Odds and Ends: Slowing sales; Airbus in Japan; MRJ delay; Crandall on merger

Slowing Jet Sales: Within a few days, Bloomberg, Reuters and The Seattle Times each had stories about slowing jet sales.

Here is the Bloomberg story, focusing on cargo sales.

Here is the Reuters story.

Here is The Seattle Times story.

The theme of each is worrisome, but with Richard Aboulafia’s comments to The Times, we disagree with his view on American Airlines. American has an ancient fleet of Boeing MD-80s and aging Boeing 757s that have to be replaced, and we believe the Airbus and Boeing orders won’t go away if the merger with US Airways is blocked.

Airbus still trying Japan: Airbus, which has never had a lot of luck penetrating the market in Japan, still appears to have an uphill battle, according to this article. The Reuters piece quotes Airbus’ John Leahy at the Paris Air Show; when we spoke with Leahy by phone from the IATA AGM immediately before the PAS, Leahy wasn’t quite as upbeat as quoted in the Reuters article. Leahy tamped down speculation that he’d have a Japanese order for the A350 at the PAS (and he did not) but neither was he ready to predict any timeline when one might be forthcoming.

Aspire Aviation continues to believe Boeing may place the 777X wing production in Japan as a means to secure 777X orders and block the A350.

Mitsubishi’s delay: Mitsubishi’s latest delay on the MRJ90 program is being blamed on not following FAA process, according to this article.

Poor South Carolina 787 deliveries: All Things 787 reports that Boeing’s Charleston (SC) 787 assembly plant has delivered only four 787s this year.

Crandall on DOJ AA-US lawsuit: Former American Airlines CEO Robert Crandall (who retired in 1998) has a very good analysis of the faults of the Department of Justice lawsuit to block the American-US Airways merger in this Bloomberg TV interview. He’s first up in the 22 minute segment.

Desperation: Kingfisher sued International Aero Engines for $236m over allegedly defective and poorly designed engines on the Airbus A320. This doesn’t pass the laugh test and smacks of desperation. The V2500 has been on the A320 for decades and seems to have been designed just fine and performing well.

39 Comments on “Odds and Ends: Slowing sales; Airbus in Japan; MRJ delay; Crandall on merger

  1. Selling aircraft to lower trade deficits, has been a great sales argument for decades in countries like Japan, Korea and China.

    http://community.seattletimes.nwsource.com/archive/?date=19900418&slug=1067036

    “Afterall, as the Atlantic’s James Fallows has
    pointed out, U.S.-Japan trade imbalances
    have long been so large that Tokyo has
    felt obligated to find ways to boost its
    purchases of American goods. In the
    absence of compelling technical reasons
    to buy European, therefore, Japan’s
    highly regulated airlines surely had little
    choice but to buy American”

    http://www.jpri.org/friends/BoeingFingleton.pdf

    Assuming this situation will remain stable could be overly optimistic however.

  2. In the All Things787 article it says that much of the blame falls on the airlines for not picking up their finished aircraft. I know that Air India is in big financial trouble, but Hainan too?

      • Whatever the Charleston factory’s performance, aircraft apparently ready for delivery have been sitting on the flightline. That problem does not lie in production, unless you suppose that deliveries are hindered by quality issues.

      • “Charleston is performing below expectations.”

        Any rumors around about the mechanics of that underperformance?

    • Looking at LN30 through LN104 on the following list paints the picture.

      https://docs.google.com/spreadsheet/pub?key=0AtfsHdXQ5rl9dFp4b1hETmNQNzN0b2dSUlRNWEFOOVE&single=true&gid=19&output=html

      It is no coincidence that these delayed frames are going to state run carriers that are not particularly well managed or saddled with slow moving government bureaucracies. Air India has the additional problem of being short on cash. The seem to be fairly inept at securing financing.

      The earlier Chinese frames were ready almost a year ago. The first flight of LN43 took place on 10/12/2012. Last year the excuse was lack of certification in China. This year, who knows what it is. It could be lack of trained pilots, or It could very well be financial. However, I doubt very much the issue is quality. If quality was a problem, Qatar would not have taken delivery of any 787’s yet. Charleston just had the unfortunate luck of having the majority of their first frames go to difficult customers. I think they are now trying to skip over to LN109 (Qatar) and LN113 (LAN) so they can actually generate some revenue.

