Leeham News and Analysis
There's more to real news than a news release.
There's more to real news than a news release.
Leeham News and Analysis
- Boeing defends 787, 777 against whistleblower charges April 17, 2024
- Dissecting Boeing CEO’s statement next new airplane will cost $50bn April 15, 2024
- Bjorn’s Corner: New engine development. Part 3. Propulsive efficiency April 12, 2024
- A350-1000 or 777-9? Part 2 April 11, 2024
- Pontifications: Boeing “transparency”–not so much. April 9, 2024
PNAA Conference: Aboulafia–“A lot of positivity” (except for A380, 787)
- The Wall Street Journal reports that Boeing is considering restarting and re-engining the 757 in response to the Airbus A321LR.
Feb. 11, 2015: We’re at the Pacific Northwest Aerospace Alliance conference in Lynnwood (WA) north of Seattle. This is the 14th annual conference. Appearing are consultant Richard Aboulafia, Airbus, Boeing, Embraer and a number of key suppliers.
This is the first of several reports, beginning with Aboulafia, of the consulting firm Teal Group. We’ll be reporting in the format of paraphrasing his and other presenters.
Aboulafia each year kicks off the PNAA conference with his outlook of the industry for the next few years. A running account:
- The US has 53%-54% of global aerospace industry output (military and civil).
- Large commercial jets: We have had an 11 year “super cycle” era of growth of 9.6% CAGR. Continued momentum. $100bn industry. Less than half that 10 years ago.
- Cargo looking strong again. Up about 5% in 2014.
- My thesis has been what drove the hyper cycle has been the bifurcation between the cost of capital and the cost of fuel. Capital is very, very, very cheap, prompting new orders. Fuel was $90/bbl year-end 2014, now around $50. We still look at an extended period of cheap cash.
- There is no real answer to impact of $40-$50 fuel. My feeling is you won’t have a major impact of fuel. There are enough forces in place to keep refleeting going.
- But is there enough to keep going at a 10% annual growth rate for orders? Not sure.
- OEMs should be conservative about production ramp up.
- With new investment opportunities emerging in 2014, I have some concern money may divert away from aviation.
- Large number of orders not sustainable. There are investors who care about orders, orders, orders.
- I have long term concerns, but not short term. May even have record years in 2015 and 2016.
- Deferred production costs are recurring costs on 787.
- Airbus has had fewer “mood swings” than Boeing on research and development spending. But a lot was on products market doesn’t want: A380, A340-500/600.
- Expects 25-year old A330 with new turbines to do quite well against 787, whose advanced technology “may have been oversold.”
- CSeries isn’t going so good. We forecast deliveries starting in mid-2016. Does it survive? I don’t know what happens. There’s Smart Bombardier and Dumb Bombardier. Smart Bombardier is business jets. Dumb Bombardier is commercial.
- In 10 years this will still be an Airbus and Boeing show. Bombardier, Irkut, COMAC will be slivers. (Doesn’t mention Embraer, which doesn’t compete with the Big Two.)
- Customers are pretty much saying, Just give us new turbines, that’s all they’re willing to pay for. New technology might be going away, at least for a while.
- We expect re-engined jets to get around 70% of the market. This is a major trend.
- A380: remove Emirates and Amedeo, what you’re left with is a disaster of monster proportions.
- I don’t think A380neo will happen. The could do it, not that they should do it.
- There is no demonstrated secondary market for these airplanes. If you launch a new engine version, you’ve made that problem much worse.
- As the international air traffic system grows, planes get smaller.
- I say A380neo doesn’t happen because I have faith in Airbus.
- On Boeing 787: Jesus, there must be some kind of way out of here. You take the losses on each plane and push them out in the future. We’re in a different universe here. $26bn and it’s going to go higher (Note: it’s now $30bn).
- This causes Boeing to double down on what they are doing: squeeze labor, squeeze suppliers. Should be working with labor to become more efficient, cut costs. The heavy, draconian approach with labor is having impacts here and now.
- We have two very different companies with two products with problems.
- There is a very big risk Boeing won’t make up (vs Airbus) on the narrow body side. Boeing will continue to dominate wide body.
- We have last 747 delivered around 2019-2020. 777X kills 747-8i. You need a much more aggressive turnaround in cargo to save 747-8F. We have last A380 delivered in 2021 absent a neo.
- I don’t see any discipline on pricing between Airbus and Boeing.
- This is an industry in a case study of long-term deflation. Customers want re-engined airplanes for same price as current models.
- 757 re-engine would solve a lot of problems for Boeing.
- Regional jets are basically an $8bn business. Embraer is one of the smartest companies I know, nibbling away at bottom of Airbus and Boeing markets.
