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.

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Is the A330neo engine Rolls Royce’s first carbon fan model?

The Airbus A330neo program has come a long way since our 29th of December article  “A330neo prospect gains traction.” With the Farnborough Air Show days away, we understand there are now Airbus internal job postings for engineers to join the program. The speculation then reduces to “when” the program will be announced, not “if.” Another would be what improvements are foreseen for the Boeing 787-derived engines that may power the neo.

Rolls Royce reportedly gains exclusivity

Reuters recently reported that Rolls Royce might get an exclusive engine deal for the A330neo. There are many reasons Airbus might give Rolls Royce or General Electric exclusivity on an engine for the A330neo, especially if Airbus sees the likely sales of the updated aircraft to stay below 500 units. The reasons can range from how much of the $2B estimated program cost the engine manufacturer would pay to what efficiency improvements they would undertake on top of what is already on the way for their 787 engines. There is every reason to believe the GEnx-1B can match the fuel consumption performance of a further developed Trent T1000-TEN. We understand Rolls Royce will leverage developments from the A350 TXWB engines but GE can just as easily leverage developments from the LEAP program.

T1000 ALPS demonstratorThe picture shows the Rolls Royce Trent 1000 carbon fibre fan demonstrator engine from the companies ALPS (Advanced Low Pressure System) program.  Is this also the looks of the Rolls Royce A330neo engine?

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New airplanes nearing fruition? A330neo, 757RS buzz increasing

Development of two airplanes–the Airbus A330neo and a replacement for the Boeing 757–may be pushing to the forefront, according to two news articles yesterday.

Reuters reports that a decision whether to proceed with the Airbus A330neo could come before the Farnborough Air Show, even if a formal launch isn’t announced at the international event next month.

Bloomberg reports that Boeing may be nearing the launch of a 757 replacement sooner than expected.

A330neo

We’ve written extensively about both prospective airplanes, with the A330neo concept one of many subjects from the Airbus Innovation Days. The Reuters article reports what we have been hearing for some time: the airplane could be announced at Farnborough–but it might not be, either. What is new is the increasing likelihood Rolls-Royce will become the sole-source supplier. Aviation Week originally reported this prospect.

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Low pressure turbine failed in CSeries incident: UBS, citing Bombardier

The low pressure turbine failed in the Pratt & Whitney Geared Turbo Fan engine on Bombardier’s CSeries, reports investment bank UBS, citing Bombardier.

Writes UBS:

BBD confirmed that recent GTF engine failure was in the low-pressure turbine and that the airframe (FTV1) was damaged in the incident, but downplayed the impact to the program schedule. While root cause analysis is ongoing, BBD emphasized that the failure was unrelated to the gearbox, and also suggested that a manufacturing defect (rather than a design flaw) may have been the cause. The subject engine was known to have problems, and BBD had considered sending it back to Pratt prior to incident on 5/29. Engine was instead repaired at BBD and the failure occurred during subsequent ground-testing. Root cause expected by end of week, corroborating message from our meetings with UTX on Monday.

The LPT is at the rear of the engine. A BBD official told us previously that FTV 1 was equipped with prototype engines, and that the production engines are first installed on FTV 4, the airplane that is designated to validate engine performance.

Engine failures during test programs are rare but not unknown. Rolls-Royce experienced a test-stand engine failure of the Trent 1000 for the Boeing 787 in which components blew apart.

Separately, a GEnx engine spit parts out of the back of the engine while a 787 was taxiing at Boeing’s Charleston 787 plant. Neither incident has serious impact on the program.

War of Words between Airbus and Boeing over A330neo, 787

By Leeham Co EU

We’ve seen it for decades: the War of Words between Airbus and Boeing around their competing aircraft. It hasn’t taken long for the WOW to emerge over the prospective A330neo. Only a few months ago, Boeing was muted in its assessment about the NEO and its response. No longer.

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For the 200- to 300-seat segment the WOW warning was raised Sunday at Doha, Qatar, in advance of the IATA Annual General Meeting, and no doubt it will stay aloft until this year’s Farnborough Air Show, where the formal launch of the A330neo is expected (as if anyone is doubting after Sunday).

