Filling the production gap for A330 and 777 Classic: huge challenge ahead

Two orders were announced this week for the Airbus A330 and Boeing 777-300ER, important for filling the production gaps of each airplane. In the aggregate, the current backlogs go through 2016, though in reality, they stream beyond that date. See our charts below.

Airbus announced an order for 27 A330s from China, but these were the airplanes long frozen in the push-back by China against Europe in the emissions trading scheme objected to by China and a number of other countries. China routinely freezes airplane orders (among other commercial deals) to express its political displeasure.

At current production rates for the A330 or 10/mo, this adds 2.7 months to the Airbus backlog, but offset with deliveries, the aggregate backlog (i.e., if all deliveries were bunched together) means the backlog ends in 2016. With the Chinese order, Airbus announced 31 sales year-to-date.

 

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Odds and Ends: Rolls follows Pratt with GTF technology; Airbus’ challenge;

Rolls-Royce and GTF: Rolls-Royce today said it will pursue technology for its next big engine that follows the Geared Turbo Fan technology of Pratt & Whitney’s smaller design.

Aviation Week has this story and Bloomberg has this one.

RR says the engine will be ready around 2020, which is just about the time Emirates Airlines would like to see an engine that is 10% more efficient than today’s technologies, for the Airbus A380.

Airbus’ challenge: Reuters has a think-piece about the challenge Airbus faces in the heart-of-the-market twin-aisle sector occupied by the A330 and A350. Bloomberg discusses the A350 challenge in its report of Airbus Group earnings.

Odds and Ends: A330neo decision could be near; KC-46A; Countdown to Superbowl; A400M

A330neo decision: Aviation Week reports that a decision to proceed with the Airbus A330neo could be “imminent.” The report also discusses the advocacy by Tim Clark, COO of Emirates Airlines, to re-engine the Airbus A380. As with the Reuters and Bloomberg articles we previously linked, the Aviation Week piece also confirms much of what we were the first news outlet to report in December. We have a launch in 2014 rather than 2015 reported in Aviation Week, although we both have a decision to proceed for this year. Aviation Week and Bloomberg report that the decision could come as early as March.

Aviation Week confirms our report that Pratt & Whitney would be unlikely to bid on the project because the short time lime precludes development of the big engine version of the Geared Turbo Fan.

KC-46A at ‘high risk’ for delay: A US government report suggests the Boeing KC-46A tanker is at ‘high risk’ of a six month delay.

These are not unusual for military programs, nor, it seems, is it any longer unusual for new or derivative aircraft programs. Boeing believes the program is on time, but even if a six or 12 month delay does emerge, by today’s standards, this indeed is “on time.”

Countdown to Super Bowl: Boeing painted a Boeing 747-8F test plane in the Seattle Seahawks livery and this week “skywrote” the number 12 on a flight. The Seahawks play the Denver Broncos Sunday in New Jersey for the Super Bowl. The number “12″ represents “the 12th man,” of the collective Seahawks fan base.

We think it would be super for the 747 to overfly the game Sunday, the ultimate 12th man appearance. Alas, Boeing says there are no plans to do so.

A400M: Cool picture. No other words needed.

2013 Year in Review: 787 grounding was the top story

We’re back from what we had planned as a holiday hiatus. This was interrupted by the IAM-Boeing 777X contract issue, of which we felt compelled to initiate some special posts.

This leads off our 2013 Year in Review.

IAM-Boeing 777X Contract

Although it was not voted by Readers as the most important story of 2013, nor did it even make the Top Three, its importance can’t be understated. The relationship between the IAM 751 District, which represents Boeing “touch labor” workers in Puget Sound (and in limited numbers, in Oregon and elsewhere), is to put the best face on it, dysfunctional. Relations hit a lot point in 2008, with a 57 day strike, and 2009, when Boeing elected to put 787 line 2 in Charleston. We thought, as did many others, that 751 and Boeing entered a new era in 2011 when an agreement was reached extending the 2012 contract to 2016 in exchange for locating the 737 MAX construction in Renton. As it turns out, this guarantee had less promise to it than was thought; Boeing is using this assembly as a stick (or a carrot) in the current 777X contract proposal.

