ISTAT: John Leahy: No bubble for at least the next five years

Marhc 9, 2015: John Leahy, chief operating officer,customer of Airbus, presented at ISTAT. The following is a running paraphrased summary.

  • 50% of all aircraft are now being financed by lessors, either through direct purchase or sale-leasebacks. We don’t want to finance customers.
  • We want to put our money in R&D.
  • Legally binding contract, with deposits and non-cancelable contracts, demand higher production rates. If we did go to or above rate 60, there are still more orders in backlog than the production rate.
  • It does appear there are more than enough overbooking in the backlog to support rates above 50 and maybe above 60 in the next five years.
  • The A321LR will have the flexibility to install or not up to three auxiliary fuel tanks, a key flexibility for lessors.
  • We can do everything with A321LR that the 757. We think 500 757s  now flying, everyone of them gets replaced by A321LR. The other trans-Atlantic, other long hauls add to market potential for A321LR.
  • We think the A319 will stay there. Someone has got to keep Bombardier honest.
  • 44% of A320 family are now A321s by end of next year. Plan for in excess of 50%.
  • We think the A330neo will the world by storm.
  • A300neo has the same range of a 787-8.
  • Eight months since A330neo launch 145 firm orders, not counting MOUs, LOIs, etc.
  • We’ve looked at stretching the A350-1000 but it’s not obvious to us the market is screaming for it. Boeing added 35t for 35 extra seats for 777-9. A350-1000 has lower risk.
  • If you do need those extra seats, we build the A380.
  • A380 is a small market, maybe smaller than we thought in the beginning.
  • International markets are slowing drifting toward four class seating with Premium Economy.
  • A330ceo orders: sometimes you’re a victim of your own success. We think we can sustain A330ceo production rate at 6/mo.
  • We aren’t going to build an airplane (the A380neo) for just one airline (Emirates). We are studying it. I think the A380neo would be a great airplane but the business case will decide it.
  • Airbus will deliver 10-15 A350s this year. Going slow to get it right. It’s the most mature airplane we have ever delivered.

 

14 Comments on “ISTAT: John Leahy: No bubble for at least the next five years

  1. “A380 is a small market, maybe smaller than we thought in the beginning.”

    Being cynic, it was what Boeing claimed since 15-20 years…

  2. Flooding the site with content! Pretty cool!
    Quick conclusion: No A380neo in the next couple of years because (a) engines are not good enough and (b)just one major customer.
    All other programms are looking into a bright future.
    Interesting times ahead!

    • I think that (b) is a major issue. You don’t put all your eggs it the same basket particularly for a massive and expansive aircraft like the A380.

  3. I’ll take a wait and see attitude regarding your next neo plan, everything always looks better on paper..
    As for the a350 1000, i would be a little concerned, basically no new orders since the introduction of the 777X….

  4. Much less hyperbole and competitor bashing than the classless Tinseth at boeing.

  5. Mr John Leahy is talking about keeping Bombardier honest when justifying the A319 is here to stay. The A319Neo will be built for one reason only: steal possible customers from Bombardier and Embraer. If there is one niche aircraft now it’s the A319, Much heavier than the competition even after the upgrade with the new engine and lot of range for very few thin route. I don’t think Airbus will make money with the very few they have sold 49 has of today. I for one really hope that technology and lighter aircraft such has the Cseries is the way to go, efficiency and using less fuel for the same load of passengers. Airbus will do anything, cut prices even at a loss to steal customers away, that’s one place where extreme competition can cut technological improvement and keep the duopoly alive with old designs (50-35 years old) dressed up with a new suite(engines).

    • I tend to think that most of the costs involved in developing the A319neo will be associated with getting the type certified. Construction-wise, it rolls off a largely existing production line, so not a lot of additional investment is required in that aspect.

