Leeham News and Analysis
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Leeham News and Analysis
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- 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
Bjorn’s Corner: Production rates
By Bjorn Fehrm
20 November 2015, ©. Leeham Co: Emirates Airline CEO, Tim Clark, is quoted as having said “it takes them forever to get this thing up.” He was talking about the Airbus A350 production rate and his reasons for delaying Emirates’ decision on what to buy for the airlines medium range needs. Clark said Emirates wants more aircraft in operational use before they can evaluate the operational characteristics of the A350.
Emirates want to see at least 20 aircraft in operation and right now it is about seven to nine that fly every day. Actual deliveries stand at 10 with one month to go before the first anniversary when deliveries started (the first A350-900 was delivered to Qatar Airways on the 22 December 2014).
Looking at how many aircraft that are actually flying, one can agree with him. It seems actual production rate is more like one per month rather than the three to four a month that Airbus talked about at the first delivery ceremony.
So why is this? Is the production of A350 therefore in serious trouble? What is taking them so long? Has Emirates pointed to a weak part of the A350 program?
It’s all about where one looks
The undisputed fact is: right now the A350 delivery rate is about one aircraft per month. But this is at the end of a production pipeline which is over two years long. The production rate is all about at what point of this long timeline we put down our measurement stick.
The most demanding parts in terms of manufacturing time (the big machined castings in the aircraft’s structure) is entering the foundry well over two years before they enter the area that we can observe, the Final Assembly Line (FAL).
Dependent on where one places the measurement point, one will see widely different production rates. At the foundry for the big machined parts, it is now close to the ultimate production rate that Airbus presented as their first long term target, 10 a month. It has to be, otherwise there will be no 10 aircraft per month being produced in 2018 when the parts that these casting shall form part of come to the FAL.
If one looks at the production rate further up the pipe, it gradually reduces to finally being one aircraft per month, which rolls off the FAL. If one stops at the entry into the FAL, the present load rate is at three aircraft per month, close to the three-to-four aircraft that Airbus forecasted last December.
What Airbus actually talked about was FAL entry rate, not delivery rate. It means that the A350 is not widely off the rates that Airbus has been forecasting. Is everything then fine and dandy? No, there are problems, one being the widely different FAL production time that aircraft have dependent on the customer.
Customer delivery
The demanding Qatar Airway’s aircraft take on average one year to flow through the FAL right now. This is far from the planned rate of around two months, which will be the ultimate rate once the FAL is in full swing somewhere around 2018, but it is also several months longer than other operators’ aircraft.
Lessor AerCap is the owner of the Vietnam Airlines aircraft, the second variant that was produced. The three aircraft delivered so far has on average taken 10.5 months to produce. Finnair’s first aircraft took nine months to get out the door. The next one seems to need around 10 months; it’s now days from delivery.
So why these widely different production times? The widebody OEMs have serious problems with cabin furnishing suppliers. This is the major factor behind the differences we see between operators. Those that go for cabins which are using parts from sub-suppliers, which can deliver at required speed and quality, can have their aircraft flow through the FAL at around 9-10 months.
Those operators which have specified interior suppliers that have problems keeping up with delivery time and quality get their aircraft delayed for months. Airbus CEO Fabrice Bregier recently pointed at cabin interiors suppliers being the weak link in Airbus aim to deliver 15 aircraft this year and more than double that next year.
Slow ramp?
Is then the ramp of A350 slow? Lets compare with the other recent clean sheet twin aisle, the Boeing 787. Here we can’t look at deliveries as many of the first 15 aircraft (the terrible teens) are still not delivered. Looking at FAL load rate the A350 ramp is not slow. There were 10 series model 787 loaded into FAL during 2009 and they rolled off around 12-14 months later into storage, more or less complete.
The following year load rate was 17 aircraft and then 22. The load rate to FAL for A350 has increased much faster, last year (which was the first year of serial production FAL load) it was 14 and during 2015 this will about double. Next year we can expect it to exceed 50. So one cannot talk about a slow ramp, at least compared to the 787.
Hi bjorn
An interesting article, thank you. I note you say that FAL takes over a year, I understood from Airbus that they were expecting the early aircraft to take 9 months.
