2011 Outlook for Aerospace

Note: this is unusually long, 11 pages when printed.

The new year is here and it is time for our annual look-ahead for the big OEMs.

On a macro level, 2011 should be a good year. Airline passenger and cargo traffic recovery should continue. The global economy also is recovering, but it is almost painfully slow to do so. Still, this is better than some of the alternatives.

Airlines and lessors are likely to continue their order stream that resumed in mid-2010 at the Farnborough Air Show. There could be some key orders that will influence the OEMs and their strategies going forward.

On the military front, we are much more limited in our tracking. We follow the KC-X tanker program because the offerings are based on commercial airliners. We slightly follow the P-8A Poseidon for the same reason, but Boeing pretty much has the monopoly for this type airplane, so there isn’t much to follow.

We do closely follow cybersecurity issues, if for no other reason than it is so important but also because key aerospace companies, including Boeing, have major efforts in this arena.

But by and large, we focus on the OEMs, the emerging competitors and the new engines.

So let’s get to it.

Fuel

Fuel peaked at nearly $150bbl in 2008 then dropped unexpectedly and dramatically to less than $60bbl, catching even master-hedger Southwest Airlines off-guard and putting it on the wrong side of fuel hedging for the first time.

As 2010 came to a close, fuel was back up to $90bbl and climbing. Predictions of $110bbl fuel emerged.

As goes fuel, so goes the prospect for orders for the new, more fuel efficient aircraft. While Airbus and Boeing might have been content to keep the A320 Legacy and 737 families in production until replacement airplanes were ready in the 2020-2030 period, rising fuel prices supports orders for the more fuel-efficient aircraft such as the Bombardier CSeries, A320neo and the emerging competitors. Can Boeing sustain its 737NG with an NG+? Will it be forced into a re-engine whether it likes it or not? Or can it come forward with a sensible replacement aircraft with an EIS of 2019-2020, only two-four years after the entire A320neo family is supposed to enter service (2016 for A320/321neo and 2017 forA319neo)?

Will rising fuel prices fuel the sales for the CSeries and prompt Embraer to re-engine the EJets or even offer an entirely new design?

Watch fuel prices carefully: Southwest Airlines is already putting huge pressure on Boeing to do something more than an NG+ because of fuel costs. In a clear warning, officials have said they will consider adding a third fleet type (after the 737NG and incoming Boeing 717 from the AirTran acquisition) if Boeing doesn’t step up. This is no idle shot across the bow.

Key Players to Watch

There are key players to watch in 2011 who may prod Boeing into finally acting on its decision with the 737’s future: Delta Airlines, United Airlines, Southwest Airlines and perhaps Ryanair. Delta, Southwest and Ryanair have been exclusive Boeing customers. United is now run by Continental Airlines management, following the merger of these two carriers, and Continental has been an exclusive Boeing customer.

United is expected to resume movement toward issuing an RFP this year for its single-aisle airplanes. The old United was preparing to do so last year when the merger intervened. The old United has 94 aging Boeing 757s to replace and the A320 fleet dates to the early 1990s. With Airbus and Boeing assembly lines full at the current production rates to 2017, an order now is needed to have deliveries coming when retirement age approaches.

The previous United management was seriously evaluating the Bombardier CSeries, which is sized across from the A319s in UAL’s fleet. An A321 with sharklets is competitive with the 757 and the A321neo is even more so. Airbus will clearly be gunning for the 757 replacement with the A321neo, which outperforms the 737-900ER, as well as keeping the A319/320 Legacy replacements with the NEO program. This family offering will make it difficult for Bombardier to win an order for its CS300. But what will Boeing’s chances be to displace UAL’s A320 fleet with 737s to match Continental’s 737 family?

It all comes down to the numbers: Direct Operating Cost and purchase price. While Airbus might find it impossible to breach the Continental management if Continental were still a stand-alone carrier, having a big A320 fleet at UAL—an order for A350s—may make the difference. If the new United goes with Airbus, this would be a major blow to Boeing.

Likewise, if an increasingly impatient Southwest chooses to buy the CSeries to begin replacement of its 175 737-300/500 Classics and, ultimately, the 86 717s coming from AirTran (Southwest still needs an airplane with fewer than 150 seats)—and we don’t believe the A319neo has any realistic chance of winning a Southwest order, because apart from the new engines, the A319 is no longer new technology—then Boeing will have to take action beyond the NG+.

Ryanair is also pressuring Boeing to do something, but CEO Michael O’Leary has not endeared himself to Airbus and we would be really surprised if Ryanair defects from Boeing. If it did, this would be another shocker.