      That being said, the Charleston FAL is having difficulty ramping up its rate. This along with work on the 787-9 will make it difficult for Boeing to reach its 10/month production goal by year end. I guess we’ll see.

      • Isn’t it possible that Charleston’s early production slots were intentionally given to customers who were understood to not really be in a hurry to get their frames? I would think this could be a real advantage for a new line just getting started — as long as they have a place to park the undelivered planes that is.

        I would think that there are contractual way points associated with rollout that limit Boeing’s delay compensation responsibility. But as long as Boeing still has possession I would think they can much more painlessly fix any production-related issues that may be discovered as the line matures.

      • Matt, I think you could be on to something.

        The first 5 frames delivered from Charleston went to Air India and the 6th went to Hainan. Despite Air India’s blather over compensation, or perhaps because of it, Boeing assigned those frames to Charleston. Then as mid 2012 approached, and Boeing saw that the 787 certification in China was delayed, they then assigned the Chinese frames to Charleston.

        If this is indeed the case, then kudos to Boeing for their shrewdness in using troublesome customers to ease Charleston into production. Eventually, however, the Charleston FAL will have to stand on its own two feet, and that time will come sooner rather than later. These next several months will tell the tale, as there are frames slated for sticklers like Qatar and as Boeing attempts to ramp up production without the help of the Everett surge line.

      • Boeing promised 787 to China for the 2008 Olympics in Beijing.

        Together with rather unpleasant US political posturing during
        those Olympics this creates quite a big open bill for The US in
        China’s view.

      • Yeah, yeah, yeah. We all know that the entire 787 program was delayed. In the reality of the present, however, the Chinese carriers (and Air India) seem to behave exactly like large bureaucracies always do – “Hurry up and wait.”

        • The primary difference is in how these problems are presented depending
          on the carrier involved.
          AI invariably is presented as a blubbering overbearing kid.
          ( You’ll find this interestingly tendicious differentiation all over the place in US media.)
          Compare to how UA’s 787 trepidations are presented.

      • Uwe,
        Regardless of how you think the US media is handling the reporting of 787 deliveries to Air India, China Southern, and Hainan, the fact remains that all the other customers took their 787’s in a timely manner. The only other possible exception is Qatar. The first Qatar delivery (from the Everett FAL) was delayed because of quality issues, but some of that delay was also probably due to getting the aircraft ready to fly at Farnborough.

        • Finishing the delivery flight INOP is indicative of a product not ready for delivery.
          ( a problem not limited to AI, but AI alone is presented as being the source of their/those problems. A completely unfounded allegation. )
          Boeing seems to have rushed a lot of deliveries and some customers rightly balked while others may have made arrangements behind curtains.

      • Where are you getting these other (non AI) INOP delivery flights from? And, I never got the sense from the reports that I’ve read that AI was being blamed. There was a component failure during the final customer check flight. Embarrassing for Boeing, but they moved on and got the frame delivered.

  3. The more I investigate the matter, the more I believe the 777x is a paper airplane whose sole purpose is to divert attention from the a350-1000 which is about to crush Boeing’s 777 sales. Boeing has lost the VLA market and they are at a permanent disadvantage in the single-aisle market with a 60/40 market split. Additionally, they are still bleeding money from the 787 production. As a result, I don’t think Boeing has either the nerve or the wherewithal to launch the 777x: an aircraft that will almost cost as much to develop as a new plane. Unless Airbus really fouls up, I think Boeing better get used to being #2.

    • But simply abandon the 350-400 seats market will be a loss of the company in decades (like the A340 failure brings up the 777 monoply), the decision-making price to pay is too high. In my opinion, no matter whether the sale of 777X will inferior to 350-1000 a little or not, this battlefield have to be guarded. And Boeing has its own tech and experience advantages in widebody(mini jumbo more accurate?) making, as well as the customer resources of current 777 users.

      The upgrade version has the disadvantages of the delivery schedule that later than the 350-1000 (such as the replacing time pressure of the two Japanese airlines mentions above) and the possibly slightly performance weakness. However it also have the superiority in less developing risk and cost ( well, it is a point in question) based on the 777 classic foundation, as well as the current customers and public praise.