I find it strange that the new parts of the production process (working with CFRP) appear to have been mastered and are ramping up well. At the same time something as prosaic as the cabin fittings and seats can hold everything up. Surely these items have been produced for many many years.
Could you tell me whether this is due to new technology within the cabin or simply difficulty in coping with volume by tier 1/2 suppliers. Further will there be any benefit when transitioning to tranche 3
Thanks
Hi Bob,
the planned flow time would be 9 months but when you have cabins item delays (which seems to be the case for the Qatar aircraft) this stretches to over a year for certain individuals. It is clear to see, things progress pretty much to plan until the aircraft reach cabin fitting and then from there it takes forever until it reaches customer acceptance flight tests.
The cabin suppliers have made the items for long. What has happened in the last years is the innovation and proliferation around seats etc from almost all carriers for First and Business class. Each carrier want to have their very own variant of e.g. a lie-flat seat (which are complicated in themselves) with own materials and treatments to surfaces. Then if the delivered seat is not immaculate in every detail when inspected before installation the cabin is on hold until the supplier can get the highly customized items approved by the carrier. This loop of correction takes months sometimes.
Tranche 3 will cut Airbus planned rework of certain items so the planned times will gradually go down. But the highly customized third party seats etc are always a substantial risk. It is not only A350 which is hit, also the 787 and other long haul aircraft types have the same problems.
I suspect we can read into that Qatar for the “perfect” part.
Boeing looks to have the same issues.
But then that’s customers choice. It does seem odd that what should be a simple item is not.
We are also comparing a pretty mature 787 production line now vs a start up system. Something like 300 787s flying and 10+ a month being delivered (delayed aircraft and an occasional terrible teens thrown in)
Baking carbon substructures in the autoclaves could consume more time than originally provisioned ? Airbus are prompt to point at sub-contractors (namely, cabin systems vendors, etc) but have they swept the floor proper in front of their own sub-assembly factories ie, up-stream, well before FAL ?
Fair point, they are supposed to be on 5 starts a month by January in FAL. They do have a fair number in FAL, 25 currently, which suggests that they do not have 3 or 4 per month starts if it is taking about 10/11 months in FAL. But not that far away, I reckon shy by 1 or 2 given deliveries started in 2015 and we have a month to go.
The question must be are they slowing arrival of sub assemblies because of congestion at TLS or is it due to a more fundamental problem at sub assembly level.
The principle of stop and fix rather than accept travelled work will have the potential to do this but tranche 3 aircraft should reduce the amount of rework.
I am surprised that seats are such an issue given that after the a380 customisation fiasco Airbus limited customer choice to a relatively constrained number of options.
I think Airbus is happy to have the A330NEO, it creates some fresh air in the backlog. Customer switching from A350 to A330NEO enable them to re-order slots.
Contrary to Boeing who where forced to move the 800 Dreamliners back backward several times, several years. With all the compensation attached.
I wonder if Airbus has a renewed long term A330 strategy. It proves continued popular airframe, with an established mature supply chain and even room for further enhancements, a new cabin outfitting line, additional engine types, maybe even new versions such a MRTT NEO, A330-800/900F NEO, A330-1000NEO? ..
http://i191.photobucket.com/albums/z160/keesje_pics/Airbus%20A330-1000%20NEO%20stretch_zps8eis98aq.jpg
:’-D I like the A330neo-1000. Isn’t it a warm-up of your 2008 A330-400 proposal (http://www.airliners.net/aviation-forums/tech_ops/read.main/218686/)? Wouldn’t it be a A350-900R competition with a more suitable wing for regional duties but an heavier airframe?
Anyway, I like it 🙂 Thing about a A340-600TEO (twin engine option) 😉 http://www.airliners.net/aviation-forums/general_aviation/read.main/1637549/
You gotta give it Airbus by concepting the whole NEO idea/continual improvement of ‘proven’ products as a way ahead.
NEW programs are just SOOOO expensive, delayed, & cumbersome. Airbus has the benefit here, I believe, in that their a320/330 platforms as they have the cabin widths/bellies that last… for some time I believe.
Once the a350 gets up and running it has the dimensions to be improved, as does the a380 [in the longer term].