If the 777X is not assembled in Washington, this will likely mark the beginning of a serious migration of Boeing from Washington. What’s been happening up to down, with 787 Line 2 and a series of jobs relocations, is peanuts compared with what will happen as airplane programs wind down and Boeing has clean-sheet designs in the next decade.

Failure of 751 and Boeing to come to some accord (not necessarily one based on the January 3 contract vote) has grave implications for IAM jobs and aerospace in Washington.

Top Story of the Year

Readers voted and we agree that the top commercial aviation story of the year was the three month ground of the 787. Except for the Concorde, a special and highly limited case, there hadn’t been a grounding of a commercial jet since 1979 with the McDonnell Douglas DC-10. With only 50 787s in service at the time of the grounding, global disruption was limited but the number of 787s scheduled for delivery during this time magnified the global implications. Japan Air Lines and its rival All Nippon Airways, with more 787s in service than any other carrier, were disproportionately affected. The grounding may have helped influence JAL to break the Boeing monopoly and buy Airbus with the A350-900 order.

ANA is still considering a major order and having lost JAL to Airbus, Boeing can be counted on being motivated to cut virtually any deal on any terms and conditions to avoid losing ANA.

A350 and 777X

A mere handful of votes separated the first flight and flight testing of the A350XWB with the launch of the 777X. The A350XWB barely topped the 777X as the second most important story of 2013.

Flight testing by all accounts is going well. Airbus officials are so far sticking with an entry-into-service for next year, but when is a moving target. Officials initially said mid-year, then September then November or December. Based on customer comments, we moved EIS to 1Q2015 in our estimates months ago, perhaps January.

In mid-December, the new American Airlines did what we had expected: it dropped the US Airways order for the A350-800, swapping it into the A350-900. The days of the -800 are numbered, and we think this subtype will follow the 787-3 into oblivion as early as 2014.

Boeing finally launched the 777X in November at the Dubai Air Show. The launch was really anti-climatic: Lufthansa Airlines had already become the first customers in advance of the air show, but Dubai provided the well-expected, high-profile order of 150 from Emirates Airlines and more orders from Qatar Airways and Etihad Airlines. On December 20, Cathay Pacific Airways ordered 21 777-9s, giving Boeing some 280 orders and commitments for the airplane. How many of the commitments will actually be firmed up by the end of 2013 is something we’ll all know in early January.

CSeries First Flight and Flight Testing

Bombardier came in at a distant fourth in the Reader tally with the first flight of the CSeries. This is BBD’s attempt to leap into the Big Leagues, challenging Airbus and Boeing directly at the small end of the mainline jet market. First flight was delayed three times and the flight test program has been slow off the mark. Flight Test Vehicle 2 is behind schedule entering the program and, we believe, so is FTV 3.

Bombardier long said that EIS would be 12 months after first flight. Following the September 16 launch of FTV 1, BBD stuck with this plan publicly. This meant EIS would be September 2014.

Not a chance.

We already had moved EIS to 1Q2015 by the time BBD CEO Pierre Beaudoin told the Toronto Globe and Mail in November that EIS was still a “good year” away.

We now have EIS in 2Q or 3Q2015 in our estimates. BBD’s year-end earnings call is February 11. We expect an EIS update from the company at that time.

Other Stories

All other nominees for 2013′s Top Stories were also-rans to Bombardier. Here are the results at December 29.

