Bombardier and Embraer square off at ISTAT

Bombardier and Embraer squared off today at the ISTAT conference in San Diego. Rod Sheridan, VP sales and asset management, appeared for BBD and John Slattery, chiefr commercial officer, appeared for EMB.

The following synopsizes and paraphrases their presentations.

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Boeing notified supply chain: prepare for 52 737s per month

Boeing has notified is supply chain that demand for the 737 is sufficient to support a rate increase to 52 a month by the end of the decade.

In a letter dated January 3, Kent Fisher, vice president of supplier management, set the date for going to 47/mo in July 2017. The year had previously been announced by Boeing. Fisher continued that demand is “sufficient” to take the “protection rate” to 52/mo “later in the decade.”

Production Rates to 2020

“Protection rate” means the Boeing and the suppliers need to protect the ability to increase to the desired rate in terms of tooling, machinery, parts, and their own suppliers. This notification isn’t as firm as announcing an actual production rate increase, but it’s pretty close.

Airbus, meanwhile, continues with construction of its Mobile (AL) plant, with a target operational date of next year. Initial production will be 2/mo, ramping up to 4/mo. The plant has the capacity of 8/mo. This means Airbus increases production of the A320 family to 44 in late 2015 or early 2016, then 46 later in 2016 and 48 to 50 thereafter.

The Airbus and Boeing production rates dwarf those of Bombardier, which is challenging the Big Two OEMs at the lower end of the 100-220 seat sector with the 110-145 seat CSeries, and Embraer, which produces the 100-122 seat E-190/195 E1 today and which is offering the 132 seat E-195 E2 for delivery beginning in 2018.

Airbus’ factories are in Hamburg, Toulouse, Tianjin and from next year, Mobile. Hamburg and Toulouse are currently producing 38 A320 family members a month, weighted toward the latter, and Tianjin is at 4/mo. Tianjin and Mobile have the capacity of 8/mo each; we don’t know the total capacity of the Hamburg and Toulouse plants but are told these are at capacity; Airbus declined comment. This means Airbus has the capacity to go to 54 A320s/mo among the four plants after Mobile is fully operational.

Boeing has the capacity for 63 737s a month at its single Renton (WA) factory. Embraer has the capacity for 17 E-Jets a month. Bombardier plans a capacity of 20/mo for the CSeries.

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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Embraer E-Jets in focus

Embraer reported its third quarter earnings October 31 and disappointed the market with results that missed targets, resulting in a share price decline and some downgrades by analysts. Fewer commercial E-Jets and business jets were delivered than expected by analysts. Despite assurances by the company that year-end targets would be met, market reaction was unenthusiastic.

 

Embraer’s been struggling some on E-Jet sales. The backlog of the of current E-Jet, now dubbed internally as E1 with the launch of the re-engined E-Jet, called E2, had been shrinking until EMB won key orders from SkyWest Airlines of the USA, Republic Airways Holdings (for American Airlines) and from United Airlines, all for the E175. Even so, with a production rate capacity of 17 per month, there are large gaps but also open opportunities to offer near-term slots. The current production rate is only 7.5/mo-less than three years.

 

Embraer delivered 122, 98, 105 and 106 E-Jets in 2009, 2010, 2011 and 2012. It’s forecast to deliver 90 this year and next, followed by 85, 80 and 75 through 2017, the year before the E2 enters service. This forecast, by UBS, means Embraer has to find sales to fill the slots. Embraer and Bombardier are competing for a significant order from American Airlines. This order has been stalled pending the merger with US Airways, which has been delayed by the Department of Justice lawsuit seeking to block the combination. The order is important to Bombardier and Embraer because of the thin backlogs for the CRJ and E-Jet.

 

The E2 isn’t scheduled to enter service until 1H2018, with the E190 E2 the first model. The E195 E2 and E175 E2 follow in 2019 and 2020.

 

Aircraft

E170

E175

E190

E195

Sub- 

Total

E175 E2

E190 E2

E195 E2

Sub-

Total

Total

Backlog

6

140

78

22

246

100

25

25

150

396

 

The EIS sequence for the E2 is intriguing. Although the E175 E2 has the largest backlog, it will be the last to enter service. The largest variant, the E195 E2, at 132 seats single class, is directly competitive with the Bombardier CS300 (135 seats single class) but somewhat less capable with a range of 2,000nm vs 2,950nm for the Bombardier.

