Boeing has implemented its third, 30-day stand-down for its supply chain on the 787 program. Says Boeing:
As we have previously indicated, when opportunities arise we distribute flow in our production system to make the most efficient use of resources by ourselves and our global partners. We periodically align our production plans to meet adjusted customer needs, taking advantage of this flexibility in the market to further strengthen the 787 production system. This technique of balancing deliveries to most efficiently manage flow and customer requests within the production system is a common practice for our airplane programs.
A350: Development is running 6-8 months late, says a key supplier. This supplier believes there is still a chance Airbus will deliver the A350 in 2013, as promised, but it will be close.
Credit Suisse on its Boeing Field Trip
Dated September 14:
■ Our Adj. Delivery Forecast Has Varying Est. Impacts on OE Names: We delay 787 & 747 EIS slightly and raise 737 in 2013. Also, our 787 production ramp is now more moderate. Consequently, for BA, 2010 declines on a 747-8 delay charge and 2011 drops on incremental pension expense.
■ 787 Supplier Rates Show Inconsistency: At SPR, nose units 28 & 29 have been ready to ship for several weeks, perhaps > mth. Our subsequent visit to BA’s Everett, WA plant confirms little real estate for add’l units as some 23 787s are parked around the campus with 4 more on the assembly line. However, PCP (787 engine/fasteners), is awaiting add’l instructions and is operating at a near-zero rate. The big question for investors is whether the flow differential is driven by the previously-stated effort to synchronize suppliers, or is BA addressing lingering design issues before moving further.
■ 747-8 Wing Requires More Work: News surfaced ~a week ago on another potential delay for 747. Our field research indicates possible issues related to vibration (flutter) with the wing & ailerons. While BA claims to have a fix, we sense the 6-to-12 month delay reported in the media is possible, and expect commentary from BA by the Q3 EPS call. Note the 747-8 program is in a fwd loss position, which means excess cost would likely yield a charge, which we estimate at $200M.
■ Further 737 Rate Hike Seems Likely: All three companies are analyzing add’l 10-15% rate increases above the already announced 35/mth in early 2012. Interest is driven by growth in Asia as the LCC model is adopted and replacement of older aircraft in the U.S., with a bow wave of demand expected from 2012-2015. However, production constraints and rate sustainability remain a concern for suppliers. While the market expects some add’l rate boost, we are confident enough to raise our 737 forecast to 38/mth in 2013 (from 36/mth).
Back to our reporting:
We believe the A320 NEO will get the green light, with an announcement next month. Pratt & Whitney’s P1000G and CFM’s Leap-X are both expected to be put on the family, along with the incumbent CFM 56 and the V2500 from International Aero Engines. We think offering four engine choices is nuts, as we do the price premium of $7m-$8m on list pricing. We agree with appraisers that residual values of current airplanes will take a steeper hit than Airbus suggests.
Speaking of PW
In what continues to be an incredibly bizarre one-man campaign to discredit PW’s Geared Turbo Fan and the Bombardier CSeries, one pseudo-analyst totally distorted remarks by PW President and CEO David Hess to assert that PW was “not impressed” with the CSeries, according to the headline this person put on his “analysis.”
Here is what Hess actually said about the CSeries at the Farnborough Air Show:
“I think we’re all a little disappointed that we weren’t able to complete the deals to announce orders there, but I’m not concerned because it’s a great airplane offering operators great economics, which is why there’s so much interest from airline customers. And don’t be surprised to see some more major orders later this year.” (Emphasis added.)
The CSeries, equipped with the PW P1000G Geared Turbo Fan, has forced Airbus and Boeing to consider what they can do to match the superior economics of the Bombardier product. Airbus is expected to announce in October a re-engine option for its A320 family, using the P1000G and the CFM Leap-X. Boeing appears to have all but decided to forgo the re-engine option and strive for additional enhancements to the 737 family pending development of an entirely new airplane.