It’s nothing new Fergal Boeing did it in the 80’s with the Next Generation 737s.
Doing a new plane but keeping the wingbolts and certification from the old model is’t really what I’d deem “continuous improvements”. Boeing seems to be set on “step revamps”.
Even the Jurassic to Classic resizing and engine upgrade is much more than a NEO style improvement.
Already rather involved as engines changes go
but it lacked potential so the NG had to step in.
Hey Wilson,
The point I was making was more about having the ‘right dimensions’ on their platforms so that they can be NEO’d i.e. Cabin width/belly space/ground clearance.
I think the 737 MAXing and previous reengining in the 80s/90s has left boeing with a relatively tight cabin/platform that likely needs replacing sooner than airbus’s. The a320/330/350 all have pretty high and wide fuselages, allowing for larger fans, eider seats (or aisles), bags etc… Which better fit the longer haul ‘today’ market than perhaps the older boeing platforms… Which suit shorter flights.
I remember pushing A330NEO over the last decade ago (& MAX, NEO, 777X).
An A330-1000 reasonable stretch might be a real attractive machine though, head to head with the 787-10 for lower prices, but more comfort & commonality. It would fully utilize its large strong wing.
If the A350 remains sold out for the next 7 years, why not?
http://i191.photobucket.com/albums/z160/keesje_pics/A330-1000NEO_zps2knsfdau.jpg
The A339-1000 is an interesting idea, @keesje. Letting the extension come at the cost of reduced range just like the 787-10.
Maybe the A340-500/600 frame extensions to could the used? The A330 and A340 were after all basically the same frame with different engines and were produced at the same FAL.
keesje:
You are trying to outdo OV99, this is the real world where things don’t occur just for the sake of some photo chopping.
Why in the world would airbus to an A330 NEO F when they can’t sell the current model?
Another aircraft manufacturer is floding the market with cheap freighters to keep a relevant production line open for another project.
Airbus will still sell A330 after the last KC-45 was delivered to USAF.
Do not underestimate the difficult in managing a production ramp-up, as the supply chain is very extensive. i.e A sub-tier assembly may be slowed, by sub-sub tier which is in turn slowed by a sub-sub-sub tier etc..
Whilst the Cabin suppliers are singled out as the culprit in the first instance, the reality is that there are likely to be many other suppliers lagging (just) behind them. They are conveniently spared the humiliation, but at the end of the day every supplier (sub-tier, sub-sub tier etc.) needs to meet the required production rate before the Aircraft can achieve it’s intended delivery rate.
The benefit of the customisation on A350, was to prevent changes in the Cabin world cascading into the Aerostructure world – which has a long lead time as it is the start of the process. This was essentially achieved by fixing the interfaces or at least the total number of interfaces.
I believe the effect we are seeing is due to the airline wishing to differentiate their offering in the cabin, by request the cabin suppliers customise their seats but meet the same interface to the Aerostructure.
Also don’t forget the shear number of seats that need to be manufactured each month at relatively low rates (e.g. 5 per month for a Qatar cabin) would be broken down as follows:
Business Class = 36*5 = 180 per month (6 every day)
Economy Class = 247*5 = 1,235 per month (41 every day).
Quite a production line even at rate 5.
Hi FT
see the response to Bob. I have followed the production of both 787 and A350 in detail. Airbus has rework being part of the FAL but the scheduled rework is going down drastically before MSN20. Deliveries of CFRP panels etc has been troublesome especially from Aerotec (ex Airbus) Augsburg but it seems the rears section panels are now flowing as they should. In general the front of the FAL works to plan, the final part does not for the reasons mentioned.
“Airbus are prompt to point at sub-contractors (namely, cabin systems vendors, etc)”
Do they, really?
Afaics Airbus has been pretty mum on supplier issues
except for the over the top cases where they had to buy out some entities.
Even the delay reasons for the FAL squatters is only secondary or tertiary information.
The supply chain issues for some cabin products are entirely real, I can assure you from the customer end.
Hi Roberg.
“The supply chain issues for some cabin products are entirely real, ..”
That is completely uncontested.
