Bombardier CSeries delays have little impact vs competitors

Bombardier’s third CSeries Flight Test Vehicle finally became airborne March 3. FTV 3 focuses on avionics. FTV 4 will focus on the testing of the Pratt & Whitney Geared Turbo Fan engine; Bombardier hasn’t announced a date when this airplane will join the test program.

Bombardier’s rescheduled flight test schedule, reflecting a 9-15 month additional delay to entry-into-service (now the second half of 2015), hasn’t been publicly detailed. BBD presents to the International Society of Transport Aircraft Traders (ISTAT) at its annual US meeting this week in San Diego, and there is an investors day later in the week. We expect one or both venues to provide program updates.

The new EIS narrows the gap between the CSeries and its competitors, the Airbus A319neo, the Embraer E-190/195 E2 and the Boeing 737-7 MAX. But the impact isn’t significant, in our view. Airbus’ A319neo—the direct competitor to the CS300—was to be the first of the re-engined challengers to the new-design CS300 with an EIS originally set for the first quarter of 2016 (six months after the A320neo EIS of October 2015). But Qatar Airways, the launch customer of the A319neo, dropped this order in favor of the larger A320neo. The A319neo EIS is now slated for the second half of 2017, for Avianca Airlines.

EIS 100-149

 

This means the original two-year gap between the CS300 and the A319neo remains the same, assuming no additional delays for the CSeries and none for the A319neo.

Parenthetically, we are unsure if Frontier Airlines will take its order for 20 A319neos, with first delivery scheduled in 2018. When we talked with CEO David Siegel two years ago, he expressed doubts about taking the airplane, preferring the larger A320 sibling. The only other announced customer is Avianca, with a firm order for nine. Will Avianca ultimately take the A319neo, particularly if Frontier swaps its order? We have our doubts. There is an unannounced customer for the A319neo for eight, according to the Ascend data base, but delivery dates currently are listed as “2500.”

The Embraer E-190 E2 nominally competes with the CS100; it’s barely within the 100-125 seat category in a one-class configuration, while the CS100 is comfortably within this sector. In two classes, the E-190 E2 is an 88 seat aircraft and the CS100 is 100 seats. The CS100 also has more range; arguably these are different classes of aircraft.

The E-195 E2 nominally competes with the CS-300. In one class, the E-195 E2 is a 132 seat airplane, but the CS-300 carriers 145-149 passengers, and as with the CS-100 has longer range. The E-195 E2 is a more direct competitor with the CS-100, but range is shorter and missions may be somewhat different. The EIS for the CSeries vs the E2s still has a gap of 2 ½-3 ½ years, assuming no delays to either program based on the currently announced schedules.

The 737-7 MAX EIS is slated for 2019, about four years after the CS-300.

Thus, we see little impact to Bombardier’s delay from a practical standpoint.

Despite the additional delay, Bombardier hasn’t yet updated its expectations for firm orders and customer numbers. It’s still reporting its goal to have 300 firm orders and 20-30 customers by EIS (previously fall of 2014). Moving the EIS to the right by 9-15 months should implicitly infer higher numbers. Perhaps new targets will be revealed in the program update this week.

Qatar swaps A319neo to A320neo; just 29-39 orders remain

Qatar Airways has swapped its order for the A319neo in favor of the A320neo, leaving just 29-39 orders remaining for the smallest version of the neo family.

Qatar became the first customer for the A319neo when it placed a surprise order at the 2009 Paris Air Show. Bombardier had negotiated a contract for 20 CSeries to be signed at the show, and with market expectations high, was embarrassed when Qatar’s CEO, Akbar Al-Baker, did one of his famous U-Turns and didn’t proceed. (Al-Baker would embarrass Boeing and Airbus at later air shows by withdrawing an announced deal for the 777-300ER and no-showing at an Airbus press conference.) We were reliably told that the French government intervened with the Qatari government to block the important CSeries order at the Paris Air Show in favor of an order for the A319neo and A320neo.

Avianca Colombia retains an order for nine and Frontier Airlines has 20, according to the Ascend data base. Flight Global reports Avianca has 19 on order, however, and this is the figure shown in an Avianca presentation, probably reflecting options yet to be exercised. Avianca is scheduled to get three in 2017, two in 2018 and the rest in 2019, according to Ascend. Frontier is scheduled to begin taking delivery in December 2018 through 2020.

This means the A319neo, which was supposed to enter service in 2016, six months after the October 2015 EIS for the A320neo, now slips behind the A321neo EIS.

The new EIS schedule means the A319neo still is planned to enter service two years before Boeing’s 737-7 MAX but two years after Bombardier’s CS300. Embraer’s E-195 E2, which seats 133 in single class to the A319neo’s 156 in single class, is scheduled to enter service in 2019.

