Odds and Ends: AirAsiaX orders A333; WA and Airbus; Boeing names COO

AirAsiaX orders A330-300s: As forecast earlier this week, the budget carrier ordered 25 Airbus A330-300s. According to reports, AirAsiaX may not be done. Group CEO Tony Fernandes wants Airbus to develop an A330neo. Stay tuned.

Washington State and Airbus: The Associated Press wrote a story about the courtship of Washington State of Airbus, making a link between the Boeing 777X site selection Schizophrenia and the Airbus effort. Some headline writers made an even more direct cause-and-effect link. This vastly overstates what’s been going on. Gov. Christine Gregoire began reaching out to Airbus in 2010, but the effort was stalled by the then-contentious and bitter competition between Boeing and Airbus over the USAF KC-X tanker competition. Gregoire, who was just named chairman of the advisory committee to the US Export-Import Bank, naturally backed the Boeing bid but was wisely measured in her rhetoric when it came to the EADS KC-330 offering. The Washington Congressional delegation, however, was often vitriolic and as a result, Gregoire’s efforts largely stalled.

Once that competition was over in 2011, Gregoire resumed her efforts in the last year of her governorship, meeting with EADS and Airbus officials at the 2012 Farnborough Air Show. The WA Dept. of Commerce had continued efforts throughout. This past summer, Commerce and the Pacific Northwest Aerospace Alliance hosted an Airbus suppliers meeting in the Seattle area, attended by about 120 suppliers (about 30-40 had been expected).

So while the AP story is factually correct overall, any linkage to 777X and the Airbus courtship is overstated. This has been a long-term effort by Airbus, PNAA and it is a concept we called for in October 2009 in a speech before the Governor’s Aerospace Summit just days before Boeing announced it was locating 787 line 2 in Charleston (SC). The Airbus effort, if anything, has more of a link to that event than to the 777X.

Boeing names Muilenberg COO: Dennis Muilenberg, CEO of Boeing’s defense business, has been named COO of The Boeing Co. He is succeeded by Christopher Chadwick. Ray Conner, CEO of Boeing Commercial Airplanes, was named Vice Chairman of the Board and continues in his current position. The press release is here.

McNerney reaches retirement age next year but given the timing, we think he’ll stick around a bit longer to give Muilenberg more time in the #2 corporate position. Since Muilenberg is younger than Conner, we think Muilenberg is the more likely choice for successor.

Another Day, Another 777X story: The obsession continues. Seattle Times columnist Danny Westneat has this commentary worth reading. The Everett Herald has a good wrap up of where things stand in Washington State right now. The Seattle Times looks at Long Beach (CA) in depth and its potential for the 777X.

Airbus to cut new airplane R&D, focus more on derivatives

Airbus is going to cut back its new airplane research and development spending and redirect efforts more toward derivative airplanes, EADS CEO Tom Enders told aerospace analysts at the EADS Global Investors Forum.

Buried in a Bloomberg News report of the GIF is this:

Enders also wants to curb cash-hungry development efforts in favor of milking existing products for higher returns. At Airbus, he backed the re-engining of the A320 narrow-body over building a new plane. No new jets are planned at Airbus beyond the A350, which is due to commence deliveries late next year.

“Why should we spend large amounts of money when we can make significant incremental improvements?” he said. “This principle can be applied outside of just civil aircraft.”

Airbus, like Boeing, suffered under the strain of new aircraft programs, notably the A380 and A400M. As yet, the A350 doesn’t seem to have been a black hole, with normal development costs.

Richard Aboulafia of The Teal Group was critical of Boeing for years for starving R&D for new aircraft and over-relying on derivatives while Airbus invested in new aircraft programs. He had this to say about Enders’ news:

This is only possible as a percent of sales.  Airbus is at a twin aisle product line disadvantage relative to Boeing, so this isn’t the time for them to rest on their laurels.  Some kind of response to the 777-9X is essential, even if it arrives a few years after the Boeing jet.  Whether it’s an A350-1100 or a clean sheet, it requires a significant investment right after A350XWB-800/900/1000 spending winds down.  Thus, in absolute numbers, the company would be advised to keep spending high for the next ten years.  But on the positive side, since Airbus’s revenue will grow with A350 (and incrementally with the A320 neo), the company’s percent of revenue spent on IRAD will decline.
Enders’ comments reflect the changing nature of Airbus’s shareholder relations more than anything else.  They’ll need to focus more on profitability rather than new product development over the next ten years; they may wind up looking more like Boeing.