- What does the customer want? New turbines. What else? Basically nothing. Embraer E2 gets to 60%-65% of market, basically a re-engine. (Note: EM takes umbrage at this, calling the E2 basically a new airplane, with only the fuselage and cockpit a holdover from the E1.)
Restarting and re-engining the 757? How desparate.
Airbus should then also restart and re-engine the A310 with winglets and A350 technology and cabin.
The main point is there is an important gap between the 737 and the 787 and Boeing has not credible alternative until perhaps 10-15 years. Boeing will probably develop a successor the the 737 before developping a successor to the 757/767.
Everybody loves Richard, because he dares to speak out based on his knowledge / 25 yrs of close industry involvement. We take his preferences and inaccuracies for granted.
Boeing obviously is not happy anymore with where the 737-900ER/-9 sits. Behind closed doors, they have a good idea what the airlines will buy in the next few years & it s.cks.
Rebuilding the 757 is non-sense though. It was a very good wing, for the seventies. The fuselage cross section is right sized, if the market hates pallets/containers and prefers 17 inch seats/small bins for 3hr+ flights. Oh, it aint the case, well..
Boeing is buying time. Taking into account all I’ve seen/heard the middle of market design will be a smart light 2-3-2 cabin up to 5000NM.
http://ipwatchdog.com/images/Boeing/low-carbon-emission.jpg
Airbus might build it too, to cover the future large A321-A359 gap when the A330s are retired.
There is a major problem associated with a lower than wide oval fuselage.
You have to introduce compression forces into the deck beams
together with the floor loading that is an undesirable solution.
( floor loads introduces a buckling force into beams under compression. Upside oval is much more benign )
787 deferred cost.
last numbers metioned were around the $26B mark.
.. and now that suddenly jumps up to $30B?
Hmm, is that line a rip-off from Bob Dylan’s All Along The Watchtower? 😉
http://www.bobdylan.com/us/songs/all-along-watchtower
As for the 30 billion dollar figure, how can that not be a “disaster of monster proportions” ? 😉
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As for Richard’s credibility on future industry predictions, how can he be taken seriously when in 2006, he was blatantly cheerleading for Boeing on launching an A320 “killer”, while cocksurely inferring that the 787 had supposedly already “killed” the A330ceo.
http://www.richardaboulafia.com/shownote.asp?id=221
It is indeed from Dylan and Aboulafia duly credited it in his presentation.
Kudos to Richard for using a great quote. 🙂
NB: The exact quote used by Richard is from the Jimmy Hendrix version of the song.
Dylan (original): There must be some way out of here
Hendrix: There must be some kind of way out of here
30 billion? Just remortgage the accounting block to 1500 units.
Yes, surely there must be some kind of way out of here. 😉
1500 units, or 20 million per unit. It must be rather hard to compete on price with the A330neo under those condiditons.
…or perhaps one should only start the count when the 787 sales prices no longer is exceeding the actual cost of building the planes. When was that supposed to happen?
Cost reduction is an exponentially diminishing function.
Thus a linear rise in deferred cost will result in an exponential increase in required production _after breakeven_ to recoup that bow wave of deferred cost.
I would think 2000 frames required is still a rather optimistic assumption.
30 billion over 1500 units… and that is after pushing out ~300 units to turn cash positive per delivery. They still need another ~600 more in sales on top of what they have to fill up that hole.
A smart light 2-3-2 cabin does’t have be oval.
Maybe slightly oval, just circular like A320 or double bubble like the Embraers and 737.
As long as the LD3-45 series fit in, that 737 / 757s can’t handle. E.g. cooling containers for seafood.
My personal preference for the next fuselage would be circular, 13′-7″ inside, and 14′-4″ outside. 160′ long.
Sometimes OEM’s make mistakes or just fail to foresee market evolution.
It has happened to Airbus and has happened to Boeing. The A380 and the A340 didn’t sell as much as expected… And the 747-8, 737-900 (and 9MAX) aren’t as popular as Boeing has wished for.
The problem in this industry is tha,t once you’ve made a decision , it’s not easy to turn it back … At least when you’ve already cut the first metal.
The 757 has been gone for too much time and reviving it wouldn’t come cheap at all. Setting up a new assembly line for it, taking back the tooling (whatever is not destroyed) and optimizing a rather old design wouldn’t make it competitive against an A321NEO which would beat it in many ways starting with production costs and commonality alone.
They have plenty of projects going on, so it’s best to focus on delivering them, optimizing costs, and let the NSA plane handle the “757 gap” problem in 12-15 years
This sounds to me as a desperate attempt to hold some
Or they could do what the military ( and nextant) have done. Relife the airframes with new engines. I dont think this is likely but you never know.
With a new engine at hand not all airplanes are equal.
The 737 has problems fitting one.
The 757 is too “beefy” to get full use of the better engine.
