There actually was other news last week besides the corporate food fight over the KC-X tanker involving Boeing and Airbus.
787 Line 2
This article from South Carolina wonders whether the competition between Charleston and Everett is SC Gov. Mark Sanford’s “last stand” to save his job. Sanford, of course, was caught lying to his family and his constituency over where he disappeared (he said initially he was on a hike in the Appalachian mountains; turns out he was in Argentina with his mistress). Republicans and Democrats alike have called on Sanford to resign. He won’t, and the effort to persuade Boeing to locate 787 Line 2 to Charleston may be the Republican governor’s last chance to save his job, the news article speculates.
Boeing encouraged by market activity
This report out of the Middle East quotes a Boeing Capital Corp. official as saying the company is encouraged by market activity. BCC managing director John Matthews spoke at a conference in Dubai.
Airbus says recent engine tests on the troubled A400M were successful and the plane should fly by year-end.
The first 747-8F is about 90% complete and should have its first flight in November. After being adversely affected by the knock-on effect of the 787 program, this one by all accounts is now proceeding smoothly.
Good. Boeing needs good news.
We understand Boeing won’t have any special roll-out ceremony that would involve the usual huge employee turn-out, however. There’s too much work to do on the 787s.
Ryanair dumps on Boeing
The ever-mouthy Michael O’Leary, CEO of Ryanair, one of Boeing’s largest customers, took a huge dump on Boeing Friday. At an investors’ day event last week, O’Leary began his latest public negotiating tactic with Boeing. Heidi Wood at Morgan Stanley summed it up this way:
What’s new & impact on our views: The CEO of Ryanair, the largest recipient of 737s/year is threatening to suspend its route expansion for “for one or two years” in 2012 over pricing disagreements and may potentially cancel future 737 deliveries starting in 2011. While one can partly dismiss this as part of negotiating tactics, we likewise take note that sources in Seattle are concerned this is a serious negative turn. BA may be finding itself in a difficult position of maintaining backlog at prior prices and this Ryanair development may be the first of more to come. Everyone is aware of the historic re-rating of equity and real estate markets; why not a re-rating in airplane pricing?
We’re thoughtful about what this news could portend in the following ways: (1) possible pressure on 737 production rates as the airline’s 113 firm unfilled orders account for 5% of the 737 backlog; Ryanair disclosure from June encompasses deliveries through March 2012 at a rate of about 3/month, or ~36/year. BA has delivered 43 RyanAir 737s as of August this year. (2) shifts focus of aero cycle debate from production rates to pricing. In a world where nearly all other asset classes have substantially been re-priced atop adverse airline industry conditions, one can anticipate airlines will seek a better deal not only on future orders, but possibly on firm orders already placed and in BA’s backlog. The problem is, if BA flinches on pricing for Ryanair, other airlines will likely demand a similar deal. (3) Could BA lose a loyal, long–term customer to Airbus? Currently Ryanair is an exclusive BA customer but our sources in Seattle are concerned these comments are more than the usual airline CEO positioning tactics and there may be risk, in the absence of getting a good deal from BA, a pending 200 aircraft order that could swing to Airbus. In fairness, switching to Airbus would have costly consequences.
We don’t think Airbus is going to rise to this bait. COO-Customers John Leahy has made it clear in the past that Airbus wasn’t negotiating with O’Leary, and consider this: If O’Leary is unhappy with his pricing at Boeing–revealed several years ago to be around $28m-$29m at the time–and O’Leary wants to reduce this already-low price (adjusted in the interim for standard cost escalations), what kind of price would Leahy have to offer O’Leary to win an order, even if the Ryanair chief really were interested in an A320?
The answer is a ridiculously low price that would then set the bar for future A320 orders from other customers. What’s in it for Airbus? Nothing but a bunch of headaches.
So what does Boeing do? For the moment, wring its hands. If O’Leary starts canceling orders, this will have an impact on Boeing’s 737 production line. Ryanair and American Airlines are the two big customers next year. We don’t know about 2011, but these are two carriers we identified to watch when it comes to rates.
Ethiopian Airlines and Kenya Airways joined the recently announced discord by Oman Airways and Vietnam Airlines over the Boeing 787 delays. The two African airlines are thinking about ordering the Airbus A330 because of the 787 delays.
Air India A320 pilots
Finally, in one of the most bizarre stories we’ve seen about aviation, two Air India A320 pilots were suspended after allegedly leaving the cockpit in flight to conduct a fist fight in front of passengers after a flight attendant rejected advances of one of them. The pilots deny the story.
I think you’re calling the Ryanair story correctly. In a duopoly it’s not always a win to undercut your competitor. If neither Airbus or Boeing are willing to cut prices, where is O’Leary going to go for aircraft?
“We don’t think Airbus is going to rise to this bait.”
Neither do I. In fact I would be astonished if MOL went with Airbus, although stranger things happened (like USAF going with A330!). It had surfaced a while ago that FR chose Airbus in 2002. While a press conference was being arranged and John Leahy was polishing a nice model of a Ryanair plane in his office, Boeing came back with another offer. Presumably Airbus refused to match it. However I think Airbus is not desperate now, it has a large base of ‘Low Cost’ customers with a huge backlog of A320s, which was not the case in 2002.
As for MOL’s rant, as usual he is just keeping Ryanair in the press headlines.
When Boeing is dealing with Mol, what it is doing really is getting a taste of it’s own medicine, with a little bit of nuttiness to spice things up.
That ithe situation is causing indigestion within Boeing commerical is tragically funny, and will no doubt result in precisely zero lessons learned.
Airbus Contractor Completes A400M Engine Trials
British engineers have completed engine trials on the Airbus A400M military transport plane, clearing a significant obstacle to its long-delayed maiden flight, sources close to the matter said.
The in-flight tests have been carried out by fitting one of the A400M’s newly developed turbo-prop engines to the wing of a converted Lockheed C130 Hercules transport plane at Marshall Aerospace, a specialist firm in Cambridge, England.
Sources familiar with the project said the test aircraft — known to engineers as a ‘flying test bed’ — had completed 54 hours of test flights with the West’s largest ever turbo prop fitted in place of one of its ordinary engines on the wing.
The chief executive of Airbus parent EADS reiterated on Monday that the planemaker aims to fly the A400M aircraft itself around the end of the year.
Completion of the engine trials is a boost for the A400M as EADS pursues talks to rescue the EUR20 billion euro project with its seven launch nations: Belgium, Britain, France, Germany, Luxembourg, Spain and Turkey.
The plane’s future had been placed in doubt due to mounting financial losses and persistent delays that prompted some including Britain to reconsider their purchases.