    • For years I expected the 777X to have better engines, slight stretches and other low hanging fruit (“widening the cabin”) reducing weight by replacing subassemblies with lighter ones. But existing/ improved wings and EIS around 2016-17.

      I wonder if the all new composites wing with hinges, “we have time” and resulting 2021 EIS were a real smart strategy. IMO the 787 / short term financial results played a major role.

      • I agree. The financial burden of the 787 delays really affected Boeing’s ability/desire to undertake a new aircraft development program. It still remains to be seen how their current 777X plans will turn out.

    • Research will be your guide. You cant really think Boeing would risk its reputation and future sales campaigns to promote and broadcast a plane that is actually just paper as you claim?? Research will tell you that Airbus is playing catch up to Boeing in the WB market. Crush is a very strong word for a plane that is still on paper. Lol. The NB market split is not so much that the 320 is better than the 737, but some of it is that the NEO had almost a 2 year jump on the MAX. You do the math. The 787 is bleeding money yet they launched the 787-10? Reference below :

      http://www.aspireaviation.com/2013/08/30/airbus-is-still-name-of-the-game/

      [quote]As the 777-9X edges closer to launch in November’s Dubai Air Show with Aspire Aviation‘s multiple sources at Boeing saying its technical details will be finalised at the last customer working group (CWG) in October, the business case of both the A380 and 747-8 will be inevitably undermined.

      The Seattle Times has reported that Boeing will begin testing an advanced automated production method for the 777X’s aluminium or aluminium-lithium fuselage, which, when combined with having the 777X’s 4th-generation carbon fibre reinforced polymer (CFRP) wing built in Japan, will further lower the 777X’s production cost.

      As it stands, the 777X will be a one-to-one 747-400 replacement while offering opportunities to Asian and Middle Eastern carriers to grow, whose signature features include a folding wingtip on the outermost 11ft (3.35m) with a hydraulics actuator and a piano-type topside hinge to keep it as an International Civil Aviation Organisation (ICAO) Code E aircraft at airport gates with a 64.8m (212.7ft) wingspan while being a Code F aircraft on the runway. The folding wingtip on the 777X will only have a weight penalty of 800lbs (362.9kg) with no moveable parts against the 3,200lbs (1.45 tonnes) associated with the original concept studied for the 777-200 in 1995.

      Having the 777X’s CFRP wing built in Japan is also yielding results, with both All Nippon Airways (ANA) and Japan Airlines (JAL) now leaning towards the 777-9X as a 777-300ER replacement instead of defecting to the 350-seat A350-1000. Winning a work commitment with such importance will be pivotal for Japan, as the island nation seeks to climb out of a decade-long depression with “Abenomics”. The wing, often dubbed as the “soul” of an aircraft programme, is the largest wing Boeing has ever built. It adds 30m² (322.9ft²) wing area to the 777-300ER’s 436.8m² and contributes to a 12% better lift-to-drag (L/D) ratio.[/quote]

      • “Research will be your guide. You cant really think Boeing would risk its reputation and future sales campaigns to promote and broadcast a plane that is actually just paper as you claim??”

        Research back to about 10 years ago. Look up the name “sonic Cruiser” and consider your statement in a new light.

      • I really don’t understand why Boeing would build the wing in Japan to get 777x orders. First, the mainstay for both ANA and JAL will be the 787 and thus they will never order as many 777x as they have 777s today. Second why would you compromise your supply chain for 300+ aircraft to be sold to the Middle East to sell 30-50 in Japan where the price you can get will be driven to the bottom by A350 competition?
        If the wing would be build in Japan (and I think it will be a nightmare to transport them in volume to the US) then it will be purely to get Japanese subsidies and investment by the Japanese Heavies in order to reduce Boeing R&D and make the program more affordable up front (at a higher cost per wing).

