Outlook for Airbus, Boeing in 2010

Introduction

2009 has faded into history and 2010 is here. Last year wasn’t kind to Airbus or Boeing—though it was worse for the latter than the former. How will this year be?

We’ll get right into how we see things lining up for the two largest airframe OEMs for this year.

Airbus

With Airbus a spectator to Boeing’s difficulties with the 787 and 747 programs and the A350 still three years in the future (if entry-into-service is 2013 as promised), one would think the European manufacturer should be looking at a good year. But there are significant challenges ahead that make 2010 anything but sanguine.

  1. The order skyline for the A320 family is probably a lot softer than has been let on. Airbus and Boeing maintained high production rates in 2009 because of oversales and skillful skyline management. Boeing continues to maintain that its 737 production rate of 31 a month is good this year; Airbus is a bit more iffy, acknowledging it is now looking ahead only six months in advance vs. the typical nine months and it is possible that a rate reduction from 34/mo isn’t out of the question for 2010. We’ve been watching A320 orders announced in 2009 and there have been some with delivery positions in 2010 and 2011—which indicates to us that the skyline is pretty squishy. Keep a close eye on these signals. Perhaps the annual Airbus press conference on January 12 will shed some light on this.
  2. The Final Request for Proposals from the US Air Force is due out this month, perhaps around mid-month—at which time we’ll see whether Northrop Grumman and EADS, the Airbus parent, decide whether to submit a bid for the A330-200 based KC-30 tanker. Airbus is counting on winning this contract as the basis for establishing a production line for the A330-200F in Mobile (AL). Without the tanker contract, Airbus says there is no business case for the Mobile production line. With the contract and the line, Airbus wants to build the freighter there—and we believe the A330 passenger line will follow and perhaps future airplane programs as well. While Boeing wants the tanker contract on its own merits, we have always held the greater strategic battle Boeing wants to win is to keep Airbus from establishing a US production line. This is another key development to watch this year.
  3. The final World Trade Organization decision on illegal subsidies to Airbus is due early this year and with it, we hope, a published version of just what the WTO found is prohibited and what is allowed for subsidies and launch aid to Airbus. Up to now, all the world knows is what politicians supporting Airbus or Boeing positions say and—heavens to Betsy—why should we take anything the politicians say at face value? The final findings will be used by Boeing supporters to further knock down any effort by Northrop and EADS to win the tanker deal.
  4. But the Interim Report by the WTO on the European Union’s case on “illegal” subsidies to Boeing is also due out this year, likely too late to be of any use in the tanker competition, assuming Northrop stays in it. (The USAF, it will be remembered, said it will not consider either finding; the politicians will simply use the findings for political points.) The expectations are that the WTO will find Boeing sinned also.
  5. Airbus still has problems with the A400M and A380 programs; and challenges with the development of the A350. Details will be discussed within these program sections below.

A320 Family

Setting the production rates and soft skyline aside, the A320 family is humming along nicely. The most significant event last year was the decision to equip new production airplanes with “sharklets,” the Airbus-designed version of winglets, to replace the wingtip fences that have adorned the airplane since inception. These will be available from 2012 and will improve fuel burn by about 3.5%.

The A320 will be first, followed by six months with the A321 and then the A319. Sharklets on the A321 will be just enough to give the airplane better US trans-continental range, which is marginal today. (Even the A320 occasionally has range issues in certain wind conditions.)

This will be followed in 2010 by a decision whether to re-engine the airplane with a new generation engine. We believe the answer will be yes and that Airbus will offer either the CFM International LEAP-X or the Pratt & Whitney P1000G Geared Turbo Fan. The GTF will almost certainly be through PW’s joint venture International Aero Engines, which currently supplies the V2500 engine in competition with CFM’s CFM-56 power plant. These new engines promise fuel burn improvements of 12% to 16%. Coupled with the sharklets, you are looking at a gain for the A320 family of nearly 16%-20% over today’s airplanes. Boeing will have no choice but to respond with a re-engining of the 737 (see below).

An A321WRE will be a strong competitor to replace United Airlines’ 94 Boeing 757s; Boeing will be hard-pressed to match even with a 737-900RE. We think Airbus will be the favorite in UAL’s competition to be initiated this year.

A330 Series

This airplane continues to hum along, given new life by the problems with the Boeing 787. The development of the A330-200HGW (High Gross Weight), with a 7,200nm advertised range, is within 6% of the advertised range of the 787-8 of 7,650nm. Despite weight and Specified Fuel Consumption (SFC) issues, Boeing says its airplane will meet customer guarantees. Test flights, just underway, will affirm or invalidate these assurances. If the 787-8 falls short on range, the aging A330 will maintain competitiveness with the 787-8.

Although the A330 is of current generation design, and therefore has higher operating costs than those projected for the 787, Airbus has argued from the launch of the 787 that the slightly larger A330-200, carrying more passengers and more cargo, can produce an estimated $192,000 per year per airplane more revenue than the more efficient and less costly 787. There are all kinds of variables that can reduce or increase this number, of course.

