Odds and Ends: Airbus neos; 757RS/A320RS; charity efforts

Airbus neos: The conversation continues, with Tom Williams, EVP of programmes, giving an interview to Flight Global about the A330neo and the A380neo. Plane Talking has another version of the Williams interview. Notable in Plane Talking’s report is the indication Williams said it will be a year before a decision is made on the A330neo. Our information is that a decision, whether yes or no, is due this year. PT also reports Williams indicated an A380neo would be a 2020s product. This suggests the prospect of a new engine from Rolls-Royce, which is under development, or conceivably a Big Engine Pratt & Whitney GTF could be considered.

757RS/A320RS: Aerotubropower, whose expertise is engines, discusses the implications of the planned improvements in fuel burn on the Pratt & Whitney Geared Turbo Fan and what this means for the replacement of the Boeing 757, 737 and Airbus A320 families.

Charity efforts: IAM 751, the touch-labor union for Boeing, is often portrayed as a bunch greedy members who feel a sense of entitlement. One can certainly debate this point, but what isn’t debatable is 751′s efforts at charity throughout the year. Every once in a while, we pop over to 751′s blog. Today (Feb. 19) the first four items are about philanthropic efforts in Pierce and King counties.

Just as 751 members are often cast as greedy, so is Boeing, so it is only proper in this context to point out that Boeing also engages in philanthropic endeavors throughout the US (we don’t know about abroad). Here’s a link to some of Boeing’s efforts.

Odds and Ends: LEAP vs GTF; CSeries flight testing; MRJ FAL

LEAP vs GTF: Reuters has a story looking at the intense competition between CFM and Pratt & Whitney for the market dominance of the LEAP vs Geared Turbo Fan engines.

The only airplane where there is competition is on the Airbus A320neo family; CFM is exclusive on the Boeing 737 MAX and COMAC C919 and PW is exclusive on the Bombardier CSeries, Embraer E-Jet E2 and Mitsubishi MRJ. PW shares the platform of the Irkut MC-21 with a Russian engine. PW says it has sold more than 5,000 GTFs across the platforms. CFM has sold more than 6,000 across the three models it powers.

On the A320neo family, the competition is 50-50 at this point, with a large number of customers yet to decide on an engine choice. However, 60 A320neos (120 engines) ordered by lessor GECAS never were in contested (GECAS buys exclusively from CFM) and 80 A319/320neos from Republic Airways Holdings (160 engines) were part of a financial rescue package for then-ailing Frontier Airlines.

PW’s joint venture partner, International Aero Engines, shares the A320ceo family platform with CFM. Late to the market, IAE caught up to CFM in recent years.

On platforms where they compete, the sales figures so far show a neck-and-neck competition between CFM and PW.

Update, 12:30: The link has been fixed. Update, 9:30 am PST: Flight Global has this story reporting that PW plans a Performance Improvement Package on the GTF that will further cut fuel consumption by 3%.

CSeries flight testing: Bombardier’s CSeries flight testing has been slow to this point, but it’s beginning to ramp up. Aviation Week reports that FTV 3 should be in the air by the end of this month and FTV 4 should follow in April. FTV 3 is the avionics airplane and FTV 4 focuses on GTF engine testing.

Mitsubishi MRJ: Aviation Week also reports that the Mitsubishi MRJ airplane #1 is nearing final assembly.

Assessing the Air Canada 737 order: factors that likely played a role

How did Boeing win the Air Canada mainline 150-200 seat jet order when only a couple of weeks ago Flight Global reported the Airbus won the deal?

We, too, heard that Airbus seemed to be the favorite, but the information was soft. We’re not rapping Flight Global—undoubtedly it was confident in its sourcing, but this just shows that a situation can change dramatically and quickly.

We’ve been following the competition for months, behind the scenes, and here are factors we understood that were involved.

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CFM LEAP accelerating in test program; Airbus and the A350-800

Aviation Week has a long, detailed story about the test program for the CFM LEAP engine, which is accelerating rapidly.

In its 737 MAX program update yesterday, Boeing said the LEAP-1B has begun testing and it will benefit from the testing already underway for the LEAP-1A, the version that is designed for the Airbus A320neo family. The LEAP-1C for the COMAC C919 is on its original schedule for certification in 2015, despite the fact the C919 has slipped to at least 2017, reports AvWeek.

The 737 MAX is exclusively powered by the LEAP, as is the C919. The former has more than 1,600 firm orders and the latter just hit its 400th order/commitment. CFM faces competition on the A320neo family from Pratt & Whitney’s P1000G Geared Turbo Fan, where PW holds a 49% market share against CFM, which previously held a larger, more dominate position in the A320ceo competition. A large number of orders don’t yet have an engine selection.