Still “Airbus are prompt to point at sub-contractors (namely, cabin systems vendors, etc)” as F. Traveller wrote as an act of shifting blame hasn’t happened and thus doesn’t fit reality.
How does Airbus actually expect to ameliorate this problem?
( and is it a manufacturing capacity problem or a quality problem that induces rework cycles ?)
“Clark, is quoted as having said “it takes them forever to get this thing up.” He was talking about the Airbus A350 production rate and his reasons for delaying Emirates’ decision on what to buy for the airlines medium range needs. Clark said Emirates wants more aircraft in operational use before they can evaluate the operational characteristics of the A350.”
This isn’t a technical discussion at all. Will he wait for 30 787-10s in the air too, to make a comparison? Non sense.
I think Clark has to accept the A350 is not the A380 or the 777X. On those two types EK is the dominant buyer that pulls the strings. EK cancelled the A350 last year and must hope Airbus didn’t fill all the slots meanwhile. His fleet planners probably were probably pissed the A350 was cancelled in the first place & now Clark is in a role that doesn’t suit him.
“We changed our mind , sorry for last year, we know you have 850 machine placed with our competitors, the 787-10 doesn’t have the desert muscles and the 777-8 is excellent, for very long flights. Can you give us a good XWB deal anyway, please?”
“sorry” and “please” are not words Emirates has been using over the last decade, and they’ll throw in the A380NEO, but still.. when Clark calls Leahy, the phone goes over 4 times before being picked up.
http://www.reuters.com/article/2014/06/11/us-airbus-group-emirates-idUSKBN0EM0M120140611
keeje:
787-10 is a mature product as it uses the same stuff the rest of the 787s do. Spurious point.
The rest is close enough though, will see.
On the other hand the A380 front looks to be moving to when RR offers the GTF (assuming the thing ever occurs as they will have shut the line down by then! (Grin, i.e. not enough orders to fill the production gap)
https://www.flightglobal.com/news/articles/airbus-chief-2022-too-early-for-a380neo-debut-419320/
787-10 is a mature product as it uses the same stuff the rest of the 787s do. Spurious point.
It cleared CDR a few months ago and have first flight in 2 years. A Mature product by nobody’s definition. It doesn’t even exist yet.
Why would Rolls offer a new GTF for the 70,000lb engine when they have the three shaft Trent family. Remember the third shaft drives the front fan at its optimum speed, something its two shaft competitors dont have.
A 3 shaft fan at the thrust levels of the P&W GTF wasnt practical, so good on them for making the next best thing work on a 2 shaft engine.
The RB211 and its successors were in the 40,000lb -60,000lb+ category ( some derating excluded)
That isn’t what the GTF does.
The GTF solution inlinks Fan speed from LP speed.
( and thus blade tip speeds which on a non GTF Fan
increases LP diameter proportional to Fan diameter.)
That doesnt make much sense. The front fan on the Trent series has its own LP turbine. Thats what a 3 shaft design is all about. There are other advantages as well, especially when you think of the power required to drive a very large front fan.
Which is the same as what I think you want to say the GTF ‘delinks’ the fan speed from the LP turbine.
In reality the GTF has just- and I mean just- moved up from the 15K thrust level to the 30+K level.
It may be some time before the technology goes up to 60K thrust. meanwhile 3 shaft Trent designs are in service at the 100K level, but its likely that RR will be first with a 3 stage GTF
Heres the turbine speeds for the Trent 1000 ( 787)
LP (inc fan blades) – 2700rpm
IP – 8200rpm
HP core (the workhorse) – 13700rpm
And the same numbers for the PW 1127G
HP- 18-20K
IP- 10.5K
LP- ( fan) 3.5k
These are estimates from TheFlyingengineer.
Because of the huge size differences they are not totally comparable to Trent 1000 . but you get the picture
3.5krmp is the fanspeed at the front.
the gearbox translates that to 3 * 3.5 ~10k low turbine speed
at the rear.
Fanspeed is limited by the blade tips going sonic.
efficient power extraction needs higher rpm ( or simpler expressed the outflow volume has to be traversed by enough
blades to extract sufficient power.
