Pontifications: From the sidelines of the ISTAT conference, Notes #2

March 13, 2015: More Notes from the sidelines at the ISTAT conference this week in Phoenix.

Hamilton (5)

By Scott Hamilton

Boeing 777 production rates and advancing schedule
Randy Tinseth, Boeing VP-Marketing, predictably stuck to Boeing messaging Monday at the ISTAT conference when I asked him about the change in tone I described in my post Monday morning about the 777 Classic production rate to the entry-into-service of the 777X.

Waving a copy of my post in the Q&A session of Tinseth’s market update and saying I had transcripts of every Boeing earnings call and investors presentation in which the “bridge” question was posed since the 777X program was launched, I cited Boeing CFO Greg Smith’s response to orders in the March 5 JP Morgan investors’ day and asked Tinseth about it.

Tinseth said Smith’s response was consistent with all previous statements. I further challenged Tinseth, and he responded by saying that come 2018 Boeing will look at the production rates of the 777 Classic.

Well.

Every person outside of Boeing I spoke with in the halls of the ISTAT meeting—analysts, industry officials, media—who had read my post of March 9 agreed: Boeing’s messaging has changed, softening the line of confidence exhibited since the X was launched in November 2013. Even a few Boeing employees attending the conference privately agreed: the message has changed.

While Tinseth stuck to the corporate line that Smith’s comments were consistent with previous messages, he revealed for the first time a date—2018—at which production of the Classic might decline. (I think it will come in 2017, which I’ve written on previous occasions.)

Officials have previously said they intend to “feather” Classic and X production rates as the 777X enters service in 2020. “Feathering” is understood. However, the message has been that the Classic rate will be maintained at 100/yr right up to X EIS. Greg Smith’s JP Morgan comment, “We’ll continue to monitor it. We’ll make whatever adjustments we need to make but we don’t see any need to make those adjustments at this time,” is the first deviation. One Wall Street analyst wrote me, “On your change in tone observation on 777, I couldn’t agree more…

“That 787-8 to 787-9 comment certainly hinted at lower production levels before first delivery of the X…you know for “extended flow times” and such.”

Tinseth’s citing of 2018, a first, at least in public, is a widening in that crack as I see it.

So why is 2018 significant? Because, according to others in a position to know who also attended ISTAT, Boeing wants to advance the EIS of the X from 2020 to 2019. As production of the X commences in advance of certification, the Classic rate comes down concurrent with X production beginning and ramping up.

All this assumes, of course, that there won’t be any repeat of delays experienced on the 787 and 747-8. This means 2016 will begin to be the time to measure progress toward EIS.

Why the back-sliding on the confidence rates can be maintained?

Because, according to our sources, Boeing Sales is finally getting through to Boeing Chicago that the task will be tough to achieve without major price cuts. Even with steep discounts we are hearing in the market, as low as $120m plus BFE (Buyer Furnished Equipment), Boeing is having a tough time selling the airplane.

That’s why.

The US Scope Clause

John Slattery, chief commercial officer of Embraer, says the Mitsubishi MRJ90’s weight is too heavy under US Scope Clauses for regional airliners to operate on behalf of Legacy carriers.

Ross Mitchell, the top salesman for Bombardier, says some of Slattery’s EJets are too heavy, which gives his CRJs an unbeatable challenge.

There’s more to this story to come.

757 Replacement

There was heavy interest in the topic of the Boeing 757 replacement, both on the stage and off. I think to some degree this is because people like to talk about new airplane programs and right now you have the Bombardier CSeries, Embraer E-Jet E2 and the Mitsubishi MRJ–not quite as sexy as the Airbus and Boeing programs. I’ll have more on this next week.

Mitsubishi MRJ90 flight test program

Mitsubishi, which is about two years late for the MRJ90, will send several airplanes to the US for flight testing in an effort to accelerate the timeline in order to meeting delivery date commitments. One of the locations for test flights is Moses Lake (WA).

Why, might you ask, would Mitsubishi bring its flight test vehicles from Japan to the US?

It’s because air space around Japan is highly restricted plus China continues to claim airspace nearby. US air space generally isn’t restricted. Japan Air Lines for decades used Moses Lake as a pilot training center. The airport there was an alternate landing site for the US Space Shuttle. Boeing uses the airport for testing, and Boeing and Mitsubishi have a technical relationship on the 787 and an agreement to help Mitsubishi on the MRJ.

