Pontifications: Time to calm down from last week’s news cycle

Hamilton ATR

By Scott Hamilton

June 27, 2016, © Leeham Co.: Last week turned out to be one of the busiest in aviation in quite some time.

  • Details of the Iran Air Boeing “order” emerged. Everyone overlooks that this is really a “Memorandum of Agreement,” which is subject to who-knows-how-many contingencies.
  • Frothing occurred over news that Volga Dnepr (Air Bridge Cargo) may firm up 10 orders for the 747-8F, an MOU announced at the Paris Air Show last year, at this year’s Farnborough Air Show. This, along with the Iran Air “deal,” was viewed as savior for the 777 Classic and 747-8 lines. Not so fast.
  • Southwest Airlines announced it’s deferring 67 Boeing 737 MAX deliveries until well into the next decade. This prompted some to claim this is a harbinger of bad things to come for Boeing.
  • Brexit was viewed as a disaster for the global economy, Airbus, Boeing, Europe’s airlines and all mankind.

As you can see from my sarcasm, I disagree with each of these. Here’s why.

Iran Air

747_777 Gap June 2016

Boeing’s 747-8 and 777 Classic production gaps. Click on image to enlarge.

As LNC reported Friday behind our paywall, these chickens haven’t hatched yet. Deliveries of the aircraft stretch to 2025, according to one report, but specific details haven’t been forthcoming. Given that Iran Air also agreed to buy 118 Airbuses, including the A350-1000 and A380, the 218 airplanes between the two companies is a lot to assimilate into the fleet.

The 15 777-300ERs won’t fill Boeing’s production gap between 2017-2020. There are only four 747-8s in the deal. Considering production is only six a year going forward, and next year has a gap of three, theoretically the Iran Air deal could fill the gap in 2017. But it’s unlikely. All the contingencies may not be fulfilled for months (if at all, if some Republicans have their way in Congress). If these are passenger airplanes, it’s too late to order Buyer Furnished Equipment for next year, and barely enough time for 2018. If these are freighters, production for 2017 should be underway now. So I doubt there are 2017 delivery slots involved.

In 2018, there is now one 747-8F to an unidentified customer listed in the Ascend data base scheduled for delivery. This leaves five slots. It’s doubtful Iran Air would take all four 747-8s in one year, though it could. But then there are the A380s (six of them) to consider. When do these figure to deliver? This isn’t known.

So Iran Air is not the savior.

Volga Dnepr

Neither is Volga. Bloomberg first broke the news on June 20 that Volga may firm up 10 orders at Farnborough. But this deal still won’t fill the production line, even at

Photo: Air Bridge Cargo.

the reduced rate, if previously announced delivery plans remain in place.

When the MOU was announced at Paris for “up to” 20 747-8Fs, Volga said deliveries would be spread over seven years. If these were evenly spread, this is 3/yr (and one year of two). Volga took delivery of two white tails in November. Bloomberg reports that Volga confirmed it’s the customer for two Undisclosed orders announced this year. Another white tail has already been painted in Air Bridge Cargo colors, a Volga unit. White tails, of course, don’t add to new-build production.

A problem for Volga: it’s relied in the past on ExIm Bank financing. ExIm remains closed to deals of more than $10m. So no ExIm.

Boeing Capital Corp. provided some interim financing on 747-8Fs last year, but Chicago is limiting BCC’s ability to do big deals. So

Anyway, the gushing that Iran Air and Volga solve Boeing’s production gap issues are wishful thinking.

Southwest Airlines

Southwest often juggles deliveries here and there, but a wholesale deferral of 67 airplanes is unusual. One Wall Street analyst took this to be a bad sign for the program. This is overblown. There are a lot of other factors involved in this decision, some of which airline officials talked about Thursday when this was announced at an investors day and some which have not been.

This will be a topic of a stand-alone post in the not too distant future.

Brexit

The British advisory vote to exit the Europe Union and the announcement by Prime Minister David Cameron sent global stocks swooning and the steepest dive in the British Pound in something like 30 years. The next Great Depression is around the corner! Airbus and Boeing, along with their suppliers are doomed!

Well, not really.

First, the government doesn’t have to exit the EU because of the vote, although it would be stupid not to follow the results of the advisory vote (stupidity not being beyond the realm of possibility, I’ll admit).

However, negotiating the exit will likely take several years. During this time, any replacement agreements needed for the aerospace and airline industries will almost certainly be negotiated. I haven’t the least concerns for Airbus, Boeing or the supply chain to successfully navigate through this. It’s not as if today we woke up and the EU was one member fewer.

