In this week’s column:
787 Update Due Shortly
Boeing plans an update of the 787 program by mid-December, with expectations that a new timeline for first flight and first delivery will be forthcoming. Aerospace analysts diverge on these predictions right now.
JP Morgan forecasts first flight in the first quarter while Goldman Sachs predicts 2Q09 or 3Q09. Based on conversations we’ve had with Boeing insiders, the unions and others, we believe the first flight is likely in the June-August 2009 period.
When, then, will be the first delivery? Cowen & Co. predicts 2Q10; JP Morgan and Goldman predict delivery will be a year after the first flight. Boeing has consistently maintained that it can complete flight testing within 6-9 months after first flight, but given the track record of its predictions so far, we’re inclined to side with JP Morgan and Goldman and go with one year after first flight.
What is the pacing item? Most attention has been on fasteners, something SPEEA calls a “manageable” headache. But Goldman says software is actually the pacing item. Goldman covers Rockwell Collins, GE (parent of Smiths Co.), United Technologies (parent of Hamilton Sundstrand) and Honeywell, all providers of the flight control and integration software, and through its research concluded that continuing issues with integrating the software is the pacing item, not the fasteners. Our own conversations with sources familiar with the situation concur.
What is the problem? Nothing in particular, we’re told, but simply the volume of testing required for the extremely complex electronic systems on the 787.
But there remains a feeling among some within that Boeing still doesn’t “have its arms around the 787 program.”
Nor do they believe that all has come out yet with the 747-8 program. Two customers we talked to also believe there are more delays to come with the 747.
The problems don’t end there. There are faulty nutplates infecting the 737, 767 and 777. The 737-based P-8A is overweight. The 737-based Wedgetail is several years late, as is the KC-767 International program. All these involve Boeing Commercial Airplanes and some also involve Integrated Defense Systems. While the 787 and now the 747 programs get all the headlines, the issues are much more widespread.
Many of the issues, like overweight airplanes, are systemic to any new airplane program. The nutplates originated with Spirit Aerospace. Aside from the 787 and 747 programs, where problems are well documented, the most troubled programs appear to be the Wedgetail and certainly the KC-767, which won’t help Boeing on the re-bid for the USAF KC-X aerial tanker competition.
This year has been terrible for Boeing; there is no indication that next year will be much better. At best, 2009 will be a year of “on the road to recovery;” if all goes well, recovery might begin in 2010. But we think 2009 is going to highly challenging, not only because of program issues but also because of…
The decline and fall of China’s aviation sector
China used to be the stalwart that Airbus and Boeing could count on when commercial aviation elsewhere took a nose dive. China also was the stable market with great potential, attracting Embraer and Airbus to build assembly sites and prompting Bombardier to contract with China to be a major fuselage section supplier for its new CSeries aircraft, with the expectation that a major launch order would come from one of the leading airlines—believed to be China Southern.
China has also been identified as a potential funding source for Steven Udvar-Hazy to buy back ILFC from its ailing parent, AIG.
Not any more.
China’s Big Three airline companies, Air China, China Southern and China Eastern, have turned to the government for bail-outs. Eastern and Southern have parked 10% of their fleets and Eastern flirts with bankruptcy. The government said it will suspend ordering new airplanes, which almost certainly puts Bombardier’s plans for a launch order from China in the scupper.
Funding ILFC? Forget it. Although several aerospace analysts theorized that only sovereign funds, including China, could be financing sources in today’s capital market crisis, sources tell us that this was never in the cards.
The Chinese government not only is bailing out the airline sector, it has pumped at least $500bn into the Chinese economy, according to reports.
Cathay Pacific Airways announced that it plans to defer orders with Boeing for the 747-8F and the 777.
China is just another troubled economy now. This will put pressure on Boeing and Airbus throughout 2009.
Boeing, and to a lesser extent, Airbus, both liked to tout the diversity of customers and economies as evidence of the solid nature of the order backlogs. Both companies used as a basis for this heavy reliance on global GDP (Gross Domestic Products). But there is clear evidence the diverse GDP is weakening. This will likewise put pressure on Boeing and Airbus.
India’s aviation industry is already a basket case, and this affects Airbus more than Boeing.
Europe has seen the bankruptcy of several airlines that ceased operations. These carriers have mainly been lessees rather than direct-order customers of Airbus and Boeing, but a sizeable number of 737-700s/800s went into the market, adding to A320 families already there. This will compete with new aircraft deliveries and demand from the airframers.
Cargo demand is down. This puts pressure on carriers that ordered the 747-8F and Airbus A330-200F. Cathay, as noted, wants to defer delivery of its order from Boeing (the 747F and 777P). Lessors that ordered the A330F are finding it very difficult to find lessees for them (and, one lessor tells us, the A330F is running two-three months late).