57 Comments on “Pontifications: From the sidelines of the ISTAT conference, Notes #2

  1. There is no reason to believe Boeing could have a 777X EIS in 2019. Or 2020 as planned either.
    IF Boeing were to rely on the tried and true production system for the 777 classic, the X would have a shot.

    But they aren’t. They are going to make production of the 777X more 787-like in execution of the build process. It’s just going to muddle and confuse things, especially the workforce. They are going to LEAN it into another tardy EIS. And they are going to try it with a workforce of declining experience levels. And one just having, as you suggested, gone through more labor turmoil.

    777x is by no means going to be the straightforward launch of a simple derivative.

    • My understanding is that the current 777 production process is already lean, ans a very nicely achieved one (hence why many were surprised about the massive screw up for the 787 production)

      • B achieved learning curve rate of 84% on the B777 apparently, consistent with so many programmes going back years. that would suggest significant cost savings to date. The relatively constant product line (almost all 300ER) and consistent 8.33/month production will have helped massively to achieve that. I would guess that they would have hit steady state (ie no more learning gains) in the last couple of years.

        The questions are how far back up the curve the X will take them and do the new production processes (al li, CFRP, outsourcing) have similar learning benefits. B have stated they were looking to achieve 75% on the B787 but the only analysis out there suggests around 84% again.

      • There is lean (777) and there is pinching a penny so hard Lincoln gets a headache (787)

  2. It is interesting to see that what Boeing officially communicates can have such impact they can no longer share what everybody knows.

    Boosting victory is what drives stock price, stock price your salary. Reality is somewhere down the priority list..

    “You’ve got to have a 20-year perspective on the market…The people that we compete with who don’t take that long view; they don’t satisfy customers as well. You’ve got a 25-year relationship with the customer after you sell them stuff,” McNerney said.
    http://www.cnbc.com/id/102501574

    However it is good to hear McNerney now focuses on the long term instead of short term results. No more tricky accounting methods to defer unexpected costs & pull forward profits I guess.

    • Maybe Boeing should use the tricky accounting method Airbus used on the A380. You just write all the loss off at once, and then declare the program “profitable” thereafter, even if you never recoup you development cost.

      • But Boeing prefers to use its own brand of “tricky” accounting. Keep all the losses stashed away and show “profits” today.

        • ” I will gladly pay you next Tuesday, for a hamburger today”

          Wimpy.

        • Its not its own brand of tricky accounting, its the norm for US aerospace.
          -Northrop wrote off over a billion once its F5 program was finished ( with the end of the final version F20), and Boeing did much the same amount with the MD90 series when it merged with MDD

      • Rather telling that you have to diss proper “by the rules” accounting ( value assets conservatively, book all losses early ) to fit your world view.

  3. it seems to me Boeing adopts similar communication strategy as the Fed ir any other highly competent central bank because their context is the same. First and foremost they need to be consistent and predictable, so changes in messaging are subtle to avoid having to backtrack later. The Central bank doesn’t want to scare markets or come across as incompetent (“steady hand”), and neither does Boeing with its shareholders

    • You mean

      ‘if I turn out to be particularly clear, you have probably misunderstood me’ Alan Greenspan

      Fully agree

    • IMO McNerney has a good list of statements suggesting he was either not speaking the truth or was lost.

      Q4 2010 on NEO, NSA.
      “It’s our judgment that our customers will wait for us, rather than move to an airplane that will obsolete itself when they do a new airplane. I understand why they’re doing it, we haven’t seen the need for it yet. I feel pretty comfortable we can defend our customer base both because they’re not going ahead of us, they’re catching up to us and because we’re going to be doing a new airplane that will go beyond the capability of what the neo can do. I feel very good about our position there.”

      and you do not have to look far to find more (listen to CNBC). IMO a communication strategy that doesn’t strengthen long term credibility.

      Say the opposite of what’s happening and many safely will go for the middle.

      http://www.quotehd.com/imagequotes/authors77/harry-s-truman-president-its-plain-hokum-if-you-cant-convince-em.jpg

  4. The 757 legacy seems to grow year on year. It is almost as though a relatively minor programme is dictating the thoughts of both A and B towards a whole market segment. Was the 757 such a great aircraft? Everyone talks of performance and capability but o course this is at the expense of economy.