PW is the sole-source engine provider for the Bombardier CSeries, the Mitsubishi MRJ and the Embraer E-Jet E2. PW splits the engine choice on the Irkut MC-21 (soon to be renamed the YAK 242) with a Russian engine.

Just as Boeing’s LEAP-1B will benefit from the experience of the LEAP-1A now in testing for Airbus, Airbus will benefit from the testing and experience of PW’s testing of the GTF on the Bombardier CSeries.

Aviation Week also has a story about the Airbus A350-800 with the blunt headline, The airplane Airbus doesn’t want to build. This refers to the A350-800. AvWeek muses that the outcome of the merger between US Airways, now the largest customer for the airplane, and American Airlines, may be the deciding factor for the airplane. We agree. With American’s large order for the Boeing 787-9, the A350-800 would be unnecessary.

That would then leave Hawaiian Airlines as a key decision-maker. We hear in the market that Hawaiian is just sitting back and waiting to see what kind of incentives Airbus will offer to entice a switch to the larger A350-900.

CSeries first flight may be Sunday, says Reuters

The thrice-delayed first flight of the Bombardier CSeries may come Sunday, reports Reuters.

We previously posted some thoughts on the pending first flight. We expanded on these thoughts in our e-mail newsletter Aug. 26. Below is the entire newsletter.

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Sizing up engine market share on the A320 family

While competition between Airbus and Boeing snares nearly all the headlines and all the “sex,” competition for engine orders is less sexy and receives less attention.

Part of this is because of the increasing trend toward sole-sourcing. The Boeing 737 has been sole-sourced by CFM International since the creation of what is now called the Classic series: the 737-300/400/500. Pratt & Whitney believed at the time Boeing was upgrading the 737-200 that airplanes were up-gauging and bet its future on the Boeing 757 size. It was one of the classic corporate blunders of all time.

Shut out of the 737, P&W joined with Rolls-Royce and MTU to build the International Aero Engine V2500 for the Airbus A320 family. IAE came to the table late, giving CFM a solid head start on the program with a variant of the CFM 56 that powers the 737 Classic and later the 737 NG.

IAE trails to this day, but has done a remarkable job of coming from behind. CFM tends to be favored on the A319 and A320 while IAE is the preferred engine on the larger A321. IAE offers more thrust and better economics on the A321 while the CFM has better economics for the smaller Airbuses. CFM’s reliability is legendary and tends to be better than the V2500.

The blog PDXlight has done a marvelous job of dissecting the engine market share of the A320 family for the New Engine Option. We asked PDXlight to do the same exclusively for us for the A320ceo family. The results are below the jump.

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Looking ahead to 2013 in Commercial Aviation

Last year yielded a few surprises in an otherwise predictable year.

Jim Albaugh shocked the aviation world when he retired unexpectedly at age 62. He was expected to remain in his position as CEO of Boeing Commercial Airplanes until mandatory retirement at 65.

EADS CEO Tom Enders unleashed a surprise merger proposal with BAE Systems. The deal didn’t work due to German government opposition, but he ultimately accomplished a governance restructuring—a key objective of the merger—that will reduce government meddling in the future.

Those were about it. Boeing’s much-anticipated Authority to Offer the 777X didn’t happen. ATO for the 787-10 was stealthily granted. Airbus and Bombardier, to no surprise, delayed the A350 and CSeries by a few months. Boeing came roaring back to become sales leader for the first time in about a decade, on the strength of 737 MAX sales.

What’s ahead for 2013? Here’s what we see.

Overview

With the spurt of 737 MAX sales over, narrow-body sales competition between Airbus and Boeing should return to normalcy. Will twin-aisle sales become the next growth market because of the first flight of the A350 and the program launch of the 7870-10? Will ATO of the 777X evolve into a program launch as well? Will Bombardier’s first flight of the CSeries and subsequent testing validate its claims for the new technology airplane and finally spur a large number of sales of the “show me” crowd?

Here’s our OEM-by-OEM rundown.

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Odds and Ends: Boeing stock buyback; Charging suppliers for doing business; AA+US

Boeing Stock Buyback: Boeing announced a stock buyback of #3.6bn for next year. Wells Fargo has this to say in a research note issued today:

Boeing had more than $11B of cash on the balance sheet at the end of September, and after free cash flow of $5.7B in 2013 and more than $7B in 2014 (i.e., almost $10/share in free cash), we believe Boeing could have over $20B in cash available to return to shareholders over the next few years. This is why we see about a $130MM increase in dividends and a $1.5-2.0B buyback in 2013 as small steps in returning cash to shareholders.

