Odds and Ends: Alaska strikes back; boost for Q400; Airbus CEO speaks; Groveling

Alaska strikes back: Alaska Airlines has finally struck back at Delta Air Lines, which has been announcing loads of new service into Alaska’s Seattle hub. Alaska announced this morning:

Alaska Airlines will begin daily nonstop service between Salt Lake City and Portland, Ore., Los Angeles, San Diego and San Jose, Calif., starting June 9, and will add a third nonstop flight to its existing service between Salt Lake City and Seattle. Sale fares on the new flights will be available for booking Tuesday, Dec. 10.

Salt Lake City is a major Delta hub.

Boost for Q400: Bombardier inked a Letter of Intent for 30 firm orders for the Q400 turbo-props with Nantong Tongzhou Bay Aviation Industry Co., Ltd. Nantong plans to launch commercial airline service in China through a new carrier called Sutong Airlines.

Airbus CEO speaks: Arabian Business has a long interview with Airbus CEO Fabrice Bregier. Once you get past the fluff, there is some interesting information.

Groveling: This story via ABC has nothing new but we love the headline. Add Georgia to the list of grovelers.

This article discusses the prospects of Huntsville (AL) in the competition for Boeing’s 777X assembly site.

The IAM 837 union head at Boeing’s plant in St. Louis has reversed course (and declared a news blackout). More goofiness from the International Association of Machinists.

24 Comments on “Odds and Ends: Alaska strikes back; boost for Q400; Airbus CEO speaks; Groveling

  1. Letter of Intent for 30 firm orders ?

    a bit of a contracdiction here…but good for BBD

  2. Badly needed Q400 order. Good for everyone involved.

    Re Bregiers comments on A389, I think he’s in a good position. Lots of seemingly feasible derivative options this decade. A322, 330NEO, A333F, A350-1100, A380NEO, A350F..

  3. In an interview with Aviation Week, Guy Hachey, COO of Bombardier Aerospace, explains very well the position of Bombardier on the CSeries. He makes particularly clear why it is not reasonable to expect the same kind of figures we see for Airbus and Boeing, and why it does not make sense practically and economically to lower the prices. Follows key excerpts from this interview:

    AW: Hachey notes that “we’re unfortunately in a place where we’re being compared to two units [Airbus and Boeing] that produce between 450 and 500 aircraft per year. We won’t build that many in the first three years [of CSeries production].

    “So there’s no way I’m going to book 500 orders per annum at this point—even at any point in the program—because we’re not sizing up for that,” Bombardier Aerospace’s top executive continues.

    However, he adds, “When you look at our [orderbook] today, we have the first three years fully or almost fully booked and we have 300-plus commitments beyond that that are options, purchase rights or conditional orders. So we don’t have to set ourselves up for the long term by giving away the value of our aircraft.”

    I will just add to the above comments that there are still many folks out there who don’t understand what Hachey explains here and will continue to compare Bombardier to A & B. Although flattering for BBD it is simply not realistic at this stage. I am afraid we will have to wait many more years before the Big Two becomes the Big Three. 😉


  4. The issue that this blog keeps ignoring:

    “Boeing is very sincere about assembling the 777X outside the Puget Sound region if the unions do not yield on pension and healthcare issues,” he said. “The reason why is the company is locked in a rivalry with Airbus for dominance of the global airliner market, and right now, Airbus typically undersells Boeing products.”

    That’s partly because of high labor rates and benefits in the region, he said.

    “Puget Sound has become the most expensive place in the Eastern Hemisphere to build planes, and Boeing has to find cheaper ways to build its product,” Thompson said.

    Rather we would like to call other sites in the U.S. that offer incentives like Washington does, grovelers. Really, Scott, I thought name calling was a stage we grew out of when we turned about 20.

    • > That’s partly because of high labor rates and benefits in the region, he said.

      Airbus builds the majority of its airplanes in France, Germany, and the UK. None of these are exactly cheap labour locations.

      Maybe the difference is that Airbus is willing to sacrifice its margins for growth and Boeing doesn’t want to sacrifice its margins to maintain market share? Based on this WSJ article from June: http://online.wsj.com/news/articles/SB10001424127887323836504578549120172899036 , Airbus margins are 4% and Boeing Commercial margins are 9.6%.

      Taking a competition between the 737-8 and A320 NEO as an example, the 737-8 is 3% more expensive at list. To match Airbus prices while maintaining margin, Boeing has to be producing its airplanes for 8.6% less than Airbus.

      That’s a lot of expense to trim.

      • FR, DE and UK aren’t cheap but I’d be surprised if they don’t beat WA on productivity per unit employee cost.