    Are we going to see the 757 ultimatum and supremacy? Well it appears as stated we are all excited predominantly due to the lack of anything else being developed beyond NEO/X in the foreseeable future. A don’t need to do anything (A321LR) so it is up to B to kick the ball

    • It did the job carryiung larger groups of passengers over shorter distances when needed and was flexed into longer routes as well as high and hot. It did trans con USA with no restrictions.

      It did not sell 1000 for no reason, though it sold those in a different oil climate (high at times but not over $100 at least for any significant times – Scott has that data )

      That does not mean you could launch it now, it would fall on its face as vast majority of its mission can and is done by existing A320 and 737 let alone the next get of more fuel efficient.

      It also showed there was a slot of long and lean though that’s a harder market to assess. How viable that is maybe depends on lower oil prices and or used aircraft that cost little.

      The A321 has a nice niche to work in.

      Boeing looks to open the market between the A321 and the 767/A300, that is not a 757 market but its based on the concept.

  5. Despite its provisional name, the 777X is shaping up to be not a derivative, but an almost all-new plane: new composite wing, new aluminium-lithium fuselage, integration of technologies from the 787.

    And since there is a new fuselage, why not go with a slight diameter increase to make the infamous 3-4-3 seating option more palatable?

    The 777X will be so new that it could be marketed with a new model number: Boeing 797.

    … And then, having used up every model number from 717 to 797, where will Boeing go next? The NSA and MMA will need new model numbers. 8X8 Series? Or something more imaginative?

    • I believe Boeing is not using Lithium Alum in the fuselage though it was considered. Not enough gain without a complete re-design which changes the whole thing. Not sure when it becomes an all new aircraft with all new certification required (747-8 did not and that still seems iffy to me)

      Happy to be corrected if wrong but I don’t think so

      Wing of course is huge change

    • 777 to 777x is similar in scope to 737Classic to 737NG changes. Looks similar but everything is changed except for the wingbolts, cockpit layout and the grandfathered certification. Coming to think about it most B model changes seem to develop into rather involved and costly projects even if they are launched as KISS upgrades.
      Only comparable A project was the A340-5/600 upsize of the basic A340 frame.

  6. What are the chances the 777-8X will be build?

    EK is the sole customer & they can easily upgrade, cancel or replace if they feel so. Airbus and Boeing accept.

    Randy says the 8X will be slightly more efficient per seat then a A350-1000. Impressive because it is wider and 25t heavier.

    Sitting 10 abreast 17 inch on a 777-8X for 16 hours will be an innovation I’ll avoid.

    • The same reason Boeing will build a 737 MAX-7? Because a customer with a large order wants it (hoping they’ll change their mind…)

    • The 777-8 can be configured at 9 abreast, consistent with the worldwide accepted standard on the A380 at 10 abreast. Ultra long haul comfort in economy with a nominal 21″ seat (center to center of armrest).
      Like people have said, the -8 is the base for the F, so that is a good reason the -8 will materialize.
      When will the last 777current wing option be built, most likely on the 777F, guessing 2025?

      • The 777F build duration is for sure an interesting topic. It will be interesting and how they mix production of the two types.

        As the 777-8 will be a 777-300 length (correct me if wrong but close) it then is interesting if the 777-8F is viable or the conversions of 777 ceo pax becomes the preferred option

        FedEx at one point was ready to do that but the feed stock disappeared (supposedly Singapore changed its mind and re-allocated the 777s to Scoot)

    • Ethiad has 8 orders as well. It will be made. Boeing would not have launched it if it didn’t think it could be sold.

      “Randy says the 8X will be slightly more efficient per seat then a A350-1000. Impressive because it is wider and 25t heavier.”

      We should both know that what he or JL say are what any salesperson will say to prop up their own ware’s. Weight doesn’t really play into the equation all of the time. CX could have bought lighter A35J’s but chose heavier 779’s.

      “Sitting 10 abreast 17 inch on a 777-8X for 16 hours will be an innovation I’ll avoid.”

      I’m sure RT won’t notice.

  7. “And since there is a new fuselage, why not go with a slight diameter increase to make the infamous 3-4-3 seating option more palatable?”

    Because, from what I’ve heard, the 777X will have that vaunted, arbitrary 18″ wide seat at 10-abreast. Not that I think that is a good standard (it isn’t and it’s completely ridiculous) but that should take some of the bite out of the “infamous 10 abreast”.