We’re not a fan of buybacks, which serve to prop up stock prices. We believe stock should rise on its own merits, not because of some artificial prop-up. More to the point, however, is that Boeing has a hard time telling SPEEA it needs to cut costs when it is spending billions on buybacks that benefit (among others) Boeing’s largest shareholders–the McDonnell family, Harry Stonecipher and Jim McNerney.

SPEEA is preparing for a strike February 1. Talks resume January 9, but the gulf between the two sides is so great, SPEEA expects them to break down almost immediately.

With Wells Fargo estimating that Boeing might return $20bn to shareholders in the next few years, we somehow think this will be an issue when IAM contract negotiations come up in 2016 and Boeing pleads poverty again (as it inevitably will).

We’d much rather see the money invested in new airplane programs rather than derivatives like the 737 MAX and 777X.

Boeing charges royalties to suppliers: Mary Kirby has this interesting story about Boeing charging suppliers for the price of doing business with the company.

American and US Airways: The Ft. Worth Star-Telegram has this column discussing the case for a merger between American Airlines and US Airways.

Pegasus Buys Airbus: Turkey’s Pegasus Airlines ordered 75 A320neo family and optioned 25 more. The carrier was previously a Boeing 737 operator. Deliveries are from 2015, which means the Pratt & Whitney GTF has to be the engine choice, which is as yet unannounced. CFM’s LEAP-1A won’t be ready until later in 2016.

Before this order, Airbus had a 61% market share of the re-engine order race vs the 737 MAX (firm orders only).

Photo Montage: The Everett Herald has this photo montage of the Flying Heritage Museum’s aircraft. The Museum is owned by Microsoft co-founder Paul Allen.

Freighter Market Softens: Cargo Facts has this analysis of the freighter market.

Random thoughts about Airbus, Boeing and related issues

We’ve been traveling on business all week and naturally the conversation was all aviation. We spoke with lessors, aerospace analysts, hedge funds and private equity. In what amounts to a data dump, here is what is being discussed “out there.” This is in no particular order.

  • The new outbreak of ad wars between Airbus and Boeing is viewed largely with eye-rolling and disdain that two world-class companies are behaving like two year olds.
  • Nobody, but nobody we talked with believes the public numbers advanced by either Airbus or Boeing.
  • Boeing will have virtually a new airplane with the 737 MAX by the time it’s done, similar to the design creep of the 747-8 and the magnitude of change between the 737NG and the 737 Classic.
  • Airbus pulled a coup with the NEO, forcing Boeing to do the MAX….
  • But there is some sentiment that Airbus and Boeing should have resisted doing a re-engine and stuck with the the current airplanes. Airbus should have let Bombardier proceed with the CSeries for the niche 100-149 seat market unchallenged, having bigger fish to fry.
  • Bombardier doesn’t know how to effectively sell the CSeries and it is unwilling to cut deals that would sell the airplane.
  • Operating leasing is a ticking time-bomb, largely (but not entirely) due to book values of the aircraft on the balance sheet far exceeding current market values.
  • Boeing claims the 787-10 will “kill” the A330-300. The market agrees–but only by the middle of the 2020 decade. Boeing can’t deliver enough 787-10s to make a dent in the global fleet before then. By then, the A330 will be about 30 years old and broadly at the end of its natural life cycle anyway. So what’s the big deal?
  • Airbus is doing a good job enhancing the A330 to keep it competitive with the 787.
  • There remains skepticism that the LEAP engine development is proceeding well. The buzz on the street is CFM still has a lot of challenges with the development.
  • There is some feeling the MAX will be late–not because of any concrete knowledge, but because of Boeing’s performance on the 787 and 747-8 programs.

Unrelated to Airbus and Boeing, our colleague Addison Schonland has this first-hand account of Isreal’s Iron Dome.

Boeing wants to outsource more work to Mexico; updated MAX v NEO orders

Boeing outsourcing: In an election where outsourcing is a major political campaign issue, The Seattle Times reports Boeing wants to outsource more work to Mexico. Here is Boeing’s letter, via The Times.

MAX v NEO: Here is an excellent set of tables updating the orders between the 737 MAX and the A320 NEO. According to the analysis, Airbus right now has a 63% market share for the airframe. On the NEO, where two engines are offered, CFM has a 41% share vs PW’s 39% share with the remainder undecided.