Odds and Ends: From EADS’ Investors’ Day; Illinois and 777X; Air Canada; LOT gets $33m from Boeing

From EADS’ Investors Day 1: Airbus parent EADS is having two days worth of briefings for aerospace analysts. Here’s initial news coverage from Day 1:

Reuters: EADS strategy stresses Airbus

Reuters: EADS IDs new dividend policy, A350 target

Illinois and 777X: Add the Prairie State to those submitting bids to Boeing for the 777X assembly site. Illinois was previously not included in any list that we saw.

Air Canada: The airline’s Board of Directors meets today to ratify staff recommendations to replace the Airbus A319/320/321 fleet. Airbus and Boeing are competing with their A320neo and 737 MAX families. This competition is said to be only for the 150-200 seat sector. A separate decision for the 100-149 seat sector is expected to come next year. Bombardier hopes to win that part of the deal.

Update, 10:30 PST: The Wall Street Journal says Air Canada and Boeing are negotiating a deal for 50 737 MAXes.

Update, 11:15am PST:

LOT gets $33m from Boeing: Reuters reports that LOT Polish Airlines will receive $33m from Boeing for the 787 problems. Payments will be in cash, the news agency says.

Key events Dec. 10-12: Boeing, EADS, Air Canada

There are some key events to follow today through Thursday:

December 10: The Requests for Proposals for the site selection of the 777X are due into Boeing today. Media will be trying to find details, but Boeing certainly won’t be talking. Nor do we expect states to be doing much talking, either.

Boeing says there will be a decision early next year; we are hearing the end of January, but this information is very soft.

December 11: EADS, parent of Airbus, begins two days of its Global Investors Day briefings.

Air Canada’s Board of Directors is to meet to decide on replacing its large, aging fleet of Airbus A320/321s. Airbus and Boeing are bidding. Flight Global earlier reported staff had selected the Airbus, but Air Canada denied a decision had been made. But, as with all denials, this could be carefully crafted: the Board hadn’t approved a deal, so no “decision” had been made.

We understand, but are not 100% certain, that the fleet renewal for the 100-149 seat sector remains open. This means Bombardier and its CSeries could still win a deal–or Air Canada may decide to retain its Embraer E-190 fleet.

December 12: EADS’ investors day continues, with guidance and information about the next 12 months and beyond for Airbus.

Doug Harned of Bernstein Research issued a note Monday listing a series of questions for EADS’ officials; we couldn’t sum it up better:

  1. What is the A350 development and production outlook?
  2. How large are A350 losses likely to be in 2015? [NB: EADS/Airbus writes off development costs in the year incurred, unlike Boeing which uses program accounting to spread costs. Editor.]
  3. Will Airbus hit its goal of 10% margins, ex-A350, in 2015?
  4. Can Airbus grow and sustain the A380 production?
  5. When will Airbus take up rates on the A320neo?
  6. What is the outlook for A330 deliveries?

Odds and Ends: 777X Shell game; CSeries updates; EADS unions; More oops

777X Shell Game: TheStreet.com asks whether the Boeing 777X orders announced at the Dubai Air Show amounts to a massive shell game. By this, the column means whether these orders merely will come from other airlines as traffic is diverted from the legacy European, US and Asian airlines to the Middle Eastern carriers as the latter expand their services.

There is no question there will be a diversion of traffic. Boeing a few years ago pointed out the diversion, then at around an estimated 5%, as the Middle Eastern airlines–Emirates, Qatar and Etihad–rapidly expanded into markets. But this is what competition is about. And this is what has got Delta Air Lines of the US so exercised over the US Export Import Bank financing the likes of Emirates Airlines.