 

113 Comments on “Pontifications: Time to calm down from last week’s news cycle

  1. I think this Brexit issue is going to open up a whole can of worms, both in the real world and here in the comments section.
    There is going to be a lot of strategies practiced by both sides in the coming months.

    Personally, I don’t see the EU granting Great Britain access to the single market without GB agreeing to free movement of people. That being the point that put the leave group over the top, it would be quite a contentious decision to do so.

    I hope we can all remain civil about this.

  2. BREXIT:
    Scott, just a small addition as I was flooded with reporting on the BREXIT. You are right regarding the fact that the popular vote doesn’t automatically start the process (and seeing the political turmoil in Britain I think there might even be a BREXITEXIT). When started, there are two years time (that is fact). If no agreement is reached, Britain leaves “without special arrangements”, which effectively puts Britain in the same league as Bukina Faso regarding access to the EU market.
    A BREXIT would have a serious effect on British research. Currently UK gets close to 1 Billion EUR in research funding by EU, and the British government has reduced its own spending. Companies like Rolls Royce could lose this source, and might shift more research related jobs into continental Europe (same applies for Airbus, other aerospace companies; BREXIT surely doesn’t help aerospace).

    • This really shouldn’t make any difference Britain can just give research money to companies without needing to pass the money through the EU first.Even better don’t tax Rolls Royce so much in the first place.
      The problem at the moment, is that the political system has gone into a (hopefully temporary) meltdown. Not a very good negotiating position.

      • I dunno.

        I’d be quite happy if it melted down forever and a system that actually functioned was put in place instead.

        [A good start would be to ban anyone without 15+ years of experience in private industry from being allowed to be an MP.]

        • I’d have to agree, most young politians seem to have come more or less straight from university. All are now having to admit that they haven’t got a clue what to do now.
          Despite being capitalists, much the same can be said of the city

          • It may look as if the career path for prospective Tory PMs is through an Oxford Union Presidency and/or membership of the Bullingdon Club.

    • ” When started, there are two years time (that is fact). If no agreement is reached, Britain leaves “without special arrangements”, which effectively puts Britain in the same league as Bukina Faso regarding access to the EU market.”

      An agreement will be reached because unlike Bukina Faso the EU could not afford to lose the UK market The pain works both ways.

      • You are missing the importance for the rest of the EU. A lot of nationalist movements in European politics now that threaten the union. EU will want to make it very undesirable to leave, so I doubt if UK will see a good deal if they leave.

        • All of which have EU currency and hence can’t just leave.

          Keep calm, carry on.

    • Schorch:

      Lets call it Re-Brexit

      Also note there is a possibility Scotland can veto that decision as not part of the incorporation. Some interesting stuff in play there.

      In addition Parliament has to take into consideration Scotland’s position and that could indeed be reason to not accept the advisory vote.

      A lot to play out including status per Switzerland and Norway that changes not a whole lot.

      US stto9kc market went up 200+ points based on the false positive to stay vote (they sure missed that) and then down 600+ for a real swing of 400 (not great of course but not as bad as it looks.

      Calm down, take a deep breath, the world may end but this is not it.

      • “Lets call it Re-Brexit

        Also note there is a possibility Scotland can veto that decision as not part of the incorporation”

        It cant. Rhe Scottish parliament doesnt have the power to do that. The only way would be for Scotland to be granted independence without even an election and break the sovereign constitutional rules of both the EU nd the UK. i.e by criminal intervention

        • Hmm, there seems to be a lot of legal opinion that ranges from yes they can to no they can’t.

          Not something we will solve here, but there is a lot in play and lets not say no when we don’t know how it will fall out, including another Scottish election and we know how that would go.

      • You are forgetting N Ireland, they have a lot at risk here as open border with Republic is a condition of their peace agreement.

        • No I am not. NL, Whales, England and Scotland all make up the UK and they are all in play (Whales have voted to leave but will also suffer major investment loss)

          I just listed the most interesting ones to surface so far.