Vote for the Top Aviation Stories of 2013

Answer Votes Percent
Airbus A350 XWB has first flight and enters testing 168 20%  
Airbus A380 gets big order boost from Emirates 16 2%  
American Airlines and US Airways merge 39 5%  
Boeing 777X is launched 164 20%  
Boeing 777X Site Selection competition 43 5%  
Boeing 787 is grounded 258 31%  
Boeing 787-10 is launched 11 1%  
Bombardier CSeries has first flight and enters testing 74 9%  
Embraer launches E-Jet E2 3 0%  
IAM 751 rejects 777X Contract Nov. 13 33 4%  
IAM International Forces Vote on Second 777X contract offer 24 3%   

Does 777X assembly site matter to airlines? Yes, up to a point; and a retrospective to 2009

As Boeing awaits responses to its Requests for Proposals from 15 sites around the US and possibly Japan, Washington State officials, company employees and other stakeholders fret that Boeing will choose someplace other than Everett (WA).

Everett has all the logical advantages: the 777 Classic is assembled here. There are vast, mature facilities here. There is an experienced workforce here. As we note in our previous post today, there are a lot of points to ponder when it comes to choosing a site.

But what about the airlines? Do they care where the airplane is assembled?

This isn’t entirely clear. Emirates Airlines and Qatar Airways said at the Dubai Air Show they want the airplane built at one location, in the US, not outsourced to a bunch of countries and industrial partners in the fashion of the Boeing 787–an industrial model that proved disastrous for Boeing and the customers.

But do they care whether the 777X is built at Everett, Boeing South Carolina or some other site? Emirates and Qatar didn’t say, at least publicly. Etihad Airlines, another launch customer for the 777X, hasn’t said anything publicly. The first customer for the X told us that what’s important to it is an accessible location for inspections–in other words, a location with good air service, which could be one-stop connecting service.

This would rule in any of the cities that have been mentioned publicly in Boeing’s RFP search. It would rule out a city like Moses Lake (WA), which has ambitions of becoming an aerospace cluster but which has no airline service. The closest major airport is Spokane (WA), a 90 minute drive. Sea-Tac International Airport is a three hour drive. Lufthansa seems unconcerned whether Everett or another site is the choice.

Lufthansa is also not a 787 customer, but officials are well aware of the issues and delays involved in the program. It seriously considered ordering the 787-10 but for route system operational requirements chose instead the Airbus A350-900. But for some 787 customers, assembly location does matter. We understand from our sources that some customers want their Dreamliners assembled in Everett, not Boeing South Carolina, where by most accounts slow production rates and quality control issues remain a challenge.

Retrospective to 2009

As we sort through the events surrounding the IAM 751, Boeing and the 777X, we went back and re-read some of the coverage from 2009 when Boeing put 787 Line 2 in Charleston. There are some similarities–notably Sen. Patty Murray’s involvement then and now–and a lot of differences. Here are links to our posts; be sure to click through to the links of newspaper coverage contained within our posts. Reading the stories linked have amazing relevance to recent events.

Boeing talks a sham: This story, in The Everett Herald, paints a much different picture than:

How South Carolina won the deal. Also: The click-through to The Everett Herald story from this link has a familiar ring to our “loyalty” post of November 21.

Back to today:

Stan Sorscher of SPEEA, the Boeing engineers’ union, has a guest column in The Huffington Post, taking Boeing to task (not a particular surprise) over the current site search and efforts to cut benefits with the IAM 751 “because they can.”

Danny Westneat, a columnist for The Seattle Times, wrote Sunday that perhaps Washington State should look beyond Boeing for aerospace. This isn’t new. We advocated this in October 2009 (just days before Boeing announced it would put the 787 Line 2 assembly in Charleston) at the Governor’s Aerospace Summit conference in Spokane (WA). Be sure to click on the link to the PPT presentation, too.

Odds and Ends: AirAsia on A330neo, A380; 777X specificiations; A380 engine PIPs

AirAsia on Airbus: AirAsia Group is one of Airbus’ largest customers, and its CEO Tony Fernandes is increasingly influential in the Asian sector. He’s also into car racing, often betting Virgin Group’s Richard Branson. This short interview details Fernandes’ view on the prospective A330neo–something Fernandes has been pushing for some time–and what he thinks Airbus should do with the A380.

