Odds and Ends: Taking airplanes in on trade; Q400 scores

Taking airplanes in on trade: Much is being made of Boeing taking five Airbus A340-600s in on trade to secure an order for 20 777-300ERs from China Eastern. While trade-ins are not common, neither are they unknown. Boeing has done this before, including what was then a particularly controversial deal: taking brand-new A340s off the hands of Singapore Airlines even before they had been delivered as part of a 777 deal. Those A340-300s went straight to Boeing from Airbus, much to the consternation of John Leahy at the time.

The OEMs don’t like to take airplanes in on trade; after all, they are in the business of selling new airplanes, not used ones, but Airbus, Boeing and Bombardier all have active used airplane units to remarket aircraft they have in their own portfolios–usually originating from their customer financing.

Bombardier wins Q400 deal: WestJet of Canada will order 20 Q400s and option 25 more in what was a hotly contested deal between ATR and Bombardier. Although many believe this was a slam-dunk for Bombardier, the competition was intense; WestJet sent the parties back to re-price the deal late in the game.

This order gives BBD 28 firm and 45 options for the Q400 so far this year, compared with a mere seven in 2011.

The Russians Are Coming, the Russians Are Coming! Boeing imports Russian engineers to work in the Seattle area, much to the consternation of SPEAA, Boeing’s engineer’s union. Now the practice has caught the attention of a US Senator.

Outsourcing is a sore point for Boeing’s unions. While Boeing says it does so to reduce costs and to offset work in exchange for sales, there is a larger issue: the US simply doesn’t produce enough engineers to meet demand, and 50% of Boeing’s engineers reach retirement age in the next five years or so. We don’t like Boeing using Russian or Chinese help to produce airplanes–after all, these two countries are developing competitors to Boeing aircraft and it strikes us as pretty silly to help your competitor (why not hire French or German engineers, for Pete’s sake?). But the USA’s failure to place a high priority on developing engineers is a national disgrace and Boeing has to find the help where it can get it.

23 Comments on “Odds and Ends: Taking airplanes in on trade; Q400 scores

  1. I wonder why Boeing offered a trade-in? Was it because China Eastern couldn’t afford the 777’s outright? Was it because Boeing was prepared to go to any length to secure an order for more 777’s? Was China Eastern reluctant to buy without a sweetener?

    Will this happen more & more?

  2. As Scott says, it is not unusual for the OEMs to take trade-in airplanes.

    • But it is not usual to take trade-ins of the competitor’s brands.

  3. “We don’t like Boeing using Russian or Chinese help to produce airplanes–after all, these two countries are developing competitors to Boeing aircraft and it strikes us as pretty silly to help your competitor (why not hire French or German engineers, for Pete’s sake?)”

    Regardless of their citizen ship, engineers are engineers and as far as I know Boeing is a global organization playing in a global market.
    This is a sad to read more and more of such protectionist comments…

    • Correct, and I’m sure EADS uses some forign engineers, too.

    • Notice we did not name India, Japan, Brazil or even Canada in our objections; the Chinese and Russians are developing C919 and MS21, direct competitors to Airbus and Boeing mainline bread-and-butter jets. We think it’s dumb for Airbus and Boeing to help these countries develop the technical proficiency to become competitors.

      • While I agree with you, Airbus has an A-320 FAL in China, and Canada is building the CS-100-300 which will compete with the B-737-700/-800 (and A-319/-320) on the lower end from 110-150 seats. Still want to use those Canadian engineers you suggested?

        • CS300 does not compete with 738 and A320. Airbus and Boeing are largely getting out of A319 and 737-700/7 market if you track sales in this market segment carefully.

      • leehamnet :
        Notice we did not name India, Japan, Brazil or even Canada in our objections; the Chinese and Russians are developing C919 and MS21, direct competitors to Airbus and Boeing mainline bread-and-butter jets. We think it’s dumb for Airbus and Boeing to help these countries develop the technical proficiency to become competitors.

        Engineers are individuals, not drones. If you B or A hires an engineer from Russia or China and keeps him/her employed for 5-10 years, the likelihood of that engineer going to another western company is probably much greater than that of him/her taking the next plane back to work at home.

