vs GTF; CSeries flight testing; MRJ FAL

LEAP vs GTF: Reuters has a story looking at the intense competition between CFM and Pratt & Whitney for the market dominance of the LEAP vs Geared Turbo Fan engines.

The only airplane where there is competition is on the Airbus A320neo family; CFM is exclusive on the Boeing 737 MAX and COMAC C919 and PW is exclusive on the Bombardier CSeries, Embraer E-Jet E2 and Mitsubishi MRJ. PW shares the platform of the Irkut MC-21 with a Russian engine. PW says it has sold more than 5,000 GTFs across the platforms. CFM has sold more than 6,000 across the three models it powers.

On the A320neo family, the competition is 50-50 at this point, with a large number of customers yet to decide on an engine choice. However, 60 A320neos (120 engines) ordered by lessor GECAS never were in contested (GECAS buys exclusively from CFM) and 80 A319/320neos from Republic Airways Holdings (160 engines) were part of a financial rescue package for then-ailing Frontier Airlines.

PW’s joint venture partner, International Aero Engines, shares the A320ceo family platform with CFM. Late to the market, IAE caught up to CFM in recent years.

On platforms where they compete, the sales figures so far show a neck-and-neck competition between CFM and PW.

Update, 12:30: The link has been fixed. Update, 9:30 am PST: Flight Global has this story reporting that PW plans a Performance Improvement Package on the GTF that will further cut fuel consumption by 3%.

CSeries flight testing: Bombardier’s CSeries flight testing has been slow to this point, but it’s beginning to ramp up. Aviation Week reports that FTV 3 should be in the air by the end of this month and FTV 4 should follow in April. FTV 3 is the avionics airplane and FTV 4 focuses on GTF engine testing.

Mitsubishi MRJ: Aviation Week also reports that the Mitsubishi MRJ airplane #1 is nearing final assembly.

Odds and Ends: CSeries timeline; KC-46A roll-out; China’s new airplane

CSeries timeline: Bombardier last week announced a third delay in the CSeries program, this time for as much as a year.

This probably should have been expected. BBD originally planned a five year period between program launch and entry-into-service. As we saw with the Boeing 787, launched with a four year timeline, even five years was too ambitious.

CSeries Timelines. Leeham Co Chart

CSeries Timeline. Leeham Co Chart

The EIS period for the 787 turned out to be the standard seven years, almost eight–and even then, the EIS was anything but smooth.

Airbus’ launch-to-EIS for the final A350 version is somewhat more than eight years. Even though BBD is a sub-contractor on the 787 program and said it benefited from lessons learned, it’s clear officials were far too ambitious.

KC-46A roll-out: Boeing’s first tanker for the USAF based on the 767-200ER will roll out this summer. The Everett Herald has this story. The airplane is a somewhat revised 767-200ER called the 767-2C. In addition to upgrades with the airframe, the Pratt & Whitney PW4000 engines will have upgrades which improve fuel consumption.

China’s new airplane: China isn’t just developing the ARJ21, C919 and some military airplanes. It’s also developing the world’s largest amphibian.