As for Delta, the “old” Delta was an exclusive Boeing customer. The “new,” post-bankrupt Delta is managed by former Northwest Airlines executives (who pre-dated the management in place when Delta and Northwest merged) who ordered and like Airbus airplanes. Plus the current management is none-too-happy with Boeing over the 787 delays, an order inherited with the Northwest merger which was placed by the management that succeeded the current Delta group (you need a scorecard here). We do not support the conventional wisdom that Delta ought to be a lock for Boeing orders; rather, we believe Airbus has a very good shot at orders from Delta and in many respects, Boeing may be at a disadvantage because of the 787 debacle.

So if Delta orders Airbus, will this spur Boeing to re-engine the 737, as Airbus believes will be the case? We’re not so sure. But we do believe if Southwest or United (or far less likely, Ryanair) defect, the answer will be “yes.”

Big Four Airframe OEMs

Airbus

Macro outlook: This could begin to shape up as a crucial year for Airbus: 2011 is the year before first flight of the A350 is supposed to happen and just two years before Entry-into-Service is promised. Airbus has now eaten up its program margin, and officials have finally, formally acknowledged that EIS will slip from 1H2013 to 2H2013. Some credible analysts believe there will be a two year slip.

The A320neo program (unless sub-type is specified, “A320” refers to the entire family) will be watched very carefully to see how much interest will be forthcoming in the way of orders.

The A380, which perennially misses its delivery target, seems to be the challenge-that-never-ends for Airbus. The A400M vies for this title. And then there is Tanker.

Let’s look Airbus program-by-program.

A320 and A320neo: We, and others, have written loads about the A320 “Legacy” aircraft and the A320neo, or New Engine Option. Appraisers, lessors and financiers are worried about the residual value affect the A320neo will have on the Legacy, and the ability of the A320neo to sustain its own RV when Airbus continues to talk about a replacement airplane in the 2025-27 (“or later”) timeframe.

Airbus officials take the position that RV won’t be affected for the Legacy because there is a huge installed base and a backlog of more than 2,000. John  Leahy, COO-Customers, points out that historically until the new version of an airplane surpasses 50% of the installed base, RVs hold up.

For once, Boeing and Airbus are largely in agreement; Boeing said much the same thing when it was actively considering a re-engine program for the 737.

In a move we find bizarre, Airbus will continue to offer two engine options on A320 Legacy and two engine options on the A320neo. We believe Airbus should simply go with the NEO and be done with it; that’s what Boeing did when it put the CFM56 on what is now called the 737 Classic (-300/400/500), discontinuing the 737-200A with the Pratt & Whitney JT8D-17 engine. Airlines recognized the greater efficiencies of the CFM56 and they dealt with the new engine type in their training, shops, parts and so on. Airbus should do the same.

This, of course, would eventually kill the International Aero Engines consortium as anything more than just a support group and effectively put Rolls-Royce out of the small engine business (RR is a partner in the IAE joint venture). Considering that Rolls’ new two- and three-stage RB282/285 is gaining no traction at this time for an A320-class airplane—and also considering that Airbus ruled out the RB285 as a NEO (after which RR promptly dissed the entire NEO concept)—and finally considering that RR is the sole engine provider on the A350, perhaps Airbus doesn’t want to deliver this blow to RR. But we still think offering four engines (including two of which are “old” technology) is a dumb idea.

Given the backlog, did Airbus really need to do a NEO? We think, on balance, the answer is yes.

The A320 Legacy continues to slip ever-so-slowly behind the Product Improvement Program for the 737. Airbus was slow, almost glacial, to adopt winglets (or “sharklets” in Airbus jargon) for the A320, the sharklets will be options for new airplanes from 2012 but these will only keep the A320 at parity (if that) with the 737-800, the A319 slightly ahead of the 737-700 and the A321 ahead of the 737-900ER but not quite catch up to the out-of-production 757. NEO puts the A320 family ahead of the 737 family, though there is disagreement between Airbus and Boeing about by how much.

More importantly, NEO gives the A320 and A321 unrestricted US transcontinental range (which is challenged in winter’s strong westerly winds) and it makes the A321 much closer to the 757 in overall performance—giving John Leahy his long-sought 757 replacement airplane.

As for Leahy’s assertion that the NEO kills the business case for the new CSeries, we say poppycock. The A319neo will be the last one done, in 2017, and the competing CSeries CS300 is supposed to enter service in 2014, fully three years earlier. Clearly the higher priorities are US trans-con and 757 replacement.

So on balance, we believe Airbus made a good move with NEO—except for the four engines that will be available instead of just two.