( except you really want a 5..7knm NB airframe )
The 777 needed significant upgrades to the airframe.
the 767 was never touched ?
best gains from newer engines is available for underranged planes that can fit larger more efficient ones.
And FBW probably makes a difference too.
Some growth on the A330 was achieved by twidling the “soft” aerodynamics. Probably valid for the A320 too.
This link to the WSJ article doesn’t work.
Regardless, hasn’t all the tooling been disposed of and they would be starting from scratch? Also, all the avionics would need to be replaced, the wing redone. Aren’t you basically building a new plane?
Probably.
For the purpose irrelevant.
These rumors target holders of airline stock for seeding doubt.
Seems to have worked rather well for ( er. against ) the A380
and the airlines with a susceptible shareholdership ( i.e. mostly US based ).
Link reset.
The 757 nose section is cool, maybe offer that as a choice on the new 737.
Change the name from MAX to 737FEO, front end option.
Been there 😉 not FEO but NGX, proposed 5 yrs ago, before NEO/MAX were launched
http://i191.photobucket.com/albums/z160/keesje_pics/Radical4Bill737Upgrade737-900XG.jpg
Exactly. The 737 re-engine will end up being more of a 16 year production run than a 8 year run. They could have invested a little more into it, but I guess that ship has sailed.
While Boeing is thinking about the A321, what about the 150 seater? What if in five years Southwest orders 200 CS500, and a few other airlines do too. A modern CFRP wing that fits in all the 36m gates. That may be a bigger market in a few years. Boeing should optimize the 737 for 150 seats while they have the chance.
I don’t think Boeing see Bombardier as a thread. First, Boeing can cut the cost far better than Bombarider. The CSeries is a whole new aircraft with high production cost. The aircraft is at the beginning of the Learning curve and the production rate is far smaller.
Furthermore, Bombardier is not in a very good shape and the company will need to recover some money before starting an hypothetical CS500. Also, Bombardier is heavly in dept.
Up sizing is an existing and observable process.
IMHO the smaller more efficient frames (can) live in the lower sidelobe of demand by virtue of lower cost. With the center of demand moving up the sidelobes will move too ( or at least flatten out on the lower side).
As long there is no third offer in the demand center Airbus should have no fears and Boeing is threatened from the upper lobe, i.e. A321NEO and LR.
Having to heed “its all about bass not treble” Boeing could be pushed into the lower diminishing lobe too in the future if they do not work on their product portfolio.
Airbus should feel less pressure as max demand is still below A321 capacities for a decade or two?
With 60-70 billions$ in orders…It is a matter of short time. CS500 will be announced no later than within 3 years, before the new 737/320.
Where will the CSeries backlog be in three years from now? If it is full then we can expect Bombardier to invest in the CS500. But for the time being the CSeries is bleeding cash instead of generating revenues.
Good question Normand! This is the answer of Bombardier: very big news !!!
http://finance.yahoo.com/news/bombardier-announces-financial-results-fourth-110000990.html
The idea of re-starting 757, just the mulling of it, leads me to think that Boeing is now looking at itself and considering that they no longer have the cash, expertise, or vision to bring new, clean sheet aircraft to market.
Everything about 757 has been destroyed, The tooling, the facilities, the labor.. It’s not like flipping a switch, the costs would not be insignificant.
And I doubt it could not be done quickly either. Everything would have to be re-arranged and adapted to Boeing’s current production processes.
If Boeing had it’s eye on the ball instead of the stock price, I’d say do it. But I don’t think the “new” Boeing could pull this off with any sort of proficiency.
In fact, restarting production of a major aerospace product is not a new concept. For example, after the Challenger accident, McDonnell Douglas restarted production of the Delta II rocket.**
However, a 757-200MAX would still be too heavy in order to compete properly with both the A321neo/A321neoLR. A 757-300MAX could, on the other hand, perhaps open up new markets.
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http://www.spacelaunchreport.com/delta2.html
Interesting to note how many projects are dominated by warming up/restarting 60/70ties successes ( your example delta ) , updating products from that timeframe (737,B52 ) or even borrowing from the former adversary ( RD-180, NK33 engines ) accompanied by “If we had that old stuff we’d still dominate that market segment” talk.
New developments bogged down to no end : V-22, 787, 748, F22, F35 and the sputtering advances of new Space Launch Systems ( one of the few shining projects appears to be the 777 ) the 777X outcome obviously is a still open end.
I think the main problem is the 787 deferred production cost. It reach about 26.2 billion + 3.8 unamorthized tooling. That is a total of 30 billion dollars and before the 787 breakevens, we can expect a few billion increase.
Hence, Boeing can’t start the developping of a new aircraft right now. The company need to recover some money. On a unit-cost accounting perspective, Boeing didn’t do very well for several years.
http://www.boeing.com/companyoffices/financial/bca_income.html
I agree with you Jacques. This explains more than anything else why Boeing is (was) so reluctant to do the NSA.