Airbus has no choice but to promote the A330-200 as hard as it can; it offers no new generation competitive airplane to the 787-8, which carries 210-250 passengers vs. the A330-200’s 250-293 passengers.

The A330-300, with a 295-335 passenger capacity and a 5,650nm range, is promoted by Airbus are a perfect medium-range aircraft for intra-Asia, Europe-Africa and US-Trans Ocean routes.

Airbus expects the A330 will be sold alongside the A350 for many years. The backlog at November 30 for the passenger versions is 333, or 3.7 years at current production rates.

A340 Series

No change from 2009; dead product; still not buried.

A350 Series

Airbus promises a 2013 EIS for the A350-900, followed at yearly intervals for the -800 and -1000 derivatives. Given the history of program execution for the A380 and A400M, as well as the composite-related problems with Boeing’s 787 and the 787 knock-on effect on the Boeing 747-8, observers are understandably skeptical whether Airbus can meet these EIS dates.

Aerospace analyst Richard Aboulafia, who is widely if somewhat unfairly perceived as anti-Airbus, is already predicting a two-year delay. (Aboulafia’s anti-Airbus image comes from his unrelenting criticism of the A380 program and the fumbling efforts to settle on an A350 design. He believes the A350 XWB is a winner, despite concerns over EIS, and he credits Airbus for putting money into R&D during the decade Boeing was miserly in the same area.)

We think it is too early and too severe to be predicting two-year delays, and so do A350 customers we’ve talked to. But we are hearing through suppliers that they are concerned critical decisions are taking longer at this stage and delays of six months are being speculated.

Airbus is well aware of its challenges and the need to perform on time and on budget. Officials not only have their lessons learned from the A380 and A400M debacles, they have closely watched the problems with the 787 and vow to avoid making the same mistakes in the A350 program.

When we visited Airbus in September, one of our prime missions was to drill down on the A350 program and how Airbus would keep it on time. We came away convinced officials have a reasonable plan, but as those at Boeing found out, execution is the hard part. It remains so with the A350.

With the first lay-up of composite structure for the production A350—test composite structures have been built for some time—2010 will be the time to really begin to pay attention to milestone progress and indications whether program delays will be forthcoming.

A380

At this time last year, we actually thought Airbus had its production issues sorted out for this airplane—though we expressed dismay that officials said it would still be three years before production ramped up to the planned four-per-month (which was before the depth of the global economic crisis became clear). But Airbus still doesn’t have its act together on this airplane. This remains a financial albatross and instead of getting better it seems to be getting worse.

Despite initially predicting it would deliver 21 A380s in 2009, it delivered just 10. What a disastrous performance. To be sure, a few deferrals were at customer requests but these cannot mask the reality that the program remains chaotic. Production costs remain out of control.

Boeing reduced its 20 year forecast for Very Large Aircraft from 940 to 740, with only 500 of these being passenger models, split between the 747-8I and the A380. We think this is a bit conservative but Airbus continues to stick to its forecast that there will be 1,300 VLA-Ps sold over the next 20 years, a figure we believe to be wildly optimistic. (It took Boeing more than 35 years to sell 1,400 747s.)

In 2007, after the delays in the program were first quantified as two years, Airbus said it would have a break-even of 450 A380s. Officials stopped talking about break-even long ago. With the continuing production, delays and cost issues, the break-even has to be moving to the right. We were once of the opinion that Airbus could break-even in 10 years. We now doubt this can be achieved in 20 years, but admit that this is a WAG (wild-assed guess) as opposed to any financial analysis.

We have been a consistent supporter of the A380 and believe it will indeed prove to be a technically proficient airplane that passengers will enjoy. But given the long-term financial implications, we have to ask, Has the time come for Airbus to cut its losses and terminate the program? While we continue to believe that the company will sell 500-600 airplanes over 20 years (down from our previously believe of 700), if you stand little chance of making money, why bother? The resources are better put to use on the core A3-Series programs.

A400M

At the start of 2009, we wrote that last year was the year Airbus had to get the A400M flying. It did, barely, with the first and second flights in December. Real testing, however, won’t begin until this year.

This troubled program may as well be called the A400M-380 for the financial detriment it has had on the company. Along with the A380, this program diverts critical cash and engineering resources from the core A3-Series airplanes that are the company’s bread-and-butter. We remain concerned that the continued diversion of resources will work to the detriment of the A350, inevitably leading to delays on this airplane that is critical to the future of Airbus. A similar diversion of resources at Boeing to the 787 has been detrimental to the 747-8 and future airplane programs.

The issue for Airbus is that the A400M is actually an innovative design that fills a good slot between the aging Lockheed Martin C-130 and the larger Boeing C-17. We think the airplane has good potential if the engine/software problems have been sorted out. Still, only EADS/Airbus member countries plus Malaysia have ordered the airplane (South Africa canceled). Does this airplane truly have a future in worldwide military and humanitarian service or is it merely a jobs-and-prestige program?