Air traffic growth will accommodate some of the competition.

There are more than 1,000 Boeing 747-400s and 777 Classics in operation or on order that will require replacement by the 777X and the Airbus A350-1000. Business Week raises the question, how will Boeing maintain sales of the 777 Classic now that the 777X program has been launched?

CSeries Updates: Bombardier is “mulling” a new program schedule for the CSeries, according to this story from AIN Online. BBD should announce any new timeline for its flight test program, and presumably entry-into-service, within a few weeks. Flight Global reports that the program will see the addition of the second flight test vehicle shortly, which will increase the frequency of flights. Flight Global also reports that BBD officials see more orders and better pricing starting to flow as more flight tests and data from the program comes forth.

Bombardier now has 419 orders and commitments for the airplane.

Here is a profile of BBD’s top official in China.

EADS unions: Lest one forget, Boeing isn’t the only aerospace company with union issues. Airbus parent EADS is facing a walkout next week by one of its unions. Reuters reports the walkout is to protest layoffs as EADS restructures its defense subsidiaries.

Speaking of oops: Yesterday we reported that a Washington State advertisement supporting the Boeing 777X used a picture of an Airbus airplane. This lit up Twitter and made news all over the country. Today we woke up to find Twitter and the news lit up with reports that a Boeing Dreamlifter landed at the wrong airport in Kansas.

Odds and Ends: Volcano protection; Airbus trims guidance on A350; More on Boeing

Volcano protection: No, we’re not talking about any eruptions from IAM 751. Instead, Airbus and Europe’s easyJet created some man-made volcano ash to conduct tests for detecting the real thing.

Airbus trims guidance: EADS/Airbus trimmed its financial guidance on A350 development costs, according to The Financial Times (free registration required). According to The Times, the entry-into-service of the A350–slated for 3Q2014–”is at risk.” We have EIS in 1Q2015. EADS for now is sticking with the 2014 EIS.

Boeing 777X: As might be expected, there continues to be a lot of news on the 777X.

Bombardier scores huge deal at Russian air show

Bombardier scored a huge deal at the Russian air show, MAKS, with a letter of intent for an order for up to 100 Q400 turbo-props.

The Q400 has been trailing rival ATR, which is half owned by Airbus parent EADS, for the ATR-72 turbo-prop, by a wide margin in recent sales. ATR recently obtained third-world, gravel runway certification for its airplane.

The BBD deal includes the potential of establishing a second Q400 assembly line in Russia. The BBD deal is for 50+50 and isn’t expected to be completed until next year.

Bombardier has been making a major effort in Russia, placing used CRJ regional jets there, previous orders for the Q400 and an order for 32 CSeries. It’s also signed an agreement to explore customer support services for the Irkut MC-21 150-212 seat mainline jet.

Other MAKS news:

  • Russia’s own Sukhoi announced orders for the Superjet, with 100 going to home-grown lessor Ilyushin Finance Corp.
  • Russia’s VEB Leasing converted an MOU for 20 MC-21s to a firm order. These are for lease to UTAir and Transaero.
  • Airbus, Boeing and Embraer have yet to announce any deals.
  • This is the first air show since the Soviet Union collapsed.

Dropping EADS for Airbus Group

The move to drop the acronym EADS for Airbus Group is being made out by some media to be a major step that better positions Airbus to compete with Boeing. This is a stretch.

The name change simply reflects reality: Airbus is the dominate member of the company. It also does away with the acronym, which many people mispronounced as “eeeds” rather than how it was supposed to be said (E-A-D-S, like I-B-M) that reflects an awkward name, European Aeronautic Defense and Space, a name so awkward it doesn’t readily appear on the EADS website.

A name change has really been thought about for years. On one trip to Toulouse, in 2009, we had a discussion then with Airbus personnel and the topic came up. We favored the Airbus name for the enterprise then–not that our opinion had anything to do with the action four years later :-).