This is achieved by either a small high rpm turbine or a large diameter low rpm turbine.
to add:
IAE/PW GTF: N1 = 10k (turbine side translates to 3.3krpm for the fan), rpm N2 = 22.2k rpm
https://easa.europa.eu/system/files/dfu/EASA%20TCDS%20IM.E.093_issue01_20153010_1.0.pdf
CFM Leap: N1 = 3.9 krpm, N2 = 19.4 krpm
https://easa.europa.eu/system/files/dfu/EASA%20E%20110%20TCDS%20Issue%2001%20LEAP-1A_LEAP1C_20152011_1.0.pdf
Interesting that its IAE – which is mostly PW now has type certificate.
So now its P&W, MTU, Jaeco , it will be a bit of a shift to call it IAE GTF !
But you can see looking at the bigger diameter RR Trent 1000 that they need to get the front fan to 2700 rpm max speed to keep tip speeds lower
““sorry” and “please” are not words Emirates has been using over the last decade, and they’ll throw in the A380NEO, but still.. when Clark calls Leahy, the phone goes over 4 times before being picked up.”
Should they apologise for single handily keeping the 380 alive? And no salesman let’s a call from Clark hit the second ring!
It isn’t clear to me if the airframes taking longer are doing so because they get held up waiting (ie not being worked on), or because the work on them is taking longer. In the case of the former, there must be limited amounts of storage space for partially assembled airframes. In the case of the latter, that leaves fewer workers for the other airframes.
I’m also curious as to why the airframers are responsible for installing the interior fittings. Do they get paid to the work, and paid more for more complex work?
This is an excellent question! Does someone have an answer?
Why do the airframers do the cabin fitting? Does it require expertise or aircraft-specific knowledge that only they have? Or is it work that earns them high margins? Else couldn’t they outsource that part of the work or not get involved at all?
Whilst, I cannot offer an answer to the specific question – you may find this document rather informative:
http://www.aircraftmonitor.com/uploads/1/5/9/9/15993320/commercial_aspects_of_aircraft_customization___v1.pdf
I assume it is because, at the end of the day you buy aircraft from Airbus, Boeing, Bombardier, Embracer etc. rather than a collection of bits.
Thank you Arc… very rich and interesting article on customization!
Cheers,
Nicolas
If you take todays monthly production rates of all airliners from A and B, you are in need of over a quarter million seats every year! So, no wonder there are temporary difficulties on the cabin and seat manufacturers side.
Exactly!
Though to appreciate the challenge one step further, we should need to understand how many unique type (part number) of seats are required, and level of part commonality between these unique types.
I suspect there is high degree of part commonality between economy seats between airlines – but they nevertheless require at least one unique part number per aircraft type owing to the colour scheme.
I suspect there is greater product differentiation (hence loss of commonality) for the business and first class seats.
Anyone familiar with this part of this industry hazard provide any further information ?
Can Airbus deliver 100 A350 in 2018? Will they deliver 14 per month in 2020? Time will tell how well they can tune their production systems. The customer demand for these numbers is a given, right?
It is a race to see who can offer slots and its very clear that the 787 program will win this , even with all the countless fastener, battery, you-name- it issues that plagued Boeing early on. With 2 assembly lines, the 787 will start securing more orders, more quickly.
What orders???
Start with Norwegian for delivery in just over two years.
its actually ~75 nett orders in the last 2 years.
But shouldn’t the Dreamliner sell much better than the outclassed A330 ?
The backlog is contracting with deliveries at 10/month.
But Boeing must be able to sustain a backlog with expected 14frames per month rate in sight.
with 75 frames sold in 2 years and production at 10/month they are outproducing that 3:1. come 14 frames a month it is 1:4++.
I believe it’s 94 sold for 2014-15, regardless it continues to outsell the brand new 350 which is at a negative 25 orders during that span.
When do you expect this to become visible ?