The Frontier order is iffy, we believe. The CEO, David Siegel, told us a couple of years ago economics of the A319 aren’t very good in today’s fuel environment and favored the larger A320. Frontier was then owned by Republic Airways Holdings and was sold this year to Indigo, an investment group (not related to India’s Indigo Airlines). Indigo was principal owner of Spirit Airlines, an ultra-low cost carrier in the US. Siegel has been transforming Frontier from a low cost carrier to a ULCC. The new ownership is certain to accelerate this transition.

We expect the new ownership will also favor the A320neo and A321neo, and that eventually the order for the A319neo will be up-sized. We believe Avianca will inevitably follow.

This means Airbus will probably drop the A319neo eventually. The A319ceo may be retained through 2019 at steeply discounted prices, but more likely the A320ceo with deep discounts will be Airbus’ continuing competitive response to Bombardier’s CS300 and, to a lesser extent, Embraer’s E-195 E2.

Boeing has sold the 737-7 only to Southwest Airlines and WestJet. Southwest is said to need the 737-7 for its Midway Airport operations. Air Canada has the option to convert some of its 737 MAX orders to the -7.

Frontier sold to Franke group; what of Republic CSeries order?

It had become one of the worst-kept secrets: Indigo Partners, the investment group managed by Bill Franke, former CEO of America West Airlines, has purchased Frontier Airlines from Republic Airways Holdings.

Frontier assumes all the Airbus A320neo family orders outstanding.

Franke’s Indigo bought controlling interest in Spirit Airlines and transformed it into an Ultra Low Cost Carrier. Indigo sold its shares months ago and Franke and an associate resigned from the Board of Directors, and from then on speculation was rife Indigo was gearing up to buy Frontier. Frontier CEO David Siegel has been transforming Frontier into an ULCC, but Franke is likely to take to concept further.

Republic was the launch customer for 40+40 Bombardier CSeries, Inevitably, questions will arise over the future of these orders, since these were assumed to be for Frontier.

Our information is that Republic has plans for these airplanes apart from Frontier.

American, US Airways respond to DOJ complaint

American Airlines and US Airways filed their responses to the DOJ lawsuit seeking to block the merger. The Dallas Morning News has this synopsis. The full, 50-page US Airways response is here.

There’s one element that particularly caught our eye, and that is market share. While DOJ points out that the New American, along with Delta Air Lines and United Airlines, would control some 80% of the available seat miles (a statistically correct figure), AA and US point out that in terms of domestic market share, Southwest Airlines, other LCCs plus Alaska Airlines and Hawaiian Airlines control 40% of all domestic passengers.

The Complaint’s focus on legacy airlines causes it to ignore the most meaningful competitive development in the airline industry since deregulation: the emergence of low cost carriers. Southwest, which in 1978 was an oddity limited to intrastate flying in Texas, is now the country’s largest domestic airline, carrying more passengers last year than any legacy carrier and more than US Airways and American combined. Other low cost carriers, including JetBlue, Spirit Airlines, Virgin America, Sun Country, and Allegiant, are expanding at dramatic rates. These carriers, together with Southwest and regional competitors Alaska Airlines and Hawaiian Airlines, now transport over 40% of all domestic passengers, and that share continues to grow. The demonstrable success of low cost carriers is a market driven response to consumer demand, but the Complaint inexplicably ignores their profound and permanent effect on industry competition.

In fact, Southwest has for many years carried more domestic passengers than any other airline–which begs the question, why didn’t DOJ block the Southwest-AirTran merger, which would only increase and consolidate this concentration?

The court should find for AA and US. This lawsuit is an embarrassment to DOJ for its political motivations, poor research and lack of understanding of the airline industry.

Odds and Ends: 787 Developments on ELT, Production; Frontier as a ULCC

787 Developments: There have been a flurry of developments late Friday on the Boeing 787.

First, it emerged that Boeing’s Charleston plant will not reach a production target of three per month by the end of this year as Boeing repeatedly said. The Charleston Post & Courier first reported the story, and the Puget Sound Business Journal picked up on it Friday.

We weren’t surprised by this because (1) we’d been hearing rumblings for months that progress at Charleston was less than Boeing was suggesting publicly and (2) we got a call from the Post & Courier reporter a week ago perplexed by Boeing’s response when he made inquiries. And to us, this is the most bizarre part of the entire story. Boeing’s official response was quite snarky:

“If anyone was under the impression that Boeing South Carolina would be at three per month by the end of this year, they didn’t understand what we’ve been saying about the surge line in Everett helping us to meet the program-level rate as the facility there comes up in rate. That’s been our message for a long time now,” the Boeing Charleston spokesperson told the P&C and Everett told the Business Journal (via two different spokespersons).