Canceling the program means Airbus will have to repay several billion Euros to customers, unless they are willing to simply write off these amounts Thomas Enders, the Airbus CEO, was quoted in a French newspaper within the last week suggesting the program could be canceled. Given the implications and the European way of doing business, we can’t dismiss this possibility. But in the end we think prestige and jobs will override business sense.

If only Airbus were beholden to the free market instead of the European way of doing things….

KC-30 MRTT

This month will be critical for Airbus, its parent EADS and its tanker partner Northrop Grumman. The US Air Force is expected to issue its Final Request for Proposal for the KC-X contract to provide 179 tanker-transports to replace the 50-year old Boeing KC-135s. Northrop says it won’t bid unless specifications are changed because in its view the Draft RFP tilts toward the smaller Boeing KC-767 (we generally, but entirely, agree).

From the start of the 2006 competition, won by Northrop but overturned by the Government Accountability Office, we said that if all the USAF wants is “just” a tanker, the KC-767 is the choice. If the USAF wants a highly flexible multi-role tanker-transport, the KC-30 is the better choice. We also believe there is a strategic argument, as well as a political one, that supports buying both airplanes because there are simply different mission requirements. But the Pentagon is adamant that it will not split the order.

Winning the contract is critical to world-wide tanker sales; many countries follow the US lead, though it must be acknowledged that in each case where the KC-30 competed with the KC-767 outside the US, the KC-30 won.

Winning the contract is also critical to the Airbus strategy of establishing a commercial A330-200 production base in the US. Northrop and EADS promise to build a tanker assembly plant in Mobile (AL) if the KC-30 is selected. Airbus pledged to build the A330-200F there if this happens and expectations are that the A330P will follow. But no tanker contract, no US plant.

And this is why we believe Boeing and its supporters are fighting so hard to block a tanker award to Northrop. This, we believe, is more important to Boeing than winning the tanker contract, though we also acknowledge Boeing wants the contract on its own merits as well as to keep EADS out of the largest DOD contract to come along in years.

The MRTT is running about 18 months behind schedule for delivery to launch customer Australia. About six months was due to customer change orders, according to the RAAF and EADS. The balance rests with developmental issues.

Boeing

There is no getting around it: 2009 was an awful year for Boeing and nearly all of the bad tidings can be traced to the 787 program. (We speak of BCA; Defense also had a bad year; the Pentagon decimated Boeing’s defense programs in the FY2010 budget.)

At the start of 2009, we wrote that Boeing was then projecting first flight for the 787 in April. This slipped to June, and in a monumental embarrassment, Boeing promoted a June 30 test flight during the Paris Air Show June 15-16, only to take it all back on June 23 with the sixth program delay. The first flight finally occurred December 15, followed December 22 by the first flight of Airplane #2 and the second flight of Airplane 1 on December 30.

The 747-8 program was delayed as a result of resources that continued to be diverted to the 787 program and its own design issues.

The KC-767 International program remains troubled, despite deliveries to Japan.

While these programs dominated the headlines, they also overshadowed the successes. The Legacy airplane programs (737, 767, 777) went smoothly all year. Production rates on the 737 were maintained at 31 per month all year despite skeptics and calls to reduce rates. The 737-based P-8A rolled out and is in flight testing. The long-delayed 737-based Wedgetail was finally delivered to Australia. Boeing Capital Corp. proved correct with its forecast that there was a management customer funding gap of $0-$5bn vs. dire predictions that the gap was $10bn to $25bn.

Challenges facing Boeing this year include:

  1. Successful completion of the 787 flight testing program on a very aggressive schedule of 8 ½ months. Certification is required before delivery of the first airplane, said only to be in the fourth quarter, but reported by Flight International as potentially at the end of September. All Nippon Airlines is the first customer.
  2. First flight of the 747-8, perhaps as early as this month, followed by a flight test program and 4Q2010 delivery.
  3. A decision on whether to re-engine the 737.
  4. Maintaining 737 production rates at 31 per month to maintain cash flow.
  5. Managing the “skyline” (the order book) for the 737 in particular this year.
  6. Relocation of the 767 line to the aft bay it now occupies to make from for…
  7. The Surge Line for the 787 while the…
  8. Second 787 production line is built in the greenfield Charleston (SC) plant.

Here is a program-by-program rundown for 2010.

737 Family

Boeing’s venerable line continues to be the unheralded flagship of the company. The 787 and 747 may be sexier and the 777 is a solid performer, but it is the 737 that is purchased in the greatest number and sustains the cash flow more than any other 7-Series airplane.

Boeing continues to provide modest improvements for the airplane. Officials announced last April that it will introduce aerodynamic improvements and the CFM-56 Evolution in 2011 that will improve fuel burn 2%; and a 787-inspired Sky Interior in 2010. The Sky Interior has a “wow” effect that will overshadow the 2007 update by Airbus of the A320 Family interior, a highly functional and attractive upgrade that nonetheless is conventional in its look. These Boeing improvements keep the 737 slightly ahead of the A320 Family in performance, look and feel.

