Airlines look toward another peak season without the MAX

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Introduction

Nov. 11, 2019, © Leeham News: Airlines are beginning to make plans for another peak summer season either without the Boeing 737 MAX in their fleets, or a reduced number.

With the recertification of the MAX continually sliding, like an airline’s creeping delay at the airport, this is stating the obvious. Airlines keep shifting the true return to service (RTS) (not recertification) from 2019 into 1Q2020.

Source: Boeing.

American and Southwest airlines, the two carriers with more MAXes grounded than any other airline, now target RTS March 5 next year—just a week short of the global grounding of the airplane.

Boeing’s chairman, David Calhoun, acknowledged in an interview with CNBC Nov. 5 RTS will now fall into 2021.

This was two days before the Federal Aviation Administration and EASA rejected Boeing’s documentation that is required before recertification is granted. According to media reports, this could add an inconsequential number of days to the process or a significant number of weeks.

Concerns are beginning to emerge that recertification may not come until after the first of the year.

All this increases the uncertainty for the airlines.

Summary
  • Creating Plan B—no MAX in the peak season.
  • Stored MAXes may face a “calendar” deadline, requiring C Checks before RTS.
  • Lessors offering new, year-long leases on A320s and 737 NGs.

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Pontifications: Observing Veterans Day

By Scott Hamilton

Nov. 11, 2019, © Leeham News: Today is Veterans Day observance in the USA. I’m going to make a rare departure from discussing commercial aviation issues to talk about the military.

I never served—my lottery number during the Vietnam era was too high and, with this unpopular war, I didn’t have a desire to join the Army. My brother had been drafted and received orders for Vietnam. On the day of his departure to the Southeast Asian country, which also happened to be his birthday, his unit’s orders were changed. They went to Stuttgart, Germany, where he served the remainder of his two year duty.

Our servicemen of that era were frowned upon because of Vietnam. I can truthfully say I did not join this view, reserving my disdain for the leadership in Washington DC.

But I did notice that as I got older, my respect for the military grew and grew.

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Bjorn’s Corner: Analysing the Lion Air JT610 crash, Part 2.

November 8, 2019, ©. Leeham News: We started the series on analyzing the Lion Air JT610 crash based on the final crash report last week by looking at what went wrong with the aircraft’s Angle of Attack sensors.

Now we continue with looking at why an MCAS system is needed in an aircraft like the Boeing 737 MAX and why a correctly designed MCAS is not an irrational addition to the aircraft.

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Air France-KLM wants to simplify the fleet

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Nov. 7, 2019, © Leeham News: Air France-KLM will strive to greatly simplify its fleet by early next decade, the group outlined in an investors day presentation Nov. 5.

The Group includes Air France, KLM and Transavia. The low-cost carriers Joon and Hop! are discontinued.

Fleet simplification

KLM

The company wants to reduce today’s fleet types at KLM from six to four, dropping the Airbus A330 and Boeing 747s.

The Future Fleet concentrates around the Embraer E1 and E2 E-Jets; the Boeing 737 NG; the Boeing 787-9 and the Boeing 777 Classic.

At the moment, there are no Boeing 737 MAXes in the future fleet plans. KLM had none on order, even before the October 29, 2018, Lion Air accident.

The possibility of a Boeing 777X is also not shown in the rendering.

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Aviation Forum Munich: Boeing moves away from Partnership for Success

By Bjorn Fehrm

November 6, 2019, ©. Leeham News at Aviation Forum Munich: The second day of Aviation Forum Munich had an interesting presentation from Boeing’s VP of Sourcing, Jody Franich.

He described the One Boeing approach for Manufacturing and Sourcing and how Boeing is moving away from its supply chain Partnership for Success program, with the supplier cost down focus replaced by a more long-term cooperation model with a mutual benefit focus.

Boeing’s VP Sourcing Office Jody Franich presents to Aviation Forum Munich.

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“It’s not easy to compare:” Airbus’ CEO Faury

  • Guillaume Faury has been the chief executive officer of Airbus Group since April 1. In this exclusive interview, he looks back on his first six months and ahead for the future of the company. Part 1 appeared Oct. 30. This is the second of two parts.

Guillaume Faury

Nov. 6, 2019, © Leeham News: “It’s not easy to compare the performance of the two companies,” says Guillaume Faury, the CEO of Airbus, when the inevitable comparisons between his company and Boeing are made.

The context was talking about advanced manufacturing, discussed in Part 1 of this interview.