 

Embraer has a large customer base for the E-Jet, 67, that gives it an advantage over Bombardier when it comes to selling the E2 vs the CSeries. Bombardier has to create a customer base for the CSeries, which is more directly competitive with Airbus and Boeing small jets than is the E2. Embraer made the conscious decision not to proceed with a brand new design in order to avoid the wrath of the Bog Two OEMs.

 

But selling the E2 also means replacing the E1, and our market intelligence tells us that placing used E-Jets is problematic. The cost of engine overhauls, a reported $3m+ on an engine that costs $4.5m at list prices, is a deterrent, one lessor tells us. Book values also tend to be higher than current market values, this lessor says, making remarketing sales and reset lease rates an issue.

 

Bombardier’s CRJ700 and CRJ900 have lower operating costs than the E1, but Embraer has the advantage on passenger comfort. Recognizing the cost disadvantage, Embraer announced modifications to the E1 to improve fuel performance to a point where it believes the E1 will be competitive with the CRJ economics.

 

Major carriers in the US also have labor issues to consider when it comes to evaluating the E1 or E2 vs the CSeries. Embraer’s E175, at 70 seats remains below the Scope Clause threshold of 76 seats in many US airline labor contracts. The E190 in dual class also falls just below this threshold. The CS100 seats 100 passengers in dual class and 110 in single class, eliminating it from Scope Clause-driven competition. The decision between BBD and EMB in this case may come down to whether a carrier wants the greater economics of the CRJ or the comfort of the E190 E1 and comfort and economy of the E2.

 

Embraer faces several years of soft sales in advance of the E2.

Odds and Ends: Embraer reports weak quarter; MRJ FTV #1 assembly; JAL, ANA politics

Embraer’s Third Quarter: Embraer delivered fewer commercial airplanes in the third quarter than had been expected. The maker of E-Jets and the E-Jet E2 re-engined versions due beginning in 2018 listed its deliveries and backlog in its press release. Analysts expects 22 E-Jets would be delivered in the quarter. But the backlog is up 44% year-over-year, largely on the strength of the launch of the E2 (150 orders, 100 of which are for the smallest E-175 E2 and 25 each for the E-190/195 E2), and orders from Republic Airways Holdings and SkyWest Airlines for the current generation of E-Jets. The E-175 remains to most frequently-ordered airplane.

Although Embraer is expanding the size of the E-195-E2 by up to 12 seats, orders have been few. The E-190 has proved a better-selling model than the E-195.

EJet_E2 Compare

Source: Embraer

Officials expect to have a healthy fourth quarter delivery stream.

Mitsubishi MRJ: Assembly for the first Mitsubishi MRJ Flight Test Vehicle (to borrow Bombardier’s term for the CSeries) is underway. The first delivery was originally planned for this year; it’s now planned for 2017, four years late. This rivals Boeing’s 787 and exceeds the Airbus A350 and as yet the CSeries.

JAL, ANA Politics: Reuters has an analysis about the suspicion politics may have been involved in the decision by Japan Airlines to buy the Airbus A350 and the pending order by ANA of an Airbus or Boeing airplane.

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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Busy decade ahead for new, derivative airplane EIS dates

The next decade will see an extraordinary number of new and derivative airplanes entering service, beginning next year with the Boeing 787-9 and ending in 2022 with what we believe will be a replacement for the Airbus A330.

Bombardier’s CS100 is currently planned to enter service in around September next year, 12 months after its first flight on September 16, 2013, but we think EIS will slip to early 2015. Bombardier seems to be laying the groundwork for this in statements that it will reassess the EIS date in a few months.

Beginning with the 787-9, there is a steady stream of EIS dates–and a couple of end-production dates of current generation airplanes.

This chart captures the airplanes and their dates. Most dates are based on firm announcements from the OEMs, but we’ve adjusted some based on market intelligence and our own estimates.

EIS Dates

.

The arrows to certain points within years are not necessarily representative of specific timelines within that year. OEMs generally are not too specific about and EIS date, preferring to say “first half” or “second half” or some derivative of ambiguity. The only specific that we’re aware of is Boeing’s revised EIS of the 737 MAX, from 4Q2017 to July 2017. Although the Ascend data base is quite specific, we’ve not attempted to be highly specific in this chart. (Have we been specific enough about all this?)