We look for orders from ILFC (perhaps swapping out the 10 A380s, but potentially stand-alone), with a mix of Pratt & Whitney GTF and CFM LEAP-X engines, GECAS (sole-sourcing GE/CFM LEAP-X), Lufthansa (historically LEAP-X, but it has GTF on its CSeries order), perhaps Delta Air Lines (historically CFM on the A320s), perhaps United Airlines (PW via International Aero Engines on the A320 but CFM on Continental’s 737s).

Production rates are also something to watch. Airbus is bringing rates back up to 40 per month and is considering up to 44 by 2015, according to reports.

A330 Family: This program continues to surprise. It was supposed to be killed off by the Boeing 787 and the A350 and neither has done so. The 787, of course, is now three years late and it could slip even more. This has boosted sales of the A330-200 for substitute lift. The A350 is larger than either the A330-200 or -300, so the A330 now effectively has a monopoly in the mid-size, twin-aisle aircraft (the 777-200 and A330-300 are about the same size but the 777-300ER is larger). The A330s also have been steadily improved with PIPs that have made them superb airplanes. The A330-200 now has an advertised range of 7,200nm—nearly as much as the lower-end of the 787-8—and the A330-300 have been improved to about 6,000nm. These ranges cover probably 90% of any market operated by airlines today. (The A350 and 787 have advertised ranges of 8,000nm+.) The A330 passenger models have many good years left in them.

The A330-200F is now entering service, and its promised performance will be tested against operating realities. The plane is smaller than Boeing’s 777-200LRF but it is Airbus’ first real challenge in the freighter market; the A300-600RF is just an “OK” freighter that is better suited for long-haul package (FedEx) operation or medium-range heavy cargo. The A330F is a long-haul plane that can take heavy cargo.

Production rates, like with the A320, are something to watch. With continued delays with Boeing’s 787 program, demand for the A330 remains high and rates might increase to 10 or even 11 per month.

The A330-200 is also the baseline airplane for the KC-30/330/45 MRTT series. We’ll talk about this in the section on Tankers, below.

A340: Still technically offered, but it’s dead.

A350: The warning flags are out in a variety of ways on this program. Airbus acknowledged the margin has been eaten up and EIS has slipped from first half 2013 to the second half. According to the Ascend data based, only five A350s are scheduled for delivery in 2H13, beginning in August. It wouldn’t take much to see this slip further, and Wall Street analysts are hearing about production issues already—though Airbus denies the specific issues that have been raised so far.

Airbus has reduced the flight test timeline from 15 months to 12 to try to keep to schedule, but as we’ve seen with the 787, timelines have a way of going sideways (so to speak).

More troubling to us are the problems at Rolls-Royce with the Trent 900 and the Trent 1000 (A380 and 787 respectively). Rolls says the well-publicized engine troubles are unrelated, but they both had to do with oil and parts failing. With Rolls hiding in the bunker and not telling much to anyone, you can’t help but wonder if there is something systemic in design or culture that will bleed over to the development of the Trent XWB for the A350.

Furthermore, Boeing is absolutely convinced that the Trent XWB will be too small for the A350-1000. The -1000 is the direct competitor to the 777-300ER and Boeing is trying to figure out what to do with the -300ER based on what Airbus achieves with the -1000. While Boeing acknowledges the -1000 is a threat, this threat is predicated on the -1000 meeting the Airbus promises—and Boeing isn’t yet convinced Rolls can deliver an engine that will enable Airbus to do so. Airbus, of course, disagrees, but the worries are out there in the marketplace.

We are now doubtful about 2013 EIS but are not as pessimistic as Richard Aboulafia of The Teal Group, who predicted a two year delay two years ago. We also are concerned about Rolls-Royce’s ability to produce the Trent XWB correctly in light of the 900 and 1000 issues, and we’re not sure but that Boeing isn’t right about the Trent XWB and the A350-1000. We think Airbus should turn to Pratt & Whitney as an option (GE won’t power the A350-1000, citing anti-competitor clauses in its 777-300ER engine contract) to see what PW can do. The challenge is that the United Technologies CEO says PW won’t have a 110,000 lb thrust Geared Turbo Fan for a decade. (PW is a subsidiary of UTC.) We wonder if PW can accelerate this timeline; we know Boeing is interested in a big GTF as well, presumably for a 777 replacement—and also the 737RS.

A380: Technically a great airplane (Rolls-Royce Trent 900s notwithstanding). Unsurpassed passenger comfort. But once more, Airbus missed its delivery target and the thing remains a cash-flow drain.