The WB sale-o-meter is indeed closely linked to the throughput-o-meter. @ Boeing we have N1 x 773 per month (adjustments to slower pace are being made) to which we can add N2 x 787 per month (ramp-up ongoing). In the rival camp, we have N’1 x A333 per month (steady throughput confortable after Chinese A333R CEO ?) – with phase-over to A333 NEO round the corner – plus N’2 x A359 (ramp-up not meeting expectations ?). Both flows to be assessed vs backlogs ? The market can more than absorb both throughput flows combined. Morale : Airbus will flare the “lanterne rouge” for WB business vs Boeing, unless John can correct the handicap of the defective A350 ramp-up with additional A330 CEO/NEO sales + deliveries early up, say, in 2017 + 2018 + 2019 ?
As Jokers, we may want to consider non-paxliner business, namely A333 MRTT + A332F, vs 767 tankers + 767F + 777F … again we note a relative advantage for Boeing, for lack of resolution @ Airbus top level, not giving full support to Andreas Herrmann : the poor man is virtually deprived of slots he can sell – non-pax business is the 5th wheel of Airbus’ car ? The better A380 position vs 748 in the VLA segment will not save the day … fortunately, John has his A321LR trumf card on his hand !!
Airbus is filling the supply chain / assembly line XWB production. There’s no terrible teens, there’s a rock solid customer base and is seem production planning will be ~ met.
Meanwhile the A330 line is filled for the coming years, A330 NEO will keep putting pressure on the 787 and provides an attractive successor for 1000 A330s in operation. It might right pass 787 sales since launch soon.. And that was expected by Nobody a decade ago.
Boeing has to get 777-300ER orders fast to fill a gap. The 777x will be there in 4-5 years. 777X sales have been low since EK ordered 150 2 years ago.
As market saturation with longer range A330, 787, and A350 becomes a reality, the 777 and 777x partly suffer the same fat as 747 and A380, too big to be flexible except for major trunk routes.
“Meanwhile the A330 line is filled for the coming years, A330 NEO will keep putting pressure on the 787 and provides an attractive successor for 1000 A330s in operation. It might right pass 787 sales since launch soon.”
Are you referring to the 330neo maybe surpassing the 787 in sales?
I would guess he is referring to total sales of A330 and 787 (all models) counted from the date that Boeing started excepting orders for the 787.
In the timeframe that both A330 and 787 has been up for sale, the 787 has sold slightly better than the A330. As I understand it, @keesje thinks that this might change when the A330 gets a new engine option. There is a large fleet of in-service A330 that needs replacement in the coming years. Will the airliners replace them with A330neo or 787s?
Hi Meg
You mention the large in service fleet of A330s, wouldn’t it be fair to say a lot of those have been delivered in relatively recent times and as such they would only be up for replacement if such things as fuel costs become prohibitive again. What sort of replacement cycle (years) do you envisage for such an aircraft?
“wouldn’t it be fair to say”….
– Yes, I agree.
By “coming years” I meant a few years after EIS of the A330neo. That would be almost 30 years since the first A330 was delivered. At that time we will start seeing the early A330ceo being ready for replacement, and lets not forget that there are still several hundred A300 still flying, which might be replaced by a A330neo sooner than that.
Off topic : the A320NEO with PW engines to get its EASA certification next week (probably on Tuesday) according to a french newspaper. The FAA certification should follow a few days later.
http://www.latribune.fr/entreprises-finance/industrie/aeronautique-defense/l-airbus-a320-neo-obtient-sa-certification-524428.html
fate
A month ago Delta’s Anderson said 10 yr old 777s could be had for 410 mln
Leeham checked and confirmed. The Boeing camp and Boeing CEO Dennis Muilenburg suggested the Delta chief’s valuation was off-base. New 777s sold for $170 million 10 years ago. “I’ll say just based on our understanding of the marketplace and what we understand from our customers, that number is the wrong order of magnitude,” Muilenburg said. “And, frankly, the value of the 777 is holding up very well in the marketplace. It is a unique airplane.
Anderson apparently doesn’t like being sidelined as being off base and presenting wrong numbers. So he gives away who offered him a 777 for $10 mln. :/
http://www.bloomberg.com/news/articles/2015-11-20/delta-says-boeing-made-offer-in-flap-over-10-million-777-price?cmpid=yhoo.headline
Boeing has sold 18 777-300ER this year, 10 United, 5 unidentified, and 3 Swiss. With cheap used aircraft, there is lots of downward pressure on older model aircraft. Realistically, the sales of 777-300ER may be over except for a few dozen.