The NSA IMHO was a dream that lacked materials and produceability.
Deliverable so far out that the offer could not make even the slightest dent in purchase decission trending towards the A320 NEO Family.
Boeing themselves said as much After the NSA was put on the back burner.
Keeping in mind that the 787 had a similar start
and while having a great sales success never achieved the “killing” or even maiming of the competing product that was less flashy but had significant reserve potential.
The NSA would have prevented the embarrassment that the 737-9 MAX has become. It would also have solved the problem of replacing the 757. And of course it would have allowed Boeing to regain market dominance in the narrowbody sector.
If the Dreamliner had not turned into a nightmare, Boeing would have announced the NSA not long after Airbus committed itself to the neo and the latter would not have become the runaway success it is today because Boeing decided to revamp a fifty year old design one time too many.
“Expects 25-year old A330 with new turbines to do quite well against 787, whose advanced technology “may have been oversold.”
If oil was at $200 Aboulafia would not be able to say that. The new context is a high-tech killer. Low interest rates lower acquisition costs, but lower fuel prices make aircraft replacement less urgent and necessary. At this time only new entrants will feel the need to buy new airplanes and practically no one will feel the need to buy sophisticated high-tech designs. And consequently low fuel prices will lower the probability of seeing new aircraft designs.
Normand, the 330 continuing to sell well may have more to do with slot availability, solid resale values and superior shorter route cost per seat. The B787’s strength is it’s long range viz.a.viz the A330. Airlines looking for a jet that they can get their hands on sooner than the 787 (sold out for another 4 years) and a better fit for their routes (say 4000nm) may prefer the 330NEO over the B787 as, for those missions, the Airbus will be extremely cost competitive. The lower oil price will even make the A330CEO cost competitive versus the B787 once you factor in the low purchase price
I agree completely with everything you say. The point I am trying to make though is that in time of extremely high fuel prices, say around $200, fuel burn is everything. But when fuel prices are lower other factors become equally important, like acquisition costs, availability, commonality, etc. And since better fuel burn is normally associated with high tech it is clear that the necessity for high tech airplanes is suddenly no longer a priority. In other words airlines are less motivated to revamp their fleets. Sustained low fuel prices could actually lead to a commercial aircraft bubble. At this moment of uncertainty aircraft manufacturers should think twice before ramping up production.
Mr. Richard Aboulafia doesn’t miss a chance to express his condescending opinions on Bombardier Aerospace.
No matter who will be the third manufacturer, it held the same speech. Look what he says about Embraer: stay small is to know to stay smart.
Whenever an Industry begins to focus on Sustaining Innovations or Efficiency Innovations, along comes a “Disruptive Innovation” and all bets are off.
The incumbents then either flee the competitive domain, re-invent themselves or they disappear altogether in a matter of years. History has shown this to be the case time and time again.
The question is thus, what will be the new “Disruptive Innovation” that’s about to take centre stage ?
The question is thus, what will be the new “Disruptive Innovation” that’s about to take centre stage?
I’m sure it will come from someone like Elon Musk. He seems to be doing a good job commercialising space transportation as well as Tesla cars, batteries and solar and then there’s the hyperloop. Be interesting to see him kickstart the R & D of a commercial scram/ramjet concept. http://en.wikipedia.org/wiki/Skylon_%28spacecraft%29
I agree with many of Richard’s points – especially about the B787. Boeing invested heavily on a new plastic plane with greater electrical power. Looking at the specs of the 777x, very little 787 technology is going to be transferred to it’s big sister. Waste.
On the 737 replacement or NSA, Boeing should have launched a clean-sheet design in 2010 for EIS in 2020. In 2020, it will have a 1960’s design trying to keep up with a fly-by-wire, containerised 320 which will have 2 engine options. Boeing will be left with 40% of the market and not the 50% it is projecting.
Boeing would have probably launch the NSA for EIS in 2020 if it is not bleeding so much money with the 787. In the mean time, Airbus launch the A320NEO and Boeing was forced to find an emergency solution wich is the 737MAX. The true 737’s successor is probably delayed until 2030.
I am interested in the comment regarding the 787 technology being oversold. Is this an issue of the technology itself (weight gain, limited air bleed/electricals) not leading to efficiency gains. Alternatively is it due to the current trend of A and B both offering aircraft that are ‘too much’ for the job? is it possible that both A330NEO and maybe B787-10 are precisely what many airlines need and want. Frames without the long range potential but wicked economics over medium haul routes
The context was too much new stuff that wasn’t needed by the customer.
Agreed. The 787 is a costly and not completely needed innovation. In other words, mostly for innovation for show and marketing purposes.