Readers will note that we have the ARJ21 arrow going to a question mark. This airplane is already seven years late, and supposedly it’s going to enter service next year, but we aren’t banking on this at all. COMAC/AVIC, producer of the ARJ21, has a dismal record of meeting target dates. Accordingly, although COMAC now says the EIS for the C919 is 2017, we’ve got this in 2018–and even this is likely generous.

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Odds and Ends: Plane Business analysis of AA-US merger; Air Canada’s single-aisle competition

AA-US Merger: Plane Business made available Aug. 21 its previous analysis of the proposed American Airlines-US Airways merger outside its paywall.

The analysis of the government’s analysis is pretty devastating to the government’s case. Read it and judge for yourself.

American’s general counsel, meanwhile, writes (in a report in The Dallas Morning News) that there is no Plan B to exit bankruptcy if the merger with US Airways is successfully blocked by the Department of Justice. Instead, AA would have to create a new bankruptcy-exit plan and return to all creditors and the court. This would take probably another couple of years, making it one of the longest (if not the longest) Chapter 11s in airline history–with all the related uncertainty to those affected by a Chapter 11. This is unfair to creditors and employees, and it will also wipe out any gains shareholders obtained in the current plan.

The DOJ clearly failed to take into account these impacts.

Air Canada eyes CSeries: The Globe and Mail reports that Air Canada is considering the Bombardier CSeries to replace the aging Embraer E-190 and Airbus A319 fleets. We expect the competition to be fierce: Airbus will certainly do what it can to block this sale (through pricing, no doubt) and we wouldn’t be at all surprised if Brazil would offer export financing for a replacement E-Jet fleet–something Bombardier can’t match because of the so-called Home Country rule prohibiting government financing for home-country airlines.

And then there is Boeing. The entire Airbus fleet is getting long in the tooth and our market intelligence tells us Air Canada is running a full narrow-body competition between Airbus and Boeing.

A re-fleeting decision is expected by year-end.

MRJ First Flight Delay: It’s been widely hinted, but now a supplier told Flight International that the first flight of the Mitsubishi MRJ is delayed to the end of 2014.

Paris Air Show news begins from Sunday; some details on EMB revamp emerge

The Paris Air Show doesn’t start until tomorrow, but news is already being made. A sampling:

Airbus

Airbus battles for supremacy in twin-aisle sector

Hundreds of orders seen this week

Airbus seen pulling ahead in easyJet race

Boeing

787 issues just a spot of turbulence

China set to become world’s third aircraft maker

GE pushes envelope with GE9X for 777X

Unrelated to the show: SC ponies up even more money. Washington State needs to do something to remain competitive. Washington has this presence at the Air Show.

Bombardier

Size matters, in reverse

First flight prep and FTV 2 progress

Expectations at the air show

Embraer

Revamped E-Jet launch at the air show

Taking care of business at the airframe OEMs

The news yesterday the Boeing resumed delivery of the 787 is good news, not just for Boeing and the airlines, but for all the stakeholders.

Although Boeing did not stop or slow production of the aircraft during the grounding, had the grounding continued for six months instead of 3 1/2 we saw, Boeing may well have had to slow down the supply chain.

The 50 airplanes in the field are slowly returning to service. The last are to be carrying passengers by next month.

Now it’s back to taking care of business.

The launch of the 787-10 was pushed to the right during the grounding. We fully expect this launch to come soon, perhaps at the Paris Air Show. The 777X received its Authority to Offer last month. We anticipate formal launch by year end, perhaps at the Dubai Air Show with a huge order from Emirates Airlines. We also think there will be some commitments announced at the Paris Air Show, by Qatar Airways, which always likes to make a splash at the European event.

Production for the 787 is ramping up toward the 10 per month goal Boeing set for the end of this year, and despite skeptics (we included), it looks like this will happen. But Boeing needs to go beyond 10/mo to 14 to accommodate the 787-10 and demand for the current offerings. With a planned 2018 EIS for the -10, there’s plenty of time to bring the supply chain into line for this.

Over at Airbus, the A350 MSN001 has been painted and is prepping for handover to flight test.

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