This was really quite a pissy official statement from Boeing.

When the P&C presented Boeing with Boeing’s own statements from last year pledging a 3/mo production rate at Charleston, the Corporate Communications people had to backtrack. Steve Wilhelm at the Business Journal wrote:

But when confronted with Boeing’s own October 2012 release stating that the North Charleston operation would hit three monthly by the end of this year, as well as a 2012 interview with North Charleston site director Jack Jones, in which he said he expected to hit an even-higher 3.5 monthly rate by the end of this year, the Boeing communications team backed down.

After conferring with her colleagues, presumably in North Charleston, [Lori] Gunter (Boeing Everett) issued this statement:

“The 787 program is on track to reach a total production rate of 10 airplanes per month by the end of 2013. This rate will be accomplished by combining the results of the Everett Final Assembly Line, the Boeing South Carolina Final Assembly Line and the Temporary Surge Line in Everett. Boeing South Carolina is expected to reach a production rate of three airplanes per month in 2014.”

This is an embarrassing display from Boeing.

Since the surge line had been put over to rework, we wonder its current status.

Second, The Wall Street Journal, followed by The Seattle Times, reported that Canada’s regulators are about to issue an Airworthiness Directive concerning Honeywell’s Emergency Locator Transmitter; and that there was a part that should have prevent the ELT from overheating in the event of a short circuit.

Seperately:

  • Frontier as a ULCC: The consultancy CAPA has an analysis of the prospect of Frontier Airlines moving even more in the direction of becoming an Ultra Low Cost Carrier than it has already.

Odds and Ends: Fixing Ethiopian’s 787; Pricing the 777X; Indigo and Frontier Air

Fixing Ethiopian’s 787: The New York Times has a good article on the challenges of fixing Ethiopian Airlines’ Boeing 787.

Pricing the 777X: The Wall Street Journal has an article about Boeing’s challenge of pricing the 777X. It’s via Google News, so it should be available to all Readers.

Indigo and Frontier Airlines: Sounds to us like Indigo is gearing up to be Frontier Airlines’ new owner.

Spirit Airlines Announces Sale of Common Stock by Indigo

MIRAMAR, Fla., July 29, 2013 (GLOBE NEWSWIRE) — Spirit Airlines, Inc. (Nasdaq:SAVE) announced today the public offering of 12,070,920 shares of common stock by certain existing stockholders affiliated with Indigo Partners LLC (“Indigo”). Upon completion of the offering, investment funds affiliated with Indigo will no longer own shares of common stock of Spirit Airlines. The company will not receive any proceeds from this offering. Barclays is acting as the sole underwriter for the offering.

The shares of common stock are being offered pursuant to the Company’s existing shelf registration statement filed with the Securities and Exchange Commission (the “SEC”) on July 31, 2012. A final prospectus supplement describing the terms of the offering will be filed with the SEC and, when available, may be obtained from the SEC’s website at http://www.sec.gov or from Barclays Capital Inc., c/o Broadridge Financial Solutions, 1155 Long Island Avenue, Edgewood, NY, 11717, Telephone (888) 603-5847 or by e-mailing Barclaysprospectus@broadridge.com.

In connection with the offering, the Company also announced that Messrs. William A. Franke and John R. Wilson have informed the Company that upon completion of the offering, they expect to resign as directors at the next board meeting, presently scheduled for August 7, 2013. Upon Mr. Franke’s resignation, the Company’s board intends to elect Mr. H. McIntyre Gardner, a director since 2010, as Chairman of the Board.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.

Odds and Ends: Bernstein: no 777X before 2020; Alaska, Frontier and Competition; A380 repair costs; Boeing labor challenges

No 777X before 2020: Bernstein Research, in a note issued today, says it doesn’t see delivery of the Boeing 777X before 2020. Also: on a recently completed trip to Asia, Bernstein wrote this:

There’s clearly huge demand for the 787. There was a lot of excitement about it, but Boeing was heavily promoting the 747-8, for which the company is certainly seeking more orders, with few orders for the passenger version and the air freight market being very weak. To date, the majority of orders for that airplane have been freighter orders. This is a relatively small program, but we think it is the most difficult within Boeing’s portfolio right now. …[Y]ou’re probably not going to see the growth that Boeing had once hoped for there. That’s certainly how we have been making assumptions, as well.

Alaska, Frontier and Competition: The Centre for Asia Pacific Aviation has this analysis about Alaska and Frontier airlines, which aside from being a little geographically-challenged, is one of CAPA’s usual well-researched and thought-0ut looks at airlines. (In fairness, CAPA often strays from the Asia-Pacific, but we couldn’t resist the quip.) CAPA now actually calls itself Centre for Aviation.