  4. Rotate, behind the scenes the damage has been done during the last 18 months. Boeings 11 biggest and most loyal 777 operators are:
    1. Emirates (128 777s),
    2. AF/KL (86 777s),
    3. United (74 777s),
    4. SQ (59 777s),
    5. AA (56 777s),
    6. BA (52 777s),
    7. ANA (51 777s),
    8. CX (49 777s),
    9. JAL (46 777s),
    10. KAL (34 777s)
    11. QR (31 777s)
    Guess what, while Boeing repeatedly said they have time, #1,2,3,4,6, 8,11 ordered large numbers of A350(-1000s) #5 maybe (US) and #7,9 and 10 have been publicly stating they think the A350-1000 is a good option too for their fleets. Meanwhile Leahy isn’t sitting on his hands.

    That’s what triggered the accelerated push of 787-10, 777-8x and 777-9X. After waiting for years (787, 747-8) Boeings 777 team is running on ice now. Doing proposals / pulling strings they could avoid during the previous successful 20 years.

  5. Keesje, the point I was trying to get across was that the 777x will come to fruition and the argument of the 787 losing money is as valid as the 380 program in a deeper struggle as the 380 is looking to fill 2015 slots while the 787 backlog is still healthy yet the Boeing CHS plant struggles with increasing output. Moving on.

    Also, don’t forget that the -1000 had a make over due to (insert excuse here) and this is its second run at trying to crack the 777 code.

    So because all what you mentioned ordered -1000’s, Boeing has lost it’s edge? 3 numbers. 3 4 0. Moving on. Sure all that you mention placed orders for the -1000, but AA has 11, CX has 18, SQ has 8 more T7’s on the way, which would complicate further -1000 orders since they are direct competitors. NH and JL are likely not to order the -1000 since the Boeing sales staff is pulling strings as you say. http://www.reuters.com/article/2013/09/02/us-japan-airlines-idUSBRE9810NC20130902
    AA could buy the -1000 but Tim Clark said he’d buy the 748. We all know where that went. With 9 total customers with 145 frames on order, I’m failing to see what Boeing lost. BA? Yes they lost it but what have they won and BA could still buy the 777x.

    Come November, we will see 1) where the 777x’s (8,9) stacks up to the -1000. 2) how many more 777-300ER will be ordered and 3) How many more -1000’s will garner. We’ll see.

    • As Keesje pointed out, 777-9X EIS in 2021 may be too little, too late.

      By that time Airbus may have launched an all new aircraft family designed to bridge the gap between a stretched 86m long A380-900, having an effective floor are of around 700m2, and the A350-1000 with an effective floor are of about 315m2. Such a family could be designed with a short upper deck (i.e one and a half deck); having a main deck with the same 10 across comfort as that of the A380 (i.e same 11 across comfort as that of the 787 at 9 across and 777X at 10 across); and designed as a “family” of three members; i.e. the smallest member having about the same size as that of the 747-400 (i.e. effective floor area of about 365m2) and the largest one having an effective floor ares some 10 percent less than that of the A380-800 — NB: Effective floor areas for the 777-300ER, 777-9X and the A380-800 are 330m2. 345m2 and 545m2 respectively.

      Hence, Airbus would be developing an all new wing for an all new family, while Boeing would have developed an all new wing for a product that could very well turn out to be a one trick pony (i.e. 777-9X) in addition, of course, to a freighter (i.e. 777-8XF), and with few, if any prospects for the all new wing being used on a bigger aircraft.

      If the new, smallest member of this conceptual, all new Airbus family, was designed to better the 777-9X in CASM by a few percent at 10 across in economy class, while putting clear water between itself and the 777-9X at 11 across (i.e same 17,2 inch seat width, 2 inch armrest width and 18 inch aisle width as the 787 at 9 across and 777X at 10 across); what would Boeing do then? You know, having just completed your newest product development, while at the same time realising that this new aircraft is about to be obsoleted by the competition. Sounds familiar?

      • I’m having a bit of difficulty seeing a path by which the Airbus Board of Directors approves another A380 project (stretch). It is unclear that the existing line will even be in operation by 2021.

      • An A380 stretch is really not “another A380 project” — whatever that’s supposed to mean. It would just be a relatively cheap stretch — just like e.g. the A320 -> A321 and 767-200 -> 767-300 etc. — albeit on a larger scale.