    • You should also mention that it comes at the expense of aisle width. That’s 10 abreast with narrower aisles.

    • The only way Boeing will achieve 18″ inch seats on the 777x is if they remove armrests altogether or all insulation from the walls. Perhaps they will give winter coats to all pax since it’s gonna get cold.

    • The current 777 can accommodate 10 abreast with a seat width of 17″, and with 2″ wide armrests (x 13) and two 17″ wide aisles. That’s 230″ in total. The 777X will be wider by 4″ at the height of the armrests; or 234″ in total. So, that’s either:

      10 abreast with a seat width of 17,4″, and with 2″ wide armrests (x 13) and two 17″ wide aisles (i.e. total of 234″);

      or

      10 abreast with a seat width of 17.2″, and with 2″ wide armrests (x 13) and two 18″ wide aisles (i.e. total of 234″);

      or

      10 abreast with a seat width of 18″, and with 1.5″ wide armrests (x 13) and two 17.25″ wide aisles (i.e. total of 234″).

      In comparison, the A350 can accommodate 9 abreast with a seat width of 18″, and with 2″ wide armrests (x 12) and two 17″ wide aisles. That’s 220″ in total.

      For the 787, its cabin can accommodate 9 abreast with a seat width of 17.2″, and with 2″ wide armrests (x 12) and two 18″ wide aisles. That’s 214.8″ in total.

      • Has any of the readership actually had the pleasure of sitting in one of of these seats for a long time? What was it like? As the seat mile costs depend on them,how common are they going to be? Finally, as I can’t afford anythingother than economy, which airlines should I avoid?

        • I have had the “Pleasure” of flying Emirates from Cape Town via Dubai to Copenhagen. 11 + 6 hours. That was the first and the last time I am ever going to fly a 777 with 10 abreast. My later flights in that area have all been with A330 with 8 abreast, Wonderful.

  8. The 777X schedule is not going to be “advanced”. The externally published “commit-to” EIS is 2Q20, while from the outset (i.e. at launch) the internal “manage-to” milestone was 2Q19.

    The same principle was in use on the 737MAX, allowing Boeing to “advance” the EIS by 6 months pretending they were ahead of schedule.

    Don’t led yourself be led around by your nose-ring by Boeing PR 😉

    • “Don’t led yourself be led around by your nose-ring by Boeing PR”

      I think Boeing PR would be the last one to think I’m led around by them. I talk to customers to draw my conclusions, and they are as yet skeptical of advancing to 2019.

      • I think Boeing and Airbus PR know perfectly well which analysts / media are “easy” and which ones ask the right question and don’t inhale incomplete figures.

        • Aluminium Lithium,is that right?Do you think 2019 is really that challenging,considering they have hopefully learned how not to tackle the technical challenges with the 787?Also Scott,whilst I’m sure you’re right,I think you may becoming a bit obsessed!

          • No I don’t think Lithium Al is right.

            Major reason not to, any pax width improvements are due to interior work not exterior.

            Different material and wider causes it to become a new aircraft as well as the economics of drag changes.

          • 747-8 was a derivative and that was two years late.

            We’ll see if Lessons Learned works on MAX and X.

          • AirInsight is incorrect: Nico Buchholz, EVP fleet manager for Lufthansa and the launch customer for the 777X, told me this week that Al-Li has not “yet” been selected for the fuselage. It may, but it hasn’t yet.

          • “747-8 was a derivative and that was two years late.

            We’ll see if Lessons Learned works on MAX and X.”

            It was. However I recall they outsourced work to Russia that had to be re-done amidst the 787 debacle.

            Agreed the only time you know if when its in production so stay tuned.

            767 Tanker should have been a slam dunk and they messed up wiring on that. No one has said why it occurred, just they did.

            Wire separation is not new so who made what decision or read what spec that they got astray. As no one is talking it looks like an internal Boeing mistake not a dispute on what contract said.

          • @Scott H.

            Hard call to make as only a full re-optimization of the fuselage can take full advantage of the opportunities enabled by the use of AL-Li.

          • I thought so as well, but Boeing seemed intent on “just enough” not the full monty.

          • Phew, I thought it was totally ruled out.

            I am astonished it is still a possibility. It has huge cascade affects.