What’s more concerning is that the 20-year forecast never changes. For as many years as we can remember, Airbus has every year predicted a need for 1,200-1,400 Very Large Aircraft (VLA) passenger planes “in the next 20 years.” (Add 300 for VLA freighters and Airbus in recent years predicts a 20-year requirement for 1,700 VLAs.) The A3XX (which became the A380) was launched in 2000, 10 years ago. We have this distant memory than the 20-year forecast then was for 1,200 VLA-Ps. It’s 10 years later and now it’s 1,400 VLAs, but Airbus and Boeing are struggling to sell their A380 and 747-8I.

The A380 orders also remain stuck below 250. (Airbus will tell anyone who will listen that the global economy hurt demand, the ability of the airlines to pay for them, and with no delivery slots available until 2014 anyway, nobody needs to order them now. This is not without merit.)

Something here doesn’t compute, obviously.

We’ve always thought Airbus was way too aggressive in its 20-year forecast. Boeing now forecasts around 740 VLAs, and assumes it will get half of them. We think Airbus will get more like 80%–the A380 simply outclasses the 747-8I, as good and as nice as this airplane will be.

Cathay Pacific wants Airbus to proceed with the A380-900, and the A380-800 wing is already sized for the -900, so it would be a better airplane. But we would be surprised to see this happen in 2011.

The greater question is whether Airbus will finally, at long, long, long, loooong, last, meet its delivery target for the A380…or whether something yet again will intervene.

A400M: This program, along with the A380, has been a huge cash drain on Airbus. Taken together, both programs crippled Airbus’ ability to proceed with a replacement for the A320, and we think the cash flow drains have more to do with it than the technology arguments put forth by company officials. We are totally skeptical of the open-rotor engine as the grand solution Airbus claims; the PW Geared Turbo Fan and the CFM LEAP-X will undoubtedly mature enough to provide the fuel efficiencies of an open rotor without all the problems. The carbon fiber technology is here now, we believe—it’s the manufacturing capacity that’s the issue.

Boeing

Macro Outlook: The 787 overshadows everything, rightly and wrongly. This represents the future of the company, not only for its own reasons, but for the trickle-down effect to future airplane programs. There is still a lot of risk with the 787 (mainly financial, but also technical) and despite all the frustration and anger over all that has happened and the issues almost certainly to come, try and find a single, credible source who doesn’t believe the airplane will be a technical success—once Boeing finally works through the program development and production problems of the past and those still to come.

Where the 787 wrongly overshadows everything is the grand, continuing success of the 737 and 777 programs. Boeing has some hard choices to make about the future of these airplanes, particularly with the 737, but there is no denying these programs continue to run smoothly and efficiently.

The 747-8 and 767 programs are just hanging on.

737 Program: If everything seems to be going wrong with the 787, the 737 is a program for which everything is going right. Production is humming along perfectly. Boeing has announced plans to take it to 38/mo and is considering going to 42 and even 50/mo. The new Boeing Sky Interior has now been delivered to the first customers, greatly enhancing the look of the airplane in the style of the 787. The next operational Product Improvement Program enters service this year, designed to reduce fuel consumption by 2%.

The big question presumed to be answered this year is whether Boeing will re-engine the airplane, announce a replacement aircraft or stick with more PIPs to meet the competition from Airbus’ A320neo, Bombardier’s CSeries and emerging competitors.

We’re not entirely sure an announcement will happen this year—it could be delayed to next year to be used as a bargaining chip with contract negotiations with the IAM 751 and SPEEA labor unions. But we think some direction will come in 2011 because United Airlines, Delta Air Lines and Southwest Airlines may make some moves that will tell Boeing it must do something with the venerable but aging airplane, as noted above.

Boeing has hard choices to make for the 737. We’d like to see Boeing roll the dice and go for a new airplane with a 2019-2020 EIS. But what will this plane look like? Boeing’s Scott Fancher told reporters before Farnborough that the company is focusing on the 150-240 seat market (737-800/757-300). This would forfeit the 100-149 seat market, and with it the lower-end for Southwest Airlines. Boeing Commercial CEO Jim Albaugh told us at Farnborough he sees the sweet spot at 180 seats but at the same time said Boeing will protect its customer relationship with Southwest.

We also know that in November a top Boeing official told employees it wants to play in the 120-200 seat market. This means that to do so efficiently, Boeing needs two airplanes to cover the 120-240 seat segments.

It’s enough to make your head spin.

A working title for options is Boeing NLT (New Light Twin), presumably a reference to a twin-aisle 737-class airplane. We know Boeing has patented such designs.