A380 Repair Costs: Aviation Week has this article detailing the costs to Emirates Airlines for repairs to the Airbus A380 wing bracket cracks.

Boeing Labor Challenges: Boeing seems headed for war again with labor unions. Here’s an article from The Everett Herald with several links within it; one from MyNorthwest.com about SPEEA; and one from The Seattle Times about SPEEA.

Cargolux and Qatar: We posted some news about Cargolux and Qatar yesterday; The Seattle Times has this piece about the threat to the Boeing 747-8F from Cargolux’s problems.

Airbus, Boeing battle for US MAX-NEO market share

With the announcement by Alaska Airlines for 20 737 MAX 8s, 17 737 MAX 9s (and 13 Next-Generation 737-900ERs), Airbus and Boeing continue their battle for the US market.

There are still a number of customers who have not ordered either aircraft. US Airways has been exclusively an Airbus customer. Airbus lost a hard-fought battle to Boeing in the competition for the A321-737-900ER order. ILFC orders seem to be on hold pending its Initial Public Stock offering.

737 MAX A320neo No Order Yet
American* Spirit Airlines US Airways
Aviation Capital Group** Frontier Airlines Delta Air Lines
Southwest Airlines jetBlue
United Airlines American*
Air Lease Corp Aviation Capital Group
GECAS CIT Aerospace
 Alaska Virgin America
*To be affirmed in bankruptcy court**Commitment, not yet converted to firm order  ILFC

AMR’s goofy merger explorations

So AMR says it will explore merger opportunities as part of its bankruptcy process.

The choices of potential partners are odd, indeed. According to The Wall Street Journal, AMR’s choices for a potential combination with American Airlines are US Airways, JetBlue, Alaska Air Group, Republic Airways Holdings’s Frontier Airlines, and Virgin America.

The Wall Street Journal notes: Besides US Airways, none of the others has publicly expressed a desire to merge with American. JetBlue and Alaska Air have indicated they prefer to remain independent, and people familiar with closely held Virgin America also said the company isn’t interested. Asked about that, Mr. Horton said: “If somebody’s not interested, they’re not interested.”

The choices, aside from US Airways, are pretty goofy. None is a network carrier that would add a system to American. JetBlue and Alaska Airlines would certainly beef up the East and West coasts, respectively, where American is weak. JetBlue would add strength to American’s JFK international hub. But neither brings a network to the airline.

Frontier Airlines and Virgin America wouldn’t bring even the attributes offered by JetBlue and Alaska. Frontier’s Denver hub competes with United Airlines and Southwest Airlines. Does American really want to get into this fight? We think not.

Virgin America, which regularly posts huge losses, isn’t strong in San Francisco where it is based and neither is American. We don’t understand why this airline is even mentioned.

The only airline that makes sense for consideration among those mentioned is US Airways. US Airways has a network, strong East Coast presence, and a sharp management, which wants to be in control and this seems to be the biggest obstacle for the AMR/American management.

And it only makes sense for the US Airways management to be the surviving one.

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Odds and Ends: TSA, 787 endurance and Frontier, again

This just in:

Busted. We’re a big fan of the Discovery Channel’s Mythbusters. In the warped sense of humor department, we found this to be pretty amusing, since nobody got hurt.

Original Post:

TSA: Anyone who has flown in the US knows that the airport experience is probably the worst part of traveling. It’s worse than the abominable on-board service now provided by most US airlines. It’s worse than the crowded airplanes and the cramped legroom. TSA’s use of body x-ray machines is invasive. The 3-1-1 rule about liquids is absurd and the requirement to remove shoes before going through magnometers is silly.

In Europe, the body x-ray machines we’ve been through (and we had no choice for an alternative method) are less objectionable. The particular machine at Delta’s Amsterdam connecting gate was a stick figure, not an x-ray of the body itself. The stick figure shows dots where “something” appears and the security person did a quick pat-down of these locations. Much less invasive than the TSA. And the shoes stayed on. This actually was the first body scanner we went through since they were introduced and because it was a stick figure, we had no objection.

Business Week has this article talking about the TSA and its silly policies.

Boeing spent billions designing the 787 (we’re thinking only of the standard expense here, not the overruns) to dramatically improve the passenger experience, and it did a very good job. And Boeing is spending lots of money to aid airlines in training, to reduce in-flight fuel expenses and to improve the air traffic management systems.

Too bad it can’t control what the airlines do with the interior, but even that isn’t the real challenge: it’s the airport experience.

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