More significant is the continued direction by CEO Tom Enders to move away from the government influence that first was instrumental in the growth of the enterprise but then became an albatross with jobs and prestige programs trumping business decisions (think A400M engine, the A380 [the product of 747 envy] and assembly locations). The volatile topic of government subsidies, necessary in the beginning and conceptually little different than the early days of US defense and commercial aviation, evolved into “reimbursable launch aid” that is unnecessary for a company like Airbus and which remains a target of international controversy when politics arise.

We welcome the change and the continued evolution of Airbus into a true commercial enterprise. Tom Enders will leave a legacy that will make him one of the most significant figures in global aerospace.

Meantime, EADS today announced its first half financial results.

“One Boeing” leads way for P-8, KC-46A; 767-2C commercial order seen

“One Boeing” is the strategy that blends all the company enterprises–Boeing Commercial, Boeing Defense, Boeing Commercial Aviation Services and other business units into a single set of resources rather than operating as solo businesses.

The P-8A Poseidon program is just such a blend. Using the commercial 737-800 as the platform with the 737-900ER wing, Commercial and Defense integrate the technologies of the two units and assemble the P-8A in what is actually the third 737 production line.

The US Navy has plans to acquire 117 P-8As to replacing the Eisenhower-era Lockheed P-3 Orion. The P-3 and the P-8 has a primary mission of anti-submarine patrol but the airplanes are increasingly being used for maritime patrol in a variety of countries for fisheries, immigration and more recently anti-piracy surveillance.

India ordered eight. Boeing sees a potential market for more than 150 more with countries now flying the P-3.

The Poseidon’s One Boeing approach was copied for the re-bid of the USAF KC-X tanker competition. The original platform, the KC-767 International program, was largely a Boeing Defense effort. The KC-767I, which involved taking a commercial 767-200ER and converting it to a cargo aircraft at Italy’s Alenia and finishing it out at Boeing Wichita, was a disastrous effort. Boeing pulled the work back from Alenia and design and flutter issues caused the program to be several years late to customers Italy and Japan. Only eight were built.

In the re-bid against EADS, BCA and BDS joined forces in an effort patterned after the Poseidon project. Boeing won with a bid that was 10% below EADS. So far, the USAF reports the project is going according to plan.

Boeing is now talking with customers to sell the KC-46A tanker outside the US, which was always part of the plan, according to this Bloomberg article. The platform, called the 767-2C, is about six feet longer than the 767-200ER but shorter than the 767-300ER. Air Force officials were quoted in trade press that commercial cargo versions could be offered, but nothing has been said about this prospect since.

However, we understand that Boeing is nearing a commercial order from FedEx for the -2C that will enable Boeing to boost production of the 767 lines to as much as 2.5 aircraft per month by October 2016.

EADS earnings and Airbus A350, A380 updates

EADS reported its first quarter earnings and in the process reiterated plans to fly the Airbus A350 in June.

Speculation remains rampant that Airbus will fly the airplane in time for the Paris Air Show.

Meantime, sales for the giant A380 languish, with open delivery slots in 2015–the year Airbus has said the program will break even. Like the rival Boeing 747-8I, sales of the Very Large Aircraft have stagnated while sales of the Big Twin engined airplanes have flourished. Airbus, like Boeing on the 747-8, took a huge write off years ago on the A380 program.

Airbus is sticking with its 20 year forecast of 1,300 VLA Passenger sales for Airbus and Boeing, and officially expects to capture 50% of the market. We’ve believed the forecast to be, kindly, optimistic. But the A380 has nearly 90% of the VLAP market and we expect this to remain the case. Airbus might reach its goal of 650 sales over 20 years, but even this is likely to be generous. This are new sales on top of the 272 already sold.

In a lawsuit between Rolls-Royce and Pratt & Whitney a few years back, it was revealed Airbus expected 630-650 program sales, which means about 42% of the sales have already been reached. (It took Boeing nearly 40 years to reach 1,300 747 sales, and for a time the 747 held a monopoly in the “jumbo jet” market). No orders for the A380 have been booked so far this year.