Looking at the 777X: Aviation Week has a detailed look at the Boeing 777X “under the skin.” Fuel burn, engine thrust and general specifications are in the article. Aviation Week also has a series of videos from the Dubai Air Show here. Topics: 777X, Qatar Airways and A380 engines. On the latter, Emirates CEO Tim Clark suggests putting the new GE9X or Rolls-Royce Trent on the A380 to reduce fuel burn by 10%.

Implications of the Dubai Air Show orders

With the Dubai Air Show wrapped up, it’s time to assess the events and the implications.

 

Boeing launches 777X

Boeing launched the 777X at the show with orders and commitments for 182 777-9s and 43 777-8s, the latter the Ultra Long Range (ULR) version. These orders were driven by Emirates Airlines, which ordered 115 -9s and 35 -8s.

 

All had been widely telegraphed, and follow Lufthansa Airlines’ order for 34 777-9X previously anounced.

 

The 777-8 competes directly with the 350-passenger Airbus A350-1000; the 777-9, at 407 passengers, is in a class by itself between the -1000 and the 467-seat Boeing 747-8.

 

Boeing forecasts a 20-year demand for 670 350-400 seat (including the 405-seat 777-9) sector. Airbus forecasts a need for 779 aircraft in this sector. Airbus had booked 176 A350-1000 orders going into the show and added 10 more.

 

This means Airbus and Boeing have sold 186 and 259 aircraft in this sector respectively, or 445 in total. Boeing converted three options of the 777-300ER to a firm order. Now we’re at 448, of 67% of the Boeing forecast or 58% of the Airbus forecast. There are 278 777-300ERs in backlog, for a total of 692.

 

There are 306 747-400 passenger models in service and another 23 Combis, or 329. There are 501 777-300s in service. This equals 830 excluding the 777-300ER backlog or 1,108 including the backlog,

 

 

747-400

777-300ER

A350-1000

777-8

777-9

In Service

329

501

0

0

0

Backlog

0

278

186

43

182

Total

329

779

186

43

216

 Sources: Airbus, Boeing

 

We believe the Airbus and Boeing forecasts understate the 20 year demand just on the replacement potential of today’s 1,108 747-400s and 779 777-300ERs in service or on backlog. In addition to the replacement requirement, traffic growth will support more aircraft orders.

 

Airbus and the “A350-1100″

We previously analyzed the Airbus dilemma over how it should meet the development of the 777-9. Airbus doesn’t have a direct competitor to this aircraft, though officials claim the A350-1000 is this competitor. We disagree and so do Emirates Airlines and Qatar Airways. According to our Market Intelligence, Airbus has held conversations with Emirates about a stretch “A350-1100″ version. Qatar’s CEO, Akbar Al-Baker, publicly expressed interest in an “1100″ model.

 

Airbus previously dismissed the idea of an “1100″ of roughly equal capacity to the 777-9 because it did not see a market for the airplane of this size. Based on its forecast of 779 airplanes and the existing sales, this logic is apparent. Since then, however, Airbus officials indicated they are at least looking at the possibility, though no formal study is underway.

There is a concern in some quarters that Airbus has already missed this opportunity and Boeing has too great a lead.

We continue to believe Airbus will eventually proceed with the “1100.”

 

Boeing 747-8

We think it significant that no orders were announced for the Boeing 747-8I passenger model or for the 747-8F. We have long believed the 777-9 spells the end of the 747-8I. While Lufthansa Airlines has ordered the 8I, the 777-9 and the Airbus A380 and sees a need for each of these as each serves different market sectors, there is little the 747-8I can do that the more economical 777-9 can’t. Lufthansa likes the 747-8I for hot-and-high airports, such as Mexico City, but there are few of these markets that support the continuation of this airplane now that the 777-9 is official.