747-8 Program: The 747-8’s program success really depends on the cargo market and recovery is happening. The question is how soon will orders follow? We don’t see all that many, frankly, in part because there will be a growing number of 747-400s coming on to the market for conversions if and when Airbus ever starts meeting delivery targets of the A380. Boeing is counting on 747-400 retirements to spur sales of the 747-8 Intercontinental, but we don’t think Boeing will win many of these competitions. Despite new engines, a new wing and many new systems, the 747 is still a 40-year old design and the A380 is a 10-year old design. With growth capabilities built into the A380 (and Korean Air configuring the A380 with just 407 passengers, a stunningly low number), the A380 can cover the low- and high-end of the VLA market.

We originally thought the 747-8 was a good, low-cost tactical move by Boeing to eat into the A380 sales, but aside from the freighter—for which Boeing has a VLA monopoly—sales of the passenger model have been dismal and, according to those in the know, largely tied to compensation issues for failures in Connexion and the 787/747-8F delays. But events proved otherwise.

Had the 747-8 program not been delayed (a fall-out of resources being retained by and diverted to the 787 program) and been plagued by costly overruns, customer penalties and a write-off of more than $1bn (and possibly more to come?), even the low sales could have been considered a success. As it is, the airplane may go the way of the 757-300 and 767-400: a last-gasp effort of a great airplane but whose time has come and gone.

767 Program: The future of the 767 is, of course, tied to winning the KC-X tanker contract. Boeing might breath some life into the 767 as compensation orders for the delayed 787, but even so, the clock is running out. If Boeing loses the tanker, the 767 is winding up in four or five years—or less if the rates go up from one per month to two this year as previously disclosed by Boeing.

777 Program: The 777-200ER is largely dead, the 777-200LR is a niche airplane and the 777-200F sales stalled with the cargo market decline (but should pick up with recovery). This leaves the 777-300ER as the airplane carrying the program, and it’s still a superb choice. The efficiency is hard to improve upon, though Boeing has several options to do so.

The future depends on the A350 (see above). Boeing is talking about reviving the 787-10 (shelved as the 787-8 problems mounted) to kill off the A330-300, which in turn largely competes with the 777-200ER. Boeing is working on “777-8X” and a “777-9X” concepts as potential upgrades to the 777-200 and 777-300 series. Aerodynamic improvements, a composite wing, a composite wing-box and engine upgrades are the most commonly talked about PIPs to have leaked out. Jim Albaugh, CEO of Boeing Commercial, talked at Farnborough of the prospect of a composite re-skin, but this would mean new production techniques. Perhaps re-skinning with lighter-weight aluminum lithium (which uses current production models) would be an alternative.

The trouble with a re-winged, re-skinned, improved 777 is that is sound suspiciously like the A350 V1.0, which was a re-winged, re-skinned A330 with GEnx engines. The market roundly rejected this as a response to the 787, and Airbus had to go through five more iterations to come up with an entirely new airplane in the form of the A350 XWB to achieve market success.

Boeing CEO Jim McNerney has said flatly that Boeing will not undertake a replacement for the 737 and 777 at the same time.

Although Boeing hasn’t made decisions yet, we think the 737 replacement will take precedence over a 777 replacement, should it come down to this. The real question is whether Boeing will choose to do upgrades for both airplanes or replace one and upgrade the other.

787 Program: Boeing just can’t catch a break on the 787. Murphy’s Law says that if something can go wrong, it will. One can almost feel the corporate shoulders sag each time another problem arises.

Boeing plans to announce the new delivery delays this month. The Wall Street consensus is 4-6 months, with Heidi Wood of Morgan Stanley the most bearish at one year. We fall in the 4-6 month period but first delivery doesn’t necessarily equate to a smooth delivery stream of subsequent aircraft. Boeing is now openly talking about skipping sequence of those planes already produced to later numbers (post-#27), which are presumed to have better quality control and which will have block-point improvements of many of the previous issues and post-fire fixes.

But we’re not yet convinced that production ramp-up will be smooth, and we believed for quite some time this will be the next big story—until the fire, which now threatens ETOPS qualification. It took two years of airline service for the 767 to gain ETOPS, becoming the first twin-engine airplane to get it. The 777 obtained ETOPS straight out of the box (granted by the then-FAA Administrator Allan McArtor, who is now CEO of Airbus Americas). What will the FAA require to grant ETOPS for the 787? This may be the next big story, and it could be another headache Boeing doesn’t need for this program.