But the advantages will be short-lived. In 2012, Airbus introduces the “sharklet” winglet on the A320, with installation following by six months on the A321 and A319. The sharklet improves the SFC by about 3.5%, which depending on the plane-for-plane match up is predicted by Airbus to give the A320 Family a point to three point SFC advantage over the 737s. Boeing unofficially believes the sharklets only allow Airbus to catch up to the 737 SFC. Airbus is also is implementing aerodynamic improvements to reduce SFC by another 1%.

Either way, the 737’s SFC advantage is diminished or overcome by the A320 enhancements.

Boeing might be able to “live with” this situation since the lighter-weight 737 means lower landing fees and maintenance is said to be somewhat less on the 737. The 737-800 also typically carries 12 more passengers than the A320, providing greater revenue opportunity. But Airbus is, in our view, certain to decide this year to proceed with a re-engining program for the A320 Family that will add another 12%-16% improvement in fuel burn. Boeing cannot let this stand, and we believe Boeing will likewise announce a re-engine program for the 737. Airbus will likely have an EIS of 2015 and Boeing will follow in 2016. This is because we believe Airbus will launch its re-engine program with the Pratt & Whitney P1000G Geared Turbo Fan, offered via the PW joint venture International Aero Engines. We think Boeing will launch with the CFM LEAP-X engine, which won’t be ready for service until 2016, based on today’s information. Airbus will almost certainly offer the LEAP-X on the A320 Family as well.

These improvements will, we believe, push replacement airplanes out to the latter half of the 2020 decade unless some regulatory environmentally-based legislation intervenes or a dramatically better airplane technology emerges in the first half of the 2020 decade.

We see the A320 and 737 families being around for another 15-20 years.

747-8

This program struggles. Freighter sales are stalled due to the continued global cargo market depression. Passenger sales are stalled, spurred we believe with the recent order for five from Korean Air Lines by compensation for 787, 747-8F and 747-400BCF delays to KAL. We think there will be more 747-8I passenger orders placed this year, but we also think these will be to customers affected by delays to the 787 and possibly the 747-8F programs and as a result, any 747-8I sales will be sharply depressed in pricing.

Cancelling the program has too much collateral damage to customers and suppliers, as well as Boeing’s already tattered reputation and balance sheet. This program will continue to limp along.

767

Like the A340, this is a plane that won’t die. Unlike the A340, the 767 is still a viable program, if reduced to a back-up for the 787 delays. At November 30, there was a backlog of 55 aircraft, or 4.5 years at the current one-per-month production rate. The current plan is to go to two per month in 2011. If Boeing wins a tanker contract with the KC-767, another rate increase of 1 to 1 ½ a month will be forthcoming from 2015.

Because of the need for a 787 production Surge Line (see 787 discussion below), the current 767 line will be relocated to the aft part of the bay it now occupies. A Lean production line will be implemented, reducing unit costs by about 20%. Relocation begins this year and will be completed next year.

The long-term future of the 767 depends on the tanker contract.

777

This stalwart airplane is a superb long-haul machine. But the countdown to its end-of-life is now underway.

The 777-200 is essentially already dead. There are few -200ER sales and the -200LR is a niche airplane; niche airplanes historically have a short life. The -200LRF will enable the 777 line carry on for a respectable period when the passenger versions are eclipsed by the next generation of airplanes. The A350-900 has already dominated this market segment.

The 777-300ER continues to dominate its class, which is opposite the morbid-bound A340. With the development of the A350-1000, the 777-300 days are numbered. The conundrum at the moment is what Boeing will do about it. The answer is, wait another year to decide. The A350-1000 still is too early in development for Boeing to have a clear picture of the threat the Airbus poses. Airbus claims the -1000 will have up to 25% better operating economics than the -300ER. We’re told Boeing believes this will prove to be only about 10%. If Boeing is correct, the company might be able to get away with major upgrades to the airplane for about 20%-30% of the cost of developing a new one. Even if Boeing can’t precisely match the presumed 10% A350-1000 gain, because the 777-300ER carries slight more passengers and more cargo than the -1000, the A330-200 vs 787-8 argument recounted under the A330 segment above is reversed here in Boeing’s favor.

On the other hand, if the Airbus assumptions of a 25% operating improvement are correct, Boeing will be faced with a decision to design an entirely new airplane. But this is a decision for 2011 and we are getting ahead of ourselves.

For 2010, Boeing previously announced production of the 777 will reduce from seven to five a month from this June. Other than this, the word for the 777 this year is “status quo.”

787

At long last, Boeing got its first flight off the ground in December. Now, as many say, comes the hard part, though it is hard to see how flight testing can be much harder than the difficult birthing of this airplane.