        And if the Chinese or Russians really want engineering talent, they can certainly go headhunting at A or B today. Offer enough money to an engineer for a five-year contract, and he or she will jump at it, regardless of where he/she was born.

  4. Taking older aircraft in trade against the sale of new a/p’s., is as old as the jet age.
    The first one Boeing did, as far as I know, was a “PPL” deal, whereby Boeing took
    nine 707-138 a/p’s in trade from Qantas, in return for 12 new 707-338 a/p’s.
    PPL standing for “Participation in Profit and Loss,” whereby Boeing and Qantas
    would share the profits or losses on the joined sales effort of the old a/p’s, on a
    25-75% bases, meaning Q. would secure 75% of the profits and 25% of any loss,
    after agreeing on an assumed fair market value of the a/p fist.
    That formula worked well for Boeing and the customer, until I retired in 1989.

  5. Boeing offered to take Air Canadas A330 and A340 too in the large 777/787 deal, shortly after they came out of bankruptsy. Any further examples?

    • SQ A-340s, brand new, delivered from Airbus to Boeing.

  6. leehamnet :
    Notice we did not name India, Japan, Brazil or even Canada in our objections; the Chinese and Russians are developing C919 and MS21, direct competitors to Airbus and Boeing mainline bread-and-butter jets. We think it’s dumb for Airbus and Boeing to help these countries develop the technical proficiency to become competitors.

    a) that was one of my concern, hence I moderated my comment and used protectionism, leaving the R word out.
    b) It is even more dumb to ignore a market for these reasons. It is better to be with 49% of the profits rather than than with no profit at all. You should also know that what airbus has to loose is not the technical A320 knowledge but rather the supply chain expertise. As you said, the A319 is rather ending.

  7. On the Russian engineer story:

    Boeing had Russian engineers working for them over 10 years ago in 2001, when I was there. They were doing design and stress work on the 777. They were all working for Boeing Moscow. The story states, at the very end, that this is where this current bunch of Russian engineers comes from.

    Who wants to bet that they were then flown into another city a week or so later, where the officials wouldn’t be so aerospace focused?

    Sounds to me like a little bit of politics is going on here. They are talking about employees of a Boeing subsidiary after all.

    Having individual engineers from another country working for you is not the issue. The danger comes from having employees that all work for one foreign company in your offices.
    That could lead to a coordinated effort to glean as much experience and knowledge for the betterment of said company.

    The individual engineers do not typically have that goal of advancing any single company. They are either looking for a new experience, a new place to live for a while or just for a good paying job.

    Trade ins:
    As I recall, the biggest irony and joke about the brand spanking new A340s story was that the Boeing sales team had to try to sell them. What ever did become of those aircraft?

      • The A340 is not a desert dweller.
        Would be interesting to know what size of lever Boeing
        used to push the 777 into the market.
        ( Or for the recent sales rush of the 777 )

        • Yes, it is not a desert deweller, but neither is it commanding record sales prices on the used airline market. Many are still with their original airlines as no one wants to buy them, not even FedEx or UPS. I hear 20 year old B-752s and B-763s command higher pricing than 20 year old A-342s and A-343s. But the A-342/3s do seem to be in higher demand than their later sisters, the A-345/6.

          Does it matter what size the lever is that Boeing is pulling when the B-777 alone has out sold the A-330/-340 combined?

      • No, KC the 777 has not outsold the A330/A340 combined. BTW, I’ve noticed that you repeatedly state that the 777 has outsold the A330/A340 combined. Could you please refrain from doing so, until a time in the future where it would be correct to state that, indeed, “the 777 has outsold the A330/A340 combined” (i.e might happen, might never happen). 😉

        As of 31st of March, 2012, the total A330/A340 order count stands at 1565 units.

        As of 31st of March, 2012, the total order count for the 777 stands at 1367 units.

        http://active.boeing.com/commercial/orders/index.cfm?content=displaystandardreport.cfm&pageid=m25062&RequestTimeout=100000

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