Flightblogger reports that engineers are being reassigned again from other programs and the 787-9 development to the 787-8 to work through problems. Once again, this is to the detriment of other plans, including the future of the 737 and 777. Perhaps more worrisome is the prospective impact in the KC-767. Speaking of which….

KC-767 Tanker: Boeing wants the contract on its own merits. It wants the contract to deny it to EADS and Airbus. It wants it to prevent Airbus from opening an assembly plant in Alabama (which despite all the political rhetoric to the contrary really is part of the United States where American workers will put the KC-X together). It wants the contract because as the C-17 winds down, the KC-767 will be Boeing’s last big airplane contract with the Defense Department. It wants the contract because tankers have been Boeing’s legacy. It wants the contract “just because.”

But to be perfectly frank about it, given all the problems with the 787 and 747-8 and the demands for the future airplanes, winning the tanker contract will be a distraction and a strain on resources that will be better put to use on Boeing’s bread-and-butter programs. At just 15 airplanes a year, beginning in 2015 (four year from now!), the KC-X will represent about 2% of the deliveries by Boeing Commercial Airplanes if production rates being talked about today are approved for implementation by then.

Given the engineering demands on the 787, and the pull from other programs already in effect, we have to wonder whether the engineering resources would even be truly available to put on the tanker—or whether Boeing would quietly outsource engineering to off-shore jobs—which, of course, has been a key talking point in the competition.

Parochially (we live in Seattle), it will be nice to see the KC-X contract here. We’ve advocated a split buy for years, for strategic and political reasons. But the 787 problems continue to raise the question whether Boeing can truly handle the KC-X contract even if it won; after all, the Italian tankers (similar to the KC-X) still haven’t been delivered, after five years. We know the USAF is concerned about resources.

The award is supposed to come in February. But, then, it was supposed to come last August. Then November. Then December. Then January.

May the agony be over soon.

P-8A Poseidon: This 737-based program is, by all accounts, going well, and the Tanker team is trying to learn what Poseidon did right so it can be replicated on KC-767 should Boeing win the contract.

Bombardier

This is a crucial year for Bombardier. Sales of the CSeries have been stalled, subjecting BBD to much criticism and casting doubt on the viability of the airplane.

The fact is, however, that if one compares the sales timelines of the 737NG and A320 families in advance of EIS, the CSeries actually is running slightly ahead of these programs.

That said, BBD has been saying for a year that it is in advanced discussions with a number of customers. Now that Airbus’ NEO program is a reality and Boeing’s 737 re-engine is off the table (at least for now), clarity is achieved. AirInsight, with which we are affiliated, published a study in December in which it concluded the CSeries has double-digit DOC advantages over the A319neo, the A319 legacy and the 737-700. AirInsight believes the business case for the CSeries is sound. The question is whether BBD can withstand the pricing power and production might of Airbus and Boeing; this is the biggest threat to CSeries.

BBD needs to firm up the long-awaited order with China Development Bank and land some other orders. We don’t expect Qatar to sign up any time particularly soon because of the mercurial nature of its CEO, U-Turn Al Baker, whose changed directions so often on BBD, Pratt & Whitney (and, separately, Boeing and Airbus) that’s he’s like a flag whipping around in hurricane winds.

SAS acknowledged that the CSeries is a finalist for 55 aircraft plus options. Long shot: Southwest Airlines, if patience runs out with Boeing. Long-shot: United Airlines, to replace aging A319s, but Airbus’ pricing power for an entire family of NEO will be hard to displace. Boeing’s long-term relationship with UAL’s “Continental” management will be a major contender, but the 737 (even in an NG+) is aging and uncompetitive with the CS300 and at a disadvantage to NEO.

Embraer

EMB has to decide this year whether to re-engine its E190/195 with the PW GTF or offer an entirely new airplane in the 100-149 seat category (or even 125-160 seats). Our sourcing tells us EMB will go with a re-engine, but this is 45 days old and this is an eternity in aerospace on stuff like this.

New Entrants

AVIC/COMAC: AVIC and COMAC are part of the same group. AVIC has the 70-90 seat ARJ-21 regional jet (which looks like the original DC-9-10) that was supposed to enter service in 2010 (or was it 2008?) and now has an EIS scheduled for this year. It’s not competitive with other airplanes in its class, but this is hardly the point: it’s the first Chinese airplane that’s a serious attempt to make an indigenous aircraft that is also exportable and meets FAA certification standards. It’s a proof-of-concept airplane, in our view. Whether AVIC actually gets the airplane in service this year remains to be seen.