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The start
As Aviation Week reports from the eve of the IATA AGM, John Leahy, Airbus’ chief operating office-customers, threw down the gauntlet by claiming an A330neo economics would be “unbeatable” and its “cash operating cost would equal 787-9.” Boeings counterpart John Wojick countered “at no price can it compete with the 787-10”.

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Of course, that’s not what Leahy claimed. Comparisons have been between the A330-300 and 787-9, not the 787-10.

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What it is all about
After our New Year’s analysis showed that there was a real case for an A330neo (A330neo prospect gains traction) we spent a further four months on the case, digging deeper and deeper. The result was put in our report The Business Case about the A330neo, a 60-page study which took a deep dive into the economics of the A330neo vs the A330 Classic and the Boeing 787-8/9. We did not examine the neo vs the 787-10 because these are different category airplanes, as Boeing’s Wojick should know full well.

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In an apples-to-apples comparison, we found the A330neo significantly narrows, but does not entirely close, the operating cost gap between the A330 Classic and Boeing’s new airplane. Airbus can close the gap and achieve an advantage, however, if it lowers the price of the A330neo to a level the 787 can‘t give. This is central to Leahy’s argument, which is used for the A330 Classic but achieved only with the most favorable assumptions for the Airbus airplane

To summarize:

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Rolls-Royce plans for new single-aisle, twin-aisle airplane engines

Rolls-Royce may not be at a cross road but it’s certainly at a fork in the road.

RR sought to be a dual-source supplier for the Boeing 777X, competing with GE Aviation for the privilege; it was generally a given that GE would be a provider. The question was whether it would be the sole supplier or share the platform with another. Pratt & Whitney withdrew, concluding the business case wasn’t there for its proposed big Geared Turbo Fan. RR stayed in the competition, assured by Boeing that it wasn’t a stalking horse to GE.

But GE won the position as exclusive supplier, much to RR’s consternation.

Next, the future of the Airbus A350-800, powered exclusively by RR, is in serious doubt. The backlog is now down to a mere 46 as customer after customer, encouraged by Airbus, up-gauged to the A350-900 and -1000 sub-types. While RR is also the exclusive supplier on each of these models, and the engines are largely common, there has been substantial investment by Rolls on the -800’s application. If the -800 is canceled (as many industry observers believe it will be), RR’s investment is largely down the drain. How does Airbus “make good” to RR for this?

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Updating the A380: the prospect of a neo version and what’s involved

Recent headlines and this column report that Airbus is considering re-engining the popular A330 with GE Aviation GEnx or Rolls-Royce Trent 1000-TEN power plants. A New Engine Option and other changes would improve the A330’s economy by an estimated 10% percent after offsets for increased drag and weight.

But the A330 isn’t the only Airbus airplane being considered for new engines made popular by the A320neo family. Tim Clark, president and chief operating officer of Emirates Airlines, urged Airbus to improve efficiency of the giant A380 with engine technology found in newer generation aircraft.

How feasible is an A380neo? What are the technological issues? Would there be enough of an economic gain? And is there a market for an A380neo?

The A380 of today

The A380 has been hailed as a highly efficient airliner since it went into service 2008, assuming the giant plane can be filled. But only six years later, the first voices have been raised that this will not continue to be the case should the continuous improvements that have been flowing into the airframe not pick up speed.

The launch of the Boeing 777X also brought focus on the state of the A380 come the latter part of this decade when the 777-9X enters flight testing in advance of its planned 2020 entry-into-service. Tim Clark expressed  that “it is time that the A380 gets an injection of the new technology which is now becoming available for the A320/737 in the form of GTF/LEAP and GE9X for the 777X. “

Before we look into what can be done short-to–mid-term to inject improved efficiency, let’s establish the baseline as it exists today. The A380 is considered by some the most efficient way of flying passengers between two long haul points if there is enough of demand. The competition today is the Boeing 777-300ER and 747-8i.  (Qantas Airways is dropping some A380 flights that have 50% load factors, demonstrating the aircraft is inefficient if the demand is insufficient.)