“I don’t think we are behind on digital. I think they might have gained more preparation on the future of production systems. We are catching up big time if not ahead in some important places. I think we will know who’s first when the next generation of airplanes is launched. These will be the first ones with digital design and manufacturing. There’s not a single plane today which is full DDMS.”

The issue is key to the next new airplane produced by Airbus or Boeing.

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Aviation Forum Munich: Vertical integration on the way back

By Bjorn Fehrm

November 5, 2019, ©. Leeham News at Aviation Forum Munich: The Aviation Forum kicked off in Munich today, a yearly production and supply chain event started by the Hannover based Institute for Production Management nine years ago.

Today’s conference themes were How the OEMs benefit from Supplier Innovation, Additive Manufacturing trends and discussions around Outsourcing and Insourcing.

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Boeing charges, costs nearly $35bn since 1996

By Vincent Valery

Introduction  

Nov. 5, 2019, © Leeham News: Boeing already has racked up $9.2bn in one-time charges and additional costs to the accounting block in the 737 MAX crisis.

Some expect there will be more substantial charges before the dust settles. Even Boeing officials said it will be years before all customer claims are settled. Legal liabilities are only partially covered by insurance.

Program accounting, which is unique to the US, allows a company to spread the costs of an expensive development over the anticipated life of the program and the forecasted orders.

Other countries require unit accounting or charging off costs as they occur during development.

Boeing is one of few companies in the US to use program accounting. This masks current charges in the GAAP-approved financial statements. A few years ago, Boeing also began reporting non-GAAP numbers on the basis of unit costs as additional information.

With one-time charges and added costs to program accounting assumptions related to the 737 MAX grounding, Boeing’s accounting policies are back in the spotlight. The accounting policy became controversial as deferred production costs spiked on the 787 program.

As commercial and defense programs faced cost overruns and delays, the company had to record billions of US Dollars in charges and various losses over the years.

LNA went through all of Boeing’s annual 10-K filings since 1996 to identify all the charges recorded on commercial and defense programs.

After recording billions in charges since Dennis Muilenburg became CEO in 2016, we assess whether there is more to come in future quarters.

Summary
  • Program Accounting fundamentals;
  • Dreamliner Deferred production cost controversy;
  • Billions in (not so) one-off charges;
  • Current and future charges under Muilenburg’s watch.

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Big Three Gulf Carriers’ financials

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By Vincent Valery

Introduction

Nov. 4, 2019, © Leeham News: The rise of the Big Three Middle Eastern carriers since the mid-2000s has been nothing short of astounding.

They took full advantage of an advantageous geographical location: 85% of the world population is within a 10-hour flight from either Qatar or the UAE. Emirates and Qatar Airways connect all continents, except Antarctica.

This transformation into super connectors did not come without controversies. The most vocal are the Big Three US legacy carriers, through the Partnership for Open and Fair Skies. They accuse the Gulf Carriers of benefiting from massive subsidies that allow them to underprice their competitors.

As part of a deal between Qatar, the UAE, and the USA, the Big Three Gulf Carrier started publishing audited financial statements. Emirates’ and Qatar Airways’ financial statements are publicly available on their websites since 1994 and 2015, respectively. Etihad Airways has been releasing some income statement information since 2010.

Ahead of the upcoming Dubai Air Show Nov. 18-19, LNA had a look at those financial statements. We outline our takeaways in this article.

 

Summary
  • Very high growth at all three airlines;
  • Funded by different means;
  • Global slowdown and Geopolitical tensions force strategy rethink;
  • Varying levels of earnings quality;
  • An unsuspected (significant) source of revenues.

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Pontifications: Congressional hearings on Boeing dominated by grandstanding–but damning documents revealed

By Scott Hamilton

  • Senate hearing largely theater.
  • House hearing has grandstanding, but substance, too.
  • House reveals some damning documents.
  • Muilenburg claims no knowledge of legal strategy, but top lawyer reports directly to him.

Nov. 4, 2019, © Leeham News: Last week’s Congressional hearings about the Boeing 737 MAX crisis was just as I expected: theatre, lots of grandstanding, little substance and testimony that elicited little in the way of new information.

The US Senate hearing was a perfect example of playing to the television by many Senators.

The House hearing certainly had its share, but in more lucid moments, some House members produced new documents that were especially damning to Boeing.

Boeing CEO Dennis Muilenburg and John Hamilton, VP and chief engineer, did no harm to Boeing, which was probably the prime objective. (Hamilton is no relation to me.)

Muilenburg did harm to himself, however, and some Members of Congress landed some damning blows.

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