Accordingly to Flight International, four test airplanes are to be in service by the end of February and all six by the end of April. This is two months faster than Boeing CEO Jim McNerney told analysts on the third quarter earnings call. Flight testing is scheduled for 8 ½ months, faster than the 12 months announced on June 23 when the June 30 first flight was postponed for the sixth time. First delivery to launch customer All Nippon Airlines is planned for the end of September with 10 787s delivered to this customer by year-end, according to Flight.

If all this comes to pass, there will be a huge sigh of relief worldwide.

KC-7A7 Tanker Program

Boeing took a new approach to the KC-X tanker competition at the Paris Air Show, announcing that it is prepared to offer the USAF either the KC-767 or a tanker based on the 777, the KC-777. Speculation has arisen that Boeing might submit two bids, one for each airplane, to bracket Northrop’s KC-30 bid—should Northrop decide to proceed with one. We think Boeing will submit only one bid, for the KC-767, in a configuration that is close to that of the Italian tanker. If Northrop drops out, there is no need for Boeing to submit two bids. If Northrop stays in, we still think Boeing will submit only a KC-767 proposal. All the sunk costs are in this program, while the KC-777 is entirely a developmental airplane. The DRFP discourages developmental aircraft, according to those who have slogged through the entire document.

We remain concerned that Boeing has yet to deliver the KC-767 to Italy, now some four years late. We are told problems remain with the centerline hose-and-drogue system (Boeing has never confirmed or denied this). We are also told that issues remain with the wing-mounted refueling pods, though Boeing says these have been fixed. Although Boeing intended to deliver the first of four tankers to Italy last year (“the Year of the Tanker” in a Boeing internal message), that this still has not happened indicates all is not well. Since the US tanker is similar to the Italian tanker, we remain skeptical about the program.

The fourth Japan KC-767 tanker was ferried to Japan from Wichita in December and delivered to Boeing’s Japanese partner, the Itochu Corp. It is currently undergoing pre-delivery processing before Itochu delivers it to the Japan Ministry of Defense.

The Italian tankers continues to complete flight testing and to address all findings. Boeing thens will work with the US Navy to schedule and complete a Military Utility Observation (MUO) required under contract. Boeing then begins the Tender for Acceptance process with Italy to deliver their advanced KC-767 tanker. Boeing is still not forecasting any dates concerning these remaining milestones.

P-8A Poseidon

This 737-based airplane is designed to replace the aging P-3A Orion as a sub-hunter and airborne detection system. The P-3A is based on the Lockheed Electra four-engine turbo-prop designed in the mid-1950s.

The Poseidon rolled out from the Renton factory last year and is in flight testing. The successful management of this program serves as an example for the KC-767 tanker team. Last year we reported that the tanker team was consulting the Poseidon team for lessons-learned on running a successful program. (A Boeing official later confirmed the coordination, though not the lessons-learned part.) This is a Boeing success story of 2009 that got submerged in the bad news that dominated the headlines.

Wedgetail

This 737-based program was not a success story. An electronic surveillance airplane for Australia, it is years late. Delivered in the second half of last year, Boeing has written off hundreds of millions of dollars in connection with this program. Acting as the systems integrator, Boeing had problems with the Northrop Grumman electronic gear, which was responsible for a good portion of the delays.

29 Comments on “Outlook for Airbus, Boeing in 2010

  1. re . . .”We have been a consistent supporter of the A380 and believe it will indeed prove to be a technically proficient airplane that passengers will enjoy. But given the long-term financial implications, we have to ask, Has the time come for Airbus to cut its losses and terminate the program? While we continue to believe that the company will sell 500-600 airplanes over 20 years (down from our previously believe of 700), if you stand little chance of making money, why bother? The resources are better put to use on the core A3-Series programs. ‘

    ++

    Gosh- IF airbust were to cancel the 380 ( AKA the a-3 piggy ), what would that do regarding payoff of the Gatt92-WTO SUBSIDY ISSUE ? Keeping in mind that under the general terms as I understand it, if they did not meet certain sales targets by x years, then the ‘ loans ‘ would be forgiven . Its not as if that escape clause has not been gamed, however, for them to Cancel before sales targets are met would seem to me to further back up the arguments regarding illegal subsidies issues.

  2. If, in true confidence, “Airbus has argued from the launch of the 787 that the slightly larger A330-200, carrying more passengers and more cargo, can produce an estimated $192,000 per year per airplane more revenue than the more efficient and less costly 787,” then why bother with the A350XWB?

    There must have been some intense internal Airbus battles along the route from that original lightened-up re-winged A330 to the XWB. Surely, the same good folks remain just as opinionated, and still jockey to make their -200HGW baby the true 787 killer just to prove themselves right. That is, no less, “The Airbus Way.”

    • If you can match the best of the best from the best
      leading technology shockwave hugging product with
      a 5t MTOW increase at negligible cost to a 20 year
      old product?
      At least it is an oppinion piece on astroturfing your
      products.