COMAC’s C919 competes with the A320/321 and 737-800/900. First flight isn’t until 2014 (or so they say) and EIS isn’t until 2016 (or so they say). COMAC is already behind on supplier selection. No real action this year. Powered by the CFM LEAP-X, sourcing tells us it is also talking with PW to supply the GTF as a second engine option.

Irkut: The MS-21 also competes with the A320/321 and 737-800/900. Powered by the PW GTF, this like C919 has a 2014/2016 timeline. We’ll see.

Mitsubishi: Its MRJ 70-90 seat regional jet hasn’t sold well, with only one firm order (from All Nippon Airways) and an MOU from the USA’s TranStates which has never been firmed up. Although this is powered by the PW GTF, which lowers fuel burn 16% over today’s engines, we still think fuel prices have made 70-90 seat jets obsolete. Turbo-props are more efficient in this segment and routings.

Suhkoi: The 90-100 seat Superjet regional airliner is running at least a year late on delivery. This is now supposed to be the year of EIS. We’ll see.

USAF Tanker: We have a separate column on this topic, but suffice it to say the USAF screwed up again when it gave proprietary information about the Boeing tanker to EADS and vice versa. USAF then tried to correct the error but Boeing and its supporters, in yet another brilliant public relations campaign, questioned whether Boeing has been disadvantaged—setting the stage for a protest—and now a Senate hearing on the matter is scheduled this month to determine whether this was a harmless or fatal error by USAF.

We’re sick of the whole thing, but there doesn’t appear to be any end in sight.

Engines

CFM International: The CFM56-7BE “Evolution” enters service this year, providing another 1% or slightly better fuel burn, which when combined with aerodynamic improvements, is to give the 737NG 2% or more lower fuel burn. With the launch of the A320neo, Boeing figures the 737-800 will be at a 3%-4% DOC disadvantage, and the company is already trying to develop further improvements to narrow or eliminate this gap. Boeing says most of this will have to come from further engine improvements.

The A320 with the CFM56-5 as yet doesn’t have similar improvements. The launch of the NEO may eliminate efforts to pursue this, though normal PIPs often may be retrofitted.

CFM is launched the LEAP-X with a 15%-16% lower fuel burn compared with the CFM56 for the COMAC C919. The second application is for the A320neo. CFM promises maintenance costs the same at the current CFM56. CFM also continues to research open rotor technology, with a target date of 2025, or nine years after promised EIS for the LEAP-X.

Pratt & Whitney: PW now has four airplanes for its Geared Turbo Fan: the Mitsubishi MRJ, the BBD CSeries, the Irkut MS-21 and the A320neo. Boeing likes the GTF technology but a 737 re-engine is restricted by an exclusive supplier contract to a CFM engine. However, a new airplane stands a good chance of having a GTF engine.

Boeing is also interested in the GTF for the 777 class airplane. As noted earlier, UTC doesn’t think an engine this size will be ready for 10 years. We think PW should figure out how to advance this timeline to offer a GTF option for the A350, and by extension, a 777 replacement or Enhancement. Of course, suggesting this and making it so are two very different animals.

CFM and PW have very different views of which technology is better: the LEAP-X, which draws on GEnx technology and which is an evolution of the CFM56; or the GTF, which is a major departure from traditional jet engines through the use of the gear box. Skeptics are still concerned about the long-term maintenance costs and reliability of the GTF and of PW claims of 20% lower maintenance costs than today’s engines. PW has used gear boxes on turbo props and helicopter engines, so the fundamental technology isn’t new, just the application. We’re no engineer, but we talked to people who are and who have no connection to PW or CFM. The general consensus is that the LEAP-X might be a “safer” choice in the short-term given the roots in the CFM56, but that the higher operating temperatures and new materials technologies raise questions for longer term. The PW GTF has greater long-term potential for a full family of engines, we’re told. On balance, these neutral engineers believe the GTF is the better choice.

Airbus’ John Leahy told us last May the company was satisfied with PW claims on fuel burn and maintenance. The final launch of NEO with GTF clearly is an endorsement of this new application on a big turbine engine.

Rolls-Royce: Its RB282/285 two-stage/three-stage engines were determined by Airbus to have a fuel burn 2%-3% higher than LEAP-X or GTF. This, coupled with commercial terms Airbus didn’t like, caused Airbus to rule out RR for consideration on NEO, Tom Williams, EVP of Airbus programs, told us in May. Right after this, RR began criticizing the NEO concept and said its engines ought to be considered for new airplanes.

Undoubtedly they will be, but Rolls seems to be putting its bets on the open-rotor engine for the 2025-2030 period.

Open Rotors: Based on our conversations with engineers and Boeing, we remain highly skeptical of open-rotors. Noise, maintenance, safety, size, weight, dimension of the rotor, application and speed all seem to work against this engine type and nobody we know suggests any different.