        Re margins, Airbus is aiming for 10% on commercial mid term. Their operating margin was pitiful in recent years but they’ve been addressing it by reorganising etc., something BCA probably needs to do. Boeing’s military side set a bit of a lead for them when they announced a 30% cut in management positions last year.

      • “Airbus margins are 4% and Boeing Commercial margins are 9.6%.”

        Sure, but Boeing needs programme accounting and a massive and fast growing bowwave of deferred cost to show those higher margings.
        If Airbus would do accounting to Boeings ruleset where would their margins be ? 15%? even higher!?

        • This is an important point. As the WSJ article says, Airbus writes off expenses in the year they occur, not over the life of the program as Boeing does. It was, we seem to recall, a 10K in which Boeing finally also revealed that if it were not for program accounting, it would have lost billions on the bottom line instead of reporting profits.

      • “FR, DE and UK aren’t cheap but I’d be surprised if they don’t beat WA on productivity per unit employee cost.”

        Seems to be a given. Think about why.
        So Boeing in all their wisdom goes for cheaper labor 😉

    • Maybe its not only Airbus typically undersells Boeing but that the A320 series is typically better deal then the 737 series aircraft.
      -lower sfc engines (higher BPR)
      -modern systems FBW, everything at least eighties technology/materials
      -option to move pallet/LD3-45 containers
      -18 inch seats in a more silent cabin
      -cockpit commonality with A330/340
      -the A321 having its own niche in terms of capacity-range
      -superior airfield performance of A320 and A321 vs their competitors
      -spanish/german/english/french sales teams better LISTENING iso selling.

      But then again it must be cheaper proces, the Boeing camp says so..

    • Loren Thompson is virtually part of the Boeing sales force, not much likelihood of him saying anything to damage Boeing’s negotiating position with AIM751.

  5. The cash flow calculation would be a nightmare, but if Boeing earn 9.6% on the 777X starting in 2020 with list values of $101 billion, after due allowance for the inevitable cost over-runs, introductory discounts etc. it is not going to make much of an impact on the ever growing deferred costs.
    In my opinion the Boeing accounting model is a disaster waiting to happen.
    The accrued losses on more 787’s than have been sold to date,748’s and a number of military programmes continue to climb.
    “To big to fail” is a phrase from other recent events that springs to mind with the scenario I believe is unfolding.
    I hope someone can refute this premise with facts as I really would prefer to be proven wrong.

  6. I posted that I am scared of buying Boeing stock a few post ago. Somebody pointed out that I lost money on that decision, but at least I sleep at night.

  7. The question for investors these days is the price of a stock, not the value. Think that one over. The entire market is pumped to bubble proportions by fed monetizing. BA is overvalued as is the entire market. This will change sometime soon. If you are going to hold BA long, you need to determine it’s real value. Issues facing it:

    1. the 737NG/MAX and 777/777X production bridge, in a market that is near saturation.

    2. 1100 and probably more 787’s to go before the program breaks even, This does not include the benefits of cash flow generated by 787, which has to be some relief.

    3. Will the cargo market return in time to save 7478F?

    4. With the revelation by aviation week of a divergent trailing edge, it would seem that 737 MAX is going to be more of an engineering exercise than previously reported, thus costing more than projected. Will the MAX integrate well with current NG production? Boeing says so, but they say a lot of stuff.

    5. Of course 777X is the 800lb Gorilla, and BA seems to be playing with fire, willing to bet the farm in exchange for a Pyrrhic victory over the IAM. Perhaps this is the main reason it seeks to shift costs and risks over to states and municipalities. Still, this is a very dangerous and unnecessary game to play with the bulk of your profits in the second half of the next decade. Revenues generated will be critical in funding development of clean sheet narrow-bodies. Perhaps Boeing intends to have some poor state pay the R+D and engineering costs on those as well…….

    • Steve, I think it will be 1500 B787s by the time a profit shows up. That will be 2025 and 3 years after an A330 replacement EIS. B787 engines will be old tech by then and an expensive re-engine will be needed to compete. More deferred costs then push the day it makes a profit to when?? 2035?? I’ll probably be dead by then. MAX and 77X will both need replacing earlier than A320 and A350. So I see Boeing in free cash flow problems from 2020 on.

      • MartinA is correct, hen you really crunch future numbers, it all looks bad for BA. And looking outward to a 787 re-engine? If it’s heavier, we are talking major problems with the load on the wing. And beyond the first 1500, how much of a market is there with an new Airbus competitor aircraft coming on line? Salt the fields with BA’s risky, and pointless (in terms of profits) Union avoidance strategy, and you have the makings of serious issues down the road.

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