    • “and seeing the political turmoil in Britain I think there might even be a BREXITEXIT”

      I doubt that. Ireland was forced to vote twice on Lisbon. This woukd be the final nail that would expose the EU as a complete fascist bully in the extreme qnd lead to mass revolts and mass bitter break up and exodus from the EU

      • “and seeing the political turmoil in Britain I think there might even be a BREXITEXIT”

        hehe, chicken coop
        If in trouble or in doubt flap your arms, run in circles and scream about… 🙂

  3. Without giving an judgement, I have the impression uninformed, frustrated voters, over the edge miss-information combined with flag waving played a significant role. BREXIT voters are mostly older, less educated and from England (except London). The older scared generation went voting, youngster stayed home & are in shock now. Are see some clear parallels to the Trump successes in the US.

    I expect in the next UK elections parties will take a firm position and if they get elected w’ll see.

    https://next.ft.com/content/95e8a908-39e5-11e6-9a05-82a9b15a8ee7

    • There are LOTS of specific reasons the vote went the way it did, depending on individual circumstance, but it definitely is not “The older scared generation went voting, youngster stayed home & are in shock now”. Turnout was very high among all groups everywhere. The key common reason underlying the immigration, austerity etc etc issues though is a feeling of disenfranchisement and this was geography led. Look at the stark break point at the eastern England/Scotland border. The result may also have skewed one way or another by voter eligibility (UK citizens who have lived outside the UK for more than 15 years were not eligible, Commonwealth – not all – and Irish citizens lving in the UK were.) but what is clear is that if this result had occured in a national General Election there would be a hung parliament, resulting in either a new vote or a coalition. So it seems odd that such a very close vote could (right now seems probably will, otherwise the sense of disenfranchisement grows) simply be accepted as is.

      As a further aside the Swiss, through their direct democracy system, just recently voted against a specifci free movement of people. The Swiss governmnet is ‘required’ to enact this but if they do the EU will ‘guillotine’ all of the CH-EU bilateral agreements.

      And so, back to aviation. Do you think Scott that Iran Air could actually be playing a negotiating tactic with Airbus and Boeing, both for financial and political reasons? Eventually end up with only the A380 or only the 747 and so on down the line.

      • I think Iran will take deliveries this year. The first of 27 A330CEO’s will appear soon offering A343/346 commonality.

        There’s a lot of US content on the Airbusses Iran ordered. Government offices provide export licenses if Boeing gets order$ too. The badly needed (by Boeing) 747s fit in there.

      • @Woody

        Do you think Scott that Iran Air could actually be playing a negotiating tactic with Airbus and Boeing, both for financial and political reasons? Eventually end up with only the A380 or only the 747 and so on down the line.

        For political reasons and the need to have economic ties with Europe and US, I believe both orders will be taken up. I’m skeptical, however, that a country roughly the size of Alaska with a population about the size of Germany, far, far poorer demographics and a dangerous regmine can think it’s going to be able to follow the business models of Turkey and UAE need all those airplanes.

        • So, given that the economics of having such small fleets of disparate aircraft and (as things presently stand) a less stable environment to build a network from, can you see any commercial success coming from it? I’m struggling with this one. Simply feels to me that it must eventually pan out as a split by market segment rather than within. So, eg 737, A330, B747 or A320, 787/777, A380.

          • @Woody: Commercial success for state owned airlines is often a contradiction in terms. But it will benefit Airbus and Boeing.

          • So far 787 has not raised above 0 in public discussion, disclosures, leaks.

            Not that it can’t, but so far……

          • Part of this is aimed at politicians in US and EU. Small fleets of everything with parts etc sourced in as many places as possible is part of the plan, economics not so much.

          • I think you are generous to call it a plan.

            And the source thing breaks down as countries have been known to act regardless (Russian a prime example, all their pickup spoils have cost them huge amounts direct, no return and the cascade consequences have been huge as well)

            Certainly playing A and B off price wise.

            This as much smacks of opportunism by the airlines to try to get something (ask for more and get less)

            And ironically if it all came to be at full prices, half the returned so called seized assets would have been spent on Aircraft!)

        • “I’m skeptical, however, that a country roughly the size of Alaska with a population about the size of Germany, far, far poorer demographics and a dangerous regmine can think it’s going to be able to follow the business models of Turkey and UAE need all those airplanes.”

          It could be they are thinking that even the great satan would have a hard time grounding their fleet if they’ve a load of frames they can park up to cannibalise.

        • You are caught up in US propaganda.

          The only really dangerous entity is the US of A 🙂

    • Scared? Leaving the EU was a very brave move. In fact much braver than we imagined.

      • Brave? no Bravado maybe 🙂 Dunning/Kruger at its best.

        Brexit was voted for by the angsty lead on their nose rings forged from fear