  3. Rather than the A400M, the An-70 is that, “innovative design that fills a good slot between the aging Lockheed Martin C-130 and the larger Boeing C-17.”

    It was the 15 year old An-70 that set the stage for the A400M. And, it could have been today’s the basis for a German transport had it not been for the ordinary European political pressure. So, today, “we present you the A400M…”

    • WRT the A400M, Enders has thrown down the gauntlet and threatened to walk (hmm…it worked for the tanker bid last time, why not here?).
      http://www.reuters.com/article/idCNLDE6040K620100105?rpc=44

      EADS will end up getting everything it demands, plus more on this program. The Germans, like their French, Spanish and UK counterparts, will accede–albeit reluctantly–to this shake down. And that is exactly what it is, a shake down. From a political and economic perspective, the European nations have no alternative. Enders is very well aware of this; so are the Germans.

  4. “…though it must be acknowledged that in each case where the KC-30 competed with the KC-767 outside the US, the KC-30 won.”

    In each case where the KC-30 competed with the KC-767 outside the US, that country’s refueler fleet size paled in comparison to the 500+ sized US fleet. Use methodologies in small operations there are easier to modify and implement. And, in such small fleets multi-role aircraft are easily justified. Fleet scale and high use frequency demand specific use aircraft.

    …Never in the field of tanker refueling has so many aircraft been operating for so long for which equivalent replacements have been so few…

    • After the very last KC-X aircraft is purchased, the KC-135 will still be in service with the USAF.

      The follow-on KC-Y program will replace the remaining 200-odd KC-135s left in service, while the KC-Z program will replace the KC-10.

      Being such a dated design from the start, I don’t see the KC-767 being viable in another 10 years for the KC-Y program.

      This is why a split buy of both aircraft, at double the original acquision rate, makes the most sense for the USAF. Replace all KC-135s at the end of the program, and have a tanker fleet that can support overseas deployment and domestic operations requirements.

      Combining the KC-X and KC-Y programs into one, with an estimated $70 billion price tag, pales in comparason these days when compared to TARP and Job Stimulus program costs.

      • “Being such a dated design from the start, I don’t see the KC-767 being viable in another 10 years for the KC-Y program.”

        It’s readily apparent the US DoD doesn’t mind maintaining and flying aircraft for 50+ years as, “the KC-135 will still be in service with the USAF”… “after the very last KC-X aircraft is purchased.”

        Will KC-767’s still work 10-15 years out… do the refueling job? Airframe design age may not be a factor. Maintainability is a big factor.

  5. Does anyone know the benefit claimed on the 330/340 with the original winglets?
    There may be a couple of percent improvement in range/fuel burn available with the new “sharklets”. Certainly unlikely to need any wing modifications to accept a new design.
    Potentially a very low cost enhancement and most likely available as a retro-fit.

  6. Am I the only one who finds it a bit odd that you can say “given the long-term financial implications, we have to ask, Has the time come for Airbus to cut its losses and terminate the [A380]” and then a couple of paragraphs later state “Cancelling the [747-8] has too much collateral damage to customers and suppliers, as well as Boeing’s already tattered reputation and balance sheet. This program will continue to limp along.”

    Surely the A380 is in a much better position regarding (future) markets, is currently more mature and has much higher potential for technical improvements? Doesn’t that make it far *less* of a candidate for cancellation than the 747?!

    • The analysis on this point does seem odd without clarification. Here is why we said what we did: the A380 is already being delivered; has the time come to cut the losses after the orders on the books?

      The 747 has yet to be delivered. There has been much speculation that the program would be cancelled before delivery, due to the small number of orders (especially for the passenger version). With this context in mind, we made our comment–but for clarity should have been included as a reminder for the reader.

      • Finishing after booked frames (6++years) would do
        nothing for better resource chaneling _now_ .

        Finding good engineers certainly is a problem.
        Scientific/Engineering vocations have been low profile.
        Quite a lot of schoolteachers are anti science.

        Too many bright young people are wasted in
        non scientific occupations : lawyers, bankers, .. ;-?

      • If, “Canceling the (-8) program has too much collateral damage to customers and suppliers, as well as Boeing’s already tattered reputation and balance sheet,” then certainly, canceling the A380 will impose monumental damage to Airbus suppliers, Airbus’ reputation, EADS’ balance sheet, to say nothing of political fallout from plant closures and worker lay-offs, etc.

        The question remains, can Boeing or Airbus profit from their respective investments? Moreover, how do these two programs fit into each company’s product mix, overall service and good will’s financial value for their markets?

        The arguments are still vague, but one explanation can use the A380’s few deliveries in a profit margin and program cost analysis for better insight. When, “the company will sell 500-600 airplanes over 20 years” considering inflation, might a market comparable profit be possible? The question remains, can they sell 500-600 A380’s?

  7. Elsewhere the synopsis for this report
    is Leeham advises to cancel the A380 😉

    I would like to have deeper insights into Airbus
    A380 production issues. Looks like nearly complete
    planes stack up at XFW.