        As for “the line” being in operation in 2021; just in order to replace Emirates’ current A380s on order, the line would be operational through 2029.

        Tim Clarke at 24:14:

        We didn’t order these to be delivered overnight, so if you look at the 175 -ERs, the delivery stream will finish by 2022/2023. In the process the older -ERs which came in — given the 12 year rule — will start to be retired and phased out. Equally, the first A380s — the first A380 that was given to us in July 2008 — will be retired in July 2020, and a new one will replace it. So, as far as Airbus is concerned, they can see a continuum of orders coming from Emirates for A380s, simply on retirement. But, if you then add the incremental units that if we could, we would buy, then it’s another ballpark altogether — and of course we have asked them to make the thing a bit bigger, but there doesn’t seem to be too much interest in that at the moment — but anyway, we’ll see.

        https://www.youtube.com/watch?v=VjHePahW7Os

    • “Keesje, the point I was trying to get across was that the 777x will come to fruition and the argument of the 787 losing money is as valid as the 380 program in a deeper struggle…”

      Nevertheless, the A380 program will stop bleeding money in 2015, and despite Airbus’ problems with the A380 program, it never stopped them from developing the A350. In fact, one could argue that the A380 muck-up was a blessing for Airbus since it prompted them to clean their executive ranks and focus more on engineering. By contrast, the same Boeing guys who hosed the 787 and 747-8 Programs are still in charge (talk about a crazy system of rewards!).

      Last, the A380 Program went through Design, Development and Certification pretty smoothly. It was not until after the A380 was in production built that Airbus realized that the mis-matched software used to design the enterntainment and accessory systems was fouled and prevented them from getting the cable length right. Boeing only wishes that the 787 and 747-8 Programs would have had problems like this! Yes…the A380 had it’s problems, but nothing that couldn’t eventually be fixed technically, and in the executive suites: they got new software and a new CEO.

      Please…tell us when the 787 will stop bleeding money?

      And…as far as the 777x is concerned, what’s the big deal? What…the addition of 2 extra rows of seats is supposed to dramatically increase capacity and move it into a new class? Also, what commercial airline do you really forsee who really wants to purchase an aircraft whose wings need to fold unless there is some huge advantage? Aircraft may seem sexy, but the bottom line is that they are pieces of industrial equipment that you want to fly hard and prefer to maintain less – and you want them to work! So…just how is the 777x folding wing supposed to simoultaneously increase reliability and decrease cost – and make it even more efficient that the A350-1000 (which it won’t be!)?

      Enquiring minds want to know.

      • Jimmy. Calm down. We’re not getting paid here. Again, do research before commenting. Everyone knows the folding wingtips will not provide efficiency, it’s solely for gate slot size. Ever see a folding wingtip on a fighter aircraft? Extended they won’t fit in the belly of the aircraft carrier but FOLDED they do. Get it? Moving on.

        The 380 losing money? If you knew when the program would stop bleeding red ink, you’d know if they have enough orders to fill the empty ’15 slots but since you don’t your point is as useful as a white crayon. Do I know when the 787 will stop bleeding red? No, but who does. Furthermore, as bad as the 787 development was , it still was able to launch the -9 and the -10. Yet, the -1000 has only 145 orders to 100+ for the -10, an aircraft that was only launched a couple months ago. Moving on.

        Your statement of the Boeing staff staying the same is non sense. There have been plenty of personnel shuffling and reshuffling, but of course you won’t mention it so I did.

        Lastly Jimmy, the 777-9x does NOT compete with the 350-1000. The 777-9x is basically a VLA, against Boeing’s terminology but still a VLA. You will see that operators who order the 350-1000 can operate the 777-9x to compliment each other. You’ll see EK operate the 779 with the -1000. Yes EK is a special case but come Dubai in Nov, there could be operators of the -1000 who might purchase the 779 also.

        Let’s be civil about this and offer point of views. I’m not trying to be argumentative either.

      • “Jimmy. Calm down. We’re not getting paid here. Again, do research before commenting. ”

        So…faced with a few uncomfortable facts that are difficult for you to answer, you choose an Argument Ad Hominem by implying that I am both Hysterical and Ill Informed. I would think you would know better.