          • We need to get a bit more nuanced when talking about fuselage materials (or materials for any other part of an airframe). The OEMs use a special alloy variant for just about every part of the fuselage, it is selected for the parts specific challenges in terms of strain, fatigue, corrosion, toughness characteristics and so on. Therefore one can not talk about an Aluminium or AlLi fuselage, it is about how important a fraction will be the one or the other type. If AlLi comes into play there will still be a lot of aluminum alloys in the fuselage as well.

          • “Therefore one can not talk about an Aluminium or AlLi fuselage, it is about how important a fraction will be the one or the other type”.

            Of course, but that doesn’t change the fact that aluminium-lithium low-density, high-modulus alloys now exist for direct replacement of advanced high-performance 2XXX, 6XXX and 7XXX alloys, with some Al-Li alloys even showing better welding performance than the best weldable 6XXX alloy. Hence, the increased usage of Al-Li alloys leads to decreased densities, increased stiffness, high yield and tensile strengths, good resistance to the propagation of no fatigue cracks, resistance to stress corrosion cracking and improved thermal stability. This is why only a full re-optimization of the 777 fuselage can take full advantage of the opportunities enabled by the use of AL-Li alloys (i.e. including welding). It makes no sense, therefore, to just apply Al-Li to a few targeted areas of the 777 fuselage — that is, if Boeing is looking for substantial weight savings.

          • I believe that is what Airbus did on the A380. Limited to a few (low stress if I recall right) areas on top of the fuselage toward the back.

  9. Boeing are proven to stretch the truth quite a bit. In the summer of 2007 they said that they will fly the 787 in a few months whereas it took over three more years to get the home depot-model to the skies. I wouldn’t trust anything that comes from their mouths wrt 777 production rate.

    • He,
      Note that this does not “invert” released information.
      It just makes that information.relatively worthless 😉

  10. On a different not, there’s a remarkable interview (video) on CNBC with Jim McNerney on the 12th of March where he managed to claim that “Boeing’s got a 20-year perspective on the market, but that the people that they compete with — presumably Airbus — who don’t take that long view, they don’t satisfy customers as well”.

    How Boeing will continue to crush the competition

    http://www.cnbc.com/id/102501574

    In the past 10 years, Jim Cramer has developed an eye for searching for cycles. He can smell a cycle from far away and knows when it will transcend into a multiyear money-making machine.

    Right now, Cramer sees that we are right in the middle of an aerospace cycle. Airlines are rolling in cash, thanks to the major decline in the cost of oil.

    This is exactly why Cramer is convinced that Boeing will crush the competition and head higher. He sat down with Boeing CEO Jim McNerney to find out how taking a long-term perspective in planning has paid off for the company.

    “You’ve got to have a 20-year perspective on the market…The people that we compete with who don’t take that long view; they don’t satisfy customers as well. You’ve got a 25-year relationship with the customer after you sell them stuff,” McNerney said.

    Cramer pointed out that there are entire continents around the world who are hoping that Boeing does not do well. Is the CEO worried about this?

    “Not at all, because we are going to win,” he replied.

    Oh, and that Cramer guy; would you buy a used car from this man?

    https://www.youtube.com/watch?v=xt-fb7IQ4Ko

    • Fair bit of arrogance displayed by McNerney there, considering how far their competition have grown over the last 20 years, breaking into those long-term relationships.

    • Sounds like they have given up on planes and are going to build bicycles instead.

  11. Is this the same Boeing that had the completion completely boxed in?
    That works fine as long as they cooperate. Sadly for Mr. Mc they tend not to. Maybe he needs to find a different line to work in.

    Talk is cheap and in this case arrogant, producing aircraft both new and current is what makes a company.

  12. According to an Airbus graphic seen by this reader in Leeham news the 777 9x will be 15 tonnes heavier than the 300ER. Wikipedia puts the weight gain at +/- 45k lbs. (that is 21 tonnes). If either of those numbers are true it seems to defeat the whole purpose. Does any reader or Mr. Hamilton have any real info about this. Just curious.

    • Between 15 to 20 tonnes seems to be the reality, our 15 tonnes has been confirmed in talks with Boeing. The reason is not to wonder, modern engines while being more efficient are heavier as their fan size (and therefore nacelle with heavy thrust reversers) and pressure ratio (more metal to contain the pressure) grows, made that to a larger wing and longer body with less deep frames at the window line (i.e. you regain strength by heavier gauge frames) and you have weight real growth.

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