    And:
    I would like to contest the free market mantra.
    There never was one. Not in the aerospace industry.
    European industrial guidance leveled this a bit.
    Quite a lot of decissions are still based on political
    allegiances and the hegemon leaning on his lesser partners.

    Free markets develope monopolia and cartellosis very fast. What one wants is a flat market.
    Now a flat market is usually a managed market.

    • We would all like “deeper insights” into the A380 program, wouldn’t we?

    • Interestingly, the 10 A388s for Singapore Airlines that has now been delivered closely followed the revised production schedule from October 2006. SQ’s eleventh A380 (MSN-051) will likely be delivered next month, while their twelfth A380 has been deferred for some six months and should be delivered by the end of this year.

      Emirates fifth A380 (MSN-017) was more or less delivered on schedule in April 2008. As their next three aircraft (MSN-007, -023, -025) were to introduce a modified and higher capacity cabin interior (no crew rest in the back), it looks like this fact was the primary reason for these frames being delayed to the end of the year, with the delivery of MSN-025 slipping into January of this year. Interestingly, all of the 8 A380s now scheduled for delivery to Emirates in 2010 are already assembled. with 3 frames at XFW and 5 at the FAL in TLS.

      As for Qantas, the delivery of their sixth A380 slipped from week 52 of last year to the first week of this year, while they had already deferred their seventh to 10th A380 deliveries by up 10-12 months due to the economic downturn.

      MSN040 (2nd A380 for Air France) should be delivered in late January. This means that the 13 deliveries scheduled (latest revised delivery schedule from the summer of 2009) will be completed one month late.

      Clearly, Airbus still has some production issues due to the complexity of the substantially different interiors offered to their customers. However, I wouldn’t necessarily conclude that the number of deliveries last year is “disastrous”, as the production process can smooth out the production problems at a period in time where seemingly ALL of the A380 customers apart from Emirates, have deferred some, if not all, of their deliveries during the last 12 months.

      Now, the call for A380 program termination is just ludicrous It’s not driven by logic. The R&D on the A388 is already spent. Termination now would not only eliminate the inflow of cash from A380 sales (deliveries), but would also lead to massive penalty payments to the customers as well as “broken” relations with the tier 1,2 … suppliers etc.

      Also, this is the worst down-turn in a generation and not surprisingly, the crowd mentality of many of the people who never seemed to like the A380 in the first place, can’t see beyond this monumental down-turn, and are instead pre-occupied in piling on to negativity when things are “bad”, and ridiculously calling for the demise of the A380 and hoping to “dance on the grave” of not only the A380, but also of Airbus itself.

      Finally, I agree the airplane business is not a free-market laboratory. Rather, it is marked by subsidies, offsets, regulatory concessions, equity partnerships, national policy (i.e. strategic industry) etc. What we can be thankful for though, is that despite all this we have two companies who compete ferociously with each other none the less.

      • but still the question of the viability of the continued A380 business case must be asked.
        In a world where more and more 747’s are replaced by 777/330 instead of new-build 747’s or even 380’s – in a world where the long range twins have been the clear winners over the high capacity quads, is there room for such a behemoth.

        Sure, it would incur additional costs to close the program, and I’m sure the current A380’s are cash-positive when you only look at the cost of production – but it also ties down resources.
        Are those resources most effectively used building/engineering the A380?

        I don’t think the A380 line should be ended (after the current orders are filled) – but not because of any pure technical or financial point of view.

      • Of course, people are free to ask questions about the “viability” of the A380, or any other airplane for that matter. I, for one though, have real problems seeing that the program is supposedly not viable. The usual detractors love to point out the “lack of sales” since first flight, but never mentions the fact that net orders for the 787, for example, are just above what they were two years ago due to the delays in getting the bird into the air which have led to a situation with 787 production slots sold out for the better part of the next decade (2011-2020).

        Interestingly, the A330-300 was initially a slow seller (ahead of its time?), and only at the start of the second decade of A330-operations — which incidentally coincided with the launch of the 787 — did the sales of the A333 truly take off. Airbus delivered only one A333 in 1993, 9 in 1994, 30 in 1995, 10 in 1996 and 14 in 1997; for a grand total of 64 deliveries in its first five (calendar) years of operations. Airbus will, in all likelihood, have delivered more than 64 A388 frames by the end of 2011. I predict that 71-75 deliveries will have occurred by the end of 2011, which means an average of 24-26 frames delivered in 2010 and 2011.

        The 777-300/300ER have generally replaced the similar sized 747 “classics” as well as catering to new demand; while most of the 747-400s which have been delivered are still in commercial operation (i.e. non-freight).

        Finally, I see the A380-800 as the first model of entire LCA-family, with not only further stretch versions coming online in the second decade of operations, but also new models using the same double-decker fuselage. The A380-800 is “overbuilt” for TLA flights as well as intra-Asian flights.