        Anyways…ya’ want to see some real 787 Red Ink? Take a look at the Preferred Production Costs of the 787 program and tell me if they really will cap out at about $20 Billion as Boeing Execs have said (http://www.boeing.com/companyoffices/financial/balsheet.html).

        Also, take a look at a 787 money-losing scenario calculated by Javier a couple of years ago (http://theblogbyjavier.com/2011/10/28/will-boeing-787-ever-break-even/). Notice how Javier never even comes close to estimating the real Deffered Production Costs of the 787, yet his analysis was accused of being very pessimistic and biased at the time. However, recent history has shown that Javier’s scenario was relatively really a happy one!

        And ya’ wonder why Boeing won’t launch an answer to the A350, the A320 or the A380?

  6. I believe that Charleston either has a reputation of inferior quality or the airlines are worried that it might be the case. Even the blog is admitting it in a roundabout way by noting that Qatar was going over the plane with much more detail than they would for an Everett assembled example. Unless some believe that Qatar is also a financially troubled airline? Note also that all of these “trouble” or “troubled” customers have each taken delivery of a 787 in August but none of them from Charleston. Coincidence? I think not. Assuming the table on blog is accurate, it will be interesting to see how the deliveries of the aircraft in Charleston scheduled for Qatar, United, ANA and JAL go down. JAL and ANA are both known for being very particular, which is not necessarily a bad thing.

    As I said, it seems that they have this perceived quality issue. The question is if it has been earned or not?

    As for Mr. Aboulafia’s comments, he has been preaching gloom and doom for the two big OEM’s ever since they decided not to panic and do a big downturn back in 2008/2009. Sooner or later his prophecies of doom will turn out right.

    • The first 787 that Hainan ever took was LN76 from Charleston in July, even though LN73 rolled out of the Everett FAL significantly before that. And, rumor has it that for whatever reason, Hainan will only take delivery of 2 more 787’s this year. It seems as if both of those will come from Charleston. One of Hainan’s frames at Everett, LN79 , has gone into storage, and another one will be rolling out of the Everett FAL any day now. That one will probably have to go into storage as well.

      The recent delivery to China Southern from Everett does not at all indicate a quality issue at Charleston. That frame was earlier in the firing order than the frames left at Charleston. Besides, the second China Southern delivery, LN95, came out of Charleston in July.

      Qatar gave Boeing fits with its first 787 delivery from Everett, LN58. Thus, it is not surprising that Qatar is giving Charleston fits with LN109. They also have a reputation for being extremely particular, which I would agree is not a bad thing.

      I don’t think there is a quality issue at Charleston, real or perceived. I do think that Charleston is having trouble increasing their flight test rate, for whatever reason. Lots of this is due to their customers, but I suspect that their flight test operation is not nearly as well run as Everett’s.

  7. The 777 has always had a lot of wasted space, particularly in the crown, so the 777X does not address that issue.
    Would make more sense to give 777x a new outer skin even if they keep the innards.
    A whole new plane? Maybe, but IMHO the proposed 777X is nothing more than a band aid solution.
    A350-1000 has enough time and flexibility to counter this option which smacks of a 748 type solution and we all know what is happening there.

  8. Strangely the title of the article

    “Airbus appears to have been pushed back once again in landmark efforts to break Boeing Co’s grip on Japan’s two largest airlines, which need to buy billions of dollars worth of planes in the next decade.”

    does not seem to cover the content of the article. There are no indications at all Airbus has been pushed back. The only reference seems :

    “That window may, however, be closing as Boeing launches a charm counter-offensive to blunt Airbus and shore up its Japanese base. Boeing’s order to its sales team from its Seattle commercial aircraft base is “do everything you can to win this order”, a source familiar with the negotiations told Reuters.”

    It seems – Hope- is the main driver of the writers conclusion.

    As far as I can see ANA and/or JAL may very well order the A350-1000. Because of 777X unavailability and uncertainties and too many 787 broken promises and ANA Brand Damage. http://2.bp.blogspot.com/-Rzx-2JG1nS8/UVjDp5xv42I/AAAAAAAADTI/pG7fHR8b5hY/s1600/image.jpg

    • That good. Hopefully the test program can start soon & be completed without (large) surprizes.

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