      I would think that it is quite likely for Airbus to build just about enough – commercial and ACJ – to cover those costs. They don’t need to aggressively sell the type on a loss if they can use the line to produce other more profitable variants. And what would it cost to just keep it on offer should anyone want it?

  6. Ah the A330NEO has cut off the A330CEO market, which is what I thought all along. If Airbus gets past 200 frames they will then be going past CEO. The 787 has established a beach head that NEO will not overcome long term. Thought it was interesting that IB was able to pull up all their orders over a 18 month period. Tends to say that there are some cancelations on the CEO side that might have been moved to NEOs?

    As for the 777-300ER improvements, that may be the worst news for the A350-1000. Boeing will be able to add seats and they are looking at 5% performance gains than current. Will that mean an airline will be able to carry more cargo and passengers than a A350-1000 with equal performance? If true that will impact airlines with fleets of low time -300ERs, keeping them on the Boeing side and not needing to transition to a A350-1000. Wait until a route demands the -9X, or get a real benefit from -8X? A 5% improvement on the -300ER makes the business case for a A350-1000 much harder. Maybe Boeing decided to leverage the lukewarm response of the A350-1000 and place the program in a box that Airbus was trying to do to the 787 with the A330NEO. Let’s see who wins.

    • Regarding the A350-1000 you’re of course assuming quite a few things. That it only has a 10% lead over the 773 to begin with.
      That Boeing’s claims are correct (remember they also said that they wouldn’t have to do anything significant to counter NEO as NEO only equalised the 737NG).
      That between now and the A350-1000 EIS there won’t be any improvements on the A350 and its engines.
      That any of this is more than marketing, designed to fill the 777 production gap.

      If you look at the number games between old and new (773 and A3510), Airbus were doing a similar thing with the A330ceo vs 787. It served them well, but once there was enough production capacity to deliver 787s in numbers as well as enough real-life experience with the 787, the A330ceo had to be NEO-ised, not just PIP-ed.
      If you want to look at orders – true, there hasn’t been much in terms on A350-1000 orders since the 777X launch. But neither have there been too many 777X or 787-10 orders since. Some 787-10 and A350-1000 orders may be hidden in yet to be converted A350-900 and 787-8/-9 orders, in fairness.
      Also, for all three types (777X, A3510, 7810) you’re currently looking at the earliest slots in 2020 or even later. I’d expect more orders for each type as this order-receive horizon gets closer to 4 years – and in the case of the A350-1000 as the A350-900 clocks up time in commercial service.

    • “Maybe Boeing decided to leverage the lukewarm response of the A350-1000 and place the program in a box that Airbus was trying to do to the 787 with the A330NEO.”

      You’re mixing up frames of reference here. What Boeing are doing with the 773 vs A350-1000 is marketing similar to A330ceo vs 787.
      Boeing’s A330neo equivalent to counter the A350-1000 is the 777X. The extent if effort poured into the 777X does show you how seriously Boeing actually take their competitor (and how much work is required to compete with the A350-1000) despite the marketing thrown out there.

    • The 8x is really going to have to go some to be competitive against the A351. Is this credible? I can see the A359/351 cleaning up on a whole segment of the middling long haul market (280-360 seats realistically) given it is new in all respects as opposed to the recycled x programme. We shall see in about 2025 and onwards

  7. “the lukewarm response of the A350-1000”

    People stare at the confirmed orders for the A350-1000 and conclude it could be more.

    Thing is it will be more. Most confirmed A350 orders have right to convert to -1000’s before a certain date. And they will. Because the 767, A330, 787, 777 , 737 and A320 series showed so in the past.

    And because the airlines themselves say so.
    http://www.bloomberg.com/news/articles/2011-09-14/singapore-air-may-buy-airbus-a350-1000s-after-upgrade-ceo-says
    http://www.reuters.com/article/2013/09/19/lufthansa-fleet-a-idUSL5N0HF1JU20130919

    Of the 800 A350 on orderI think 40-50% is earmarked to leave the line as A350-1000 already.

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