Let’s assume we want to transport passengers between San Francisco and Hong Kong, one of the longer flights which are made non-stop in both directions. Going West, it takes a Cathay 777-300ER 15 hours and going East, 12 hours, the difference being due to prevailing headwinds going West. For our check, we will use the more demanding of these legs, which then works out as the equivalent of flying 7,200nm. To compare the three different aircraft in a fair way, we need to load them to the same payload, in our case passengers with luggage. We will not consider cargo in this initial analysis. The leg chosen is not one which allows much weight for cargo, but cargo certainly belongs to a complete analysis of an airplane and we will point out where it will affect any conclusions.  

When comparing the standard three-class seating numbers between the OEMs, it is clear these are not made to the same standards of comfort. Airbus has admitted that the A380 is too lightly loaded at 525 passengers. The 777-300ER at nine abreast and 365 seats is equipped with a comfortable 18’’ economy class at 32’’ pitch but the business class is modeled with a non-standard 48’’ pitch. The 747-8i at 467 seats is not laid out to any comfort standards comparable to the other two. To ensure an apples-to-apples comparison we have equipped all aircraft with the same three-class cabin with a standard seating consisting of first class at 81’’ pitch, business class at 60’’ pitch and economy class with 32’’ pitch. Seat widths are 37’’, 22’’ and 18’ respectively and the ratios of the different premium seatings vs. economy are kept the same. Here the aircraft are listed with the in-service year and with their respective payload capabilities:

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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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A330neo prospect gains traction

Note: The following was distributed to our e-mail list December 23. Last week, American Airlines (as predicted) swapped the A350-800s for A350-900s.

The possibility of Airbus launching an A330 new engine option appears to be gaining ground.

Our Market Intelligence tells us that Airbus is considering a decision soon, probably next year, with a target entry-into-service date of 2018.

A decision to proceed with an A330neo would come after one to drop the A350-800, according to our information. Airbus has systematically switched -800 customers to the larger, and more profitable A350-900 and A350-1000. There are now just 79 A350-800s in backlog.

Customer

Qty

Comments

Aeroflot

8

 

Aircraft Purchase Fleet

12

For Alitalia

Asiana

8

 

AWAS

2

Probably will swap to A359

Hawaiian Airlines

6

Waiting on US Airways

ILFC

6

Probably will swap to A359

Kingfisher

5

Good as gone

Libyan

4

 

US Airways

18

Expected to disappear now that AA merger completed, replaced with A359/A351

Yemenia

10

 

Source: Airbus, Nov. 2013

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 Leeham Co Chart

We identify 37, or 47%, that probably are already at risk of cancellation in favor of the larger A350-900 or A350-1000. These 37 are highlighted in red and pink. Another 10, those for Yemenia, are probably already iffy, according to Market Intelligence. The total of 47 represents 59% of the backlog. We have no information on the remaining customers’ intentions.

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Airbus’ A350-800 dilemma

Last week we discussed Airbus’ A350-1000 dilemma. The -1000 will be a fine airplane, but we concluded the company needs to go forward with a larger capacity “A350-1100″ to match the size of the Boeing 777-9X, but take the Boeing 787-10 approach and be content with sacrificing range in lieu of designing a new wing and engines.

Airbus’ A350 dilemma doesn’t end there. What’s it to do with the A350-800? One fleet planner told us a year or more ago that the “-800 is an expensive A330-300″ with the same operating costs as the larger capacity A350-900.

Airbus has been encouraging customers to move up to the larger A350-900, with Hawaiian Airlines and US Airways the key hold outs. Conventional wisdom says US Airways will swap its order once the merger with American Airlines goes through (which is looking more and more likely, given settlement talks with the Department of Justice). American has a large order for the Boeing 787-9, making the -800 unnecessary in a combined carrier fleet plan.

There are now around 80 -800s in Airbus’ backlog, and even officials at Airbus have been ambiguous about green-lighting production of the -800, which is supposed to enter service in 2016 (after the -900 but before the -1000). We have written several posts in which we concluded the -800 would be re-sequenced to 2018, after the 2017 EIS of the -1000.

We believe there is a very good chance the A350-800 will be dropped in favor of proceeding with an A350-1100.

So what’s Airbus to do in the 250-300 seat space now occupied by the -800 and the aging A330 family?

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