        Intreagingly, it’s interesting to note that just by (i) putting the wings and MLG of the A350-1000 on a 15 frame shortened A388 fuselage (MD-12 length), will create a 787-8I sized aircraft with unbeatable CASM on routes shorter than 3500 nm, and (ii) putting a modified A345/A346 wing (with significantly more “tapering” from the inboard engine positions to the (smaller) centre wing box) carrying Trent XWB derived and Trent-500 sized engines, on a 15 frame shortened A388 fuselage would have a range (at maxiumum payload) similar to the A330-200.

  8. The Wedgetail has not been handed over to the RAAF.

    The initial delivery denotes that the aircraft have been provided by Boeing to the RAAF for training purposes, but will not be formally handed over to its new owner until March 2010. Despite wearing their ADF serial numbers – A30-001 and A30-004 – the aircraft will remain on Boeing’s books and the US civil register until that time, and Boeing must provide a pilot in command and a flight test engineer on all RAAF training flights until the official handover.

    http://australianaviation.com.au/raaf-accepts-initial-wedgetails/

  9. I would be interested in what big advantages would be expected from an A340 cancelation.
    For Airbus the A340 and A330 are variations on the same product. They come from the same assembly line. They have high commonality.

  10. Boeing’s biggess problem for the out years is how to afford 737 and 777 replacements/refreshes.

    Illustrative of how cash strapped and debt burdened Boeing is becoming is this little factoid that came to me yesterday via a management employee:

    Boeing is now having to “temporarily” match employee 401K contributions with Boeing stock instead of cash. I understand this applies to executives, managers, and non union types, as there are contractual prohibitions for unionized worker bees.

    This on the heels of Boeing having to fund it’s pension obligations the same way. I have no idea if this is new stock or current holdings, but the amounts involved must be staggaring, pensions and 401K matched combined. Either way it’s dilutive, and nobody in their right mind would hold so much BA stock in their 401K plan, especially when insiders seem to dump their options and grants almost immediatly.

    Meaningful top line revenue growth is a long way off with Boeing, and Bell and McNerney will have to continue to fake the funk for years with bonds and one time charges.

    And the recent anaylist upgrades are a bunch of nonsense. The suckers will lap it up though.

  11. As usual, Scott, you have provided a well balanced piece. Except… your opinion of the A380. My immediate thought, when I cam across a headline in Seattle PI, was Dick must have hacked into your site and put things like: “Richard Aboulafia … somewhat unfairly perceived as anti-Airbus” 🙂
    But seriously, let’s look at your opinion. I am completely puzzled by, this:
    “While we continue to believe that the company will sell 500-600 airplanes over 20 years”
    +
    Then you go on to say in one of the comments…
    +
    “has the time come to cut the losses after the orders on the books?”.
    I presume you mean the 180 odd they currently have. So, just forget about the possible 400 planes and write off additional billions? The future revenues generated by the A380 will positively reflect on the earning and will essentially fund the future programmes.
    What Airbus has now is the ability to finally stabilise the production during the downturn, so that they will come out stronger. I know it is a very popular exercise, amongst our american friends, to trash the A380 at every opportunity but let’s get real here… The A380 will not be cancelled.
    If you think A380 is having problems, just wait till the 787 gets industrialised. Will somebody be calling on Boeing to cancel that programme?

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  13. Another thing I forgot to comment on. From the A380 topic:
    “The resources are better put to use on the core A3-Series programs.”
    The resources ARE being put on the core programmes, namely A350 and A320. Please do not take an easy way for arguing that the A380 is draining the engineering talent away from other projects. Very few people are actually doing any design and development work on the A380, majority have been diverted to the above stated programmes. The A380 is completely out of phase with the development schedule of the A350, meaning that by the time Airbus was seriously getting into the XWB (2006), A380 was getting its Airworthiness Certificate! This is completely the opposite to the B787 and the B748, where they were launched within a year of each other and basically running in parallel. Therefore putting more people on the 787 would inevitably have an effect on the 748.

    • UKair, you’re bang on the money. It’s the A400M, and not the A380, which (if anything) has been “steeling” resources from the A3 -Series programs.

      It’s worth mentioning that since the development of the A310, Airbus has seemingly been running a continuous R&D operation developing new aircraft with new programs (not “simple” derivatives) mostly “out of phase”.

      A310: First flight 1982, EIS 1983
      A320: First flight 1987, EIS 1988
      A321: First flight 1993, EIS 1994
      A319: First flight 1995, EIS 1996
      A318: First flight 2002, EIS 2003
      A340-300: First flight 1991, EIS 1993
      A330-300: First flight 1992, EIS 1994
      A330-200: First flight 1997, EIS 1998
      A340-600: First flight 2001, EIS 2002
      A340-500: First flight 2002, EIS 2003
      A380-800: First flight 2005, EIS 2007
      A350-900: First flight 2012, EIS 2013 (estimated)

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