 

The 747-8F’s future depends on the recovery of the cargo market. Boeing forecasts this to occur next year. But one cargo conversion company, which doesn’t play in the 747 space, doesn’t see the business case of a new-build 747-8F when there are abundant 747-400Fs parked in the desert and those 329 more passenger and combi aircraft available for conversion at a far less expensive price than it costs to buy new. Additionally, this company believes the belly capacity of the 777-300ER and Airbus A330-300, and the existence of the 777-200LRF, provides plenty of capacity that diminishes the economics and requirement for the 747-8F.

 

Airbus A380

The order by Emirates Airlines for 50 A380s is a badly needed shot in the arm for the program, which saw sales stall at 262 for an extended period (259 net of cancellations). There are several orders that are iffy (Hong Kong Airlines, Virgin Atlantic, two for Air France) and dead (Kingfisher Airlines), among others. Emirates plus a pending confirmation of an MOU for Doric Lease are needed to fill near-term production slot vacancies and boost the book-to-bill deficit in the program.

 

But customer concentration is increased with the Emirates order, now accounting for 140 (42.5%) of the 329 orders confirmed and announced. Airbus continues to bank on airport congestion and traffic growth combining to boost sales. We think the 777-9 will cut into this demand. The question is whether Airbus proceeds with an A350-1100 to retain some of this diversion in the family or whether it allows Boeing the monopoly to do so.

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.

Emirates urges 777X be built in US: Wall Street Journal

Emirates Airlines has urged Boeing to build the 777X and its components in the US to avoid the issues that bedeviled the 787, according to The Wall Street Journal. (Subscription required.)

“Tim Clark, president of Emirates, said Boeing should assemble the 777X family in its own facilities to better manage the process and deliver the aircraft on time in 2020,” The WSJ wrote.

“‘All we said to [Boeing] was, ‘Please don’t do to 777X what you did to the [787],’” Mr. Clark said in an interview on the sidelines of the Dubai Air Show, adding that outsourcing the manufacture-and-build process to companies in Asia or Europe might mean Boeing loses quality and control of assembly. “Don’t do that to us,” he said,” The WSJ wrote.

“Qatar Airways Chief Executive Akbar Al Akbar similarly expressed a desire that Boeing assemble the 777X at a single U.S. facility. “Frankly, we would rather everything was built in one place, and I think Boeing from the 787 experience have learnt a lesson,” he said in an interview Tuesday,” reported The Journal.

There is broad consensus that Boeing’s Everett plant is the best place to build the 777X, given its experienced workforce, a mature factory and the continuing challenges of the Charleston 787 plant. But Boeing CEO Jim McNerney’s antipathy toward the IAM specifically and the Washington State business climate generally are “wild cards,” a source familiar with the dynamics tells us.

Boeing is entertaining business offers from other states, and is widely reported to be considering locations at its facilities in Utah, California, Texas and Alabama. The Charleston plant is said not to be on the list due to the plant challenges with the 787, but Boeing hasn’t confirmed any of these possibilities.

DXB13 Day 3: Bombardier, Boeing, Airbus announce small orders

Bombardier, Boeing and Airbus each snared some orders at Day 3 of the Dubai Air Show:

Bombardier

  • A Letter of Intent from Iraqi Airways for 5+11 CS300s;
  • Abu Dhabi Aviation ordered two Q400ss; and
  • Nok Air of Thailand announced orders, options and purchase rights for 2+2+4 Q400s.

Boeing nabbed an order from TUI Travel for two 787s. Turkish Airlines firmed options for three 777-300ERs.

Airbus announced that Air Serbia ordered 10 A320s and Air Algerie signed an MOU for three A330-200s.

Other headlines from the show:

Airbus considers boosting A320 production

Engine Alliance ponders A380 engine improvements

Bombardier launches high density Q400

Watch out, US airlines, the Arabs are coming

Emirates to compete engine supplier for 50 A380s