Which is amazing knowing the success these capable and efficient aircraft had since they first entered service in 2004..
Is there a bit of a ‘rate rigging’ around the prices of used wide bodies?
We know its in a lot of peoples interest to say these planes are still worth around a quarter of the their original selling price.
The genie is out of the bottle now and its more realistic to think of well under 10% ? After all Delta is the one major airline that has a real interest in used.
Boeing has spent much effort on sexing up values.
They’ve carefully crafted an assayer culture around this to achieve high value retention. ( Less to the advantage of airlines. The beneficiaries are the leasing companies ) .
Anderson has trashed this system soundly by publishing “real” values. Starting with the most glorious 777.
Rocking the boat in this lockstep system is not acceptable 🙂
Expect this to rub off onto the NB markets and deflate pricing for 737 to fit in with the other market participants.
Hmmm, could we compare this in a way to the overstated profits that program accounting hands to Boeing?
I am not sure how much stock to put into what Richard Anderson says.
He has been known to say some pretty outlandish things.
http://www.ibtimes.com/delta-ceo-richard-anderson-links-gulf-airlines-emirates-etihad-911-attacks-1819378
Anderson has backed some really high profile failures such as the long standing campaign against the U.S. Export Import Bank which is being renewed. I would hope someone at his level would realize Delta is no match in Washington D.C. for GE and Boeing. Perhaps it is time for Delta to put him out to pasture. I would imagine an up and comer executive like Glen Hauenstein would be much more effective and less likely to be distracted by side shows.
Airliners – as for any other intermediate industrial product – ought to be priced the equivalent of from 14 to 26 months’ worth of in-service chiffre d’affaires (sales turn-over ?) achieved when running said product industrially. Here : in scheduled passenger line service. We can easily calculate the “normal” price that Airbus or Boeing are founded to charge, take a 777 @ 350 seats, two flights/day, 28 days/month, cabin load factor 79 %, average ticket price 1,200 $ … we get
2 x 28 x 350 x 0.79 x 1,200 $ x (1- 14; 2- 26) = 1- 260 M$ ; 2- 520 M$
Typical “fair” price = 350 M$ fully acceptable to Operators (discuss ?)
Frequent Traveller,
Interesting perspective. 2 remarks:
1) I’m afraid your assumption of $1200 average ticket price is much too high. In this analysis you must use average *segment revenue* (i.e. net fare earned by airline). If an average passenger pays $1200 for a long haul ticket, then to estimate segment revenue you must:
—divide by 2 to get to one-way
–remove the proportion of the fare related to a connection (e.g. if someone flies from Paris to Jakarta via Singapore, some portion of the fare must be allocated to the Singapore-Jakarta segment)
–remove commissions (if any)
–remove 3rd party taxes
From the days I used to work in airline revenue management, average segment revenue on long hauls was much closer to $600-700
2) More broadly, your rule of thumb of 14-26 months is great to conduct backward looking, back-of-the-envelope estimates of the *likely* price. But it can’t be a rule of thumb to guide pricing policy. In other words, there’s no business rule that says “good pricing = 14-26 months of turnover”, only backward analysis that says “typical pricing = 14-26 months of turnover.” For all we know, commercial aircraft may not follow this rule of thumb, even though they are intermediate industrial products
Nicolas
@ Nicolas : thanks for the light you’ve shed on factual per ticket revenue numbers … what I meant to point out is that Boeing behave irrationally when offering used 772 @ 10 M$ apiece, be it only to fill up holes in the targetted Customer’s fleet planning to avoid Airbus gaining terrain ? Airlines never forget the lowest bid available in the market, Boeing are pervading the resilience of their own marketing position, shooting themselves in the foot, raising a misperception concerning product quality, It is an unnecessary anticommercial approach, leading nowhere except to artificial – selfinduced – 772 residual value deterioration with negative repercussions for 777 Series credibility in the long term … ?
Well, the 787 is hardly an example of a well run program. Digging out of the hole of incomplete development took much work.
Last I noticed, Boeing executives still did not understand what they did wrong (and how they and competent suppliers were let down by incompetent suppliers or worse).