Even Leahy says the open-rotor Airbus believes in won’t likely be the open-rotor as we know it today. One concept is a shrouded open-rotor (isn’t that essentially the ducted fan?), which to us seems to add more weight and issues than problems it solves.

Furthermore, both PW and CFM believe that their new engines will, by 2025, have sufficient gains in fuel burn (typically 1% per year) that consumption will pretty well match that promised by open-rotors without the challenges.

Nonetheless, R&D will continue, as it should.

That’s it for our 2011 outlook

So this is our outlook for 2011. Airbus and Boeing still have major challenges and risks. Bombardier has to perform. Embraer has key decisions to make. The emerging competitors are still a few years away from becoming serious players. Some key airlines may make decisions that will drive Boeing on the 737’s future. The engine makers now step up to the plate on their new products.

And fuel overhangs everything. Along with the usual potential upsets by global economics, terrorists, recurrence of health issues like SARS, huge weather events, natural disasters, plague, locusts and pestilence.

Other than that, it should be a quiet year.

10 Comments on “2011 Outlook for Aerospace

  1. “The carbon fiber technology is here now, we believe—it’s the manufacturing capacity that’s the issue.”

    You won’t see any more carbon-fibre fuselage designs from Airbus or Boeing in the near future…

  2. That also has its issues for not such great advantages. I expect to see scaled-back use of composites combined with judicious use of “traditional” metals… and fibre-metal laminates could start to crop up in various places, having proved themselves on the A380.

    But I don’t believe the full-composite fuselage has lived up to the hype. And it brought with it a lot of headaches.

    • Boeings barrel approach is imho a cul de sac. Cocured panels “drop in ready, just zip the edges closed” promise more on a step by step path into the future. Additionally Boeing misstepped by having too many individual parts
      that have to be inserted into the barrel sections. All and sundry tacked on with rather traditional fasteners loosing most advantages plastics could furnish in a knitted together hull ( the path i’ve seen research examples for ).

    • To truly take advantage of the composite promise barrels are a must. 787 did some things wrong and industry has taken note. Some problems we can solve – most not yet (Concave mould, joints).
      But the failures of the 787 and the step back of the a350 do not show the true potential of composite barrels.

      • I agree that fully-wound barrels are an optimal solution in theory, however there are just so very many problems cropping up in just about every aspect of design, manufacturing, etc. and I have serious doubts about the claimed maintenance savings as well – I would not be surprised if a few issues crop up after some time in service… just a personal feeling without factual basis, I should point out.

      • I would like to dissent.

        An inner mantrel encircled by a closed
        tube of “usefull” material and lots of attached inner structure detailing don’t go together well.
        A fuselage certainly is in one facet a pressure vessel but the facet of it being loadbearing structure with rather different requirement devalues the Eureka quality of spun tubes/barrels.

  3. Wikileaks is destined to stay a source of interesting informations 😉
    Going by this article
    http://www.nytimes.com/2011/01/03/business/03wikileaks-boeing.html?pagewanted=1&hp
    Boeing is far away from competing with Airbus solely on product performance.
    Going by this NASA evaluation
    http://www.soton.ac.uk/~jps7/Aircraft%20Design%20Resources/High%20lift/high%20lift%20systems.pdf
    they appear to be lagging slightly.

    This raises the question of Boeing just getting a “murphy bashing” or
    if they are trying to game the system by garnering further government
    help by appearing as an ailing national asset.
    “Dial a contract” is easier and cheaper than excelling in the materials world.

    A400M:
    The fifth prototype fuselage, fully stuffed,
    has just made its way to Spain on a “Jonah ride”.
    The accompanying articles indicate that #5 presents
    a production ready sample.

  4. New Light Twin:
    Boeing holds several patents which can be connected to this “Twin Aisle Small Aircraft”. The basic idea is to use a 7-abreast layout (similar to B767, but slightly smaller in fuselage diameter) with a lower fuselage (only using the A320 containers). Although the shown layouts are obviously nothing serious (the patent shows a 90 seat aircraft in 7-abreast layout with two classes), the general idea is one to observe.
    Later patents building on the original one actually patent a fuselage structural design using composites.
    The idea of such a layout is not terribly new and was also shown in connection with the B7J7 (indeed, this open rotor thing).

    Google “Twin Aisle Small Airplane” and you’ll find the patent easily.

  5. Interesting analysis, with lots of detail to chew over. Busy year ahead, as you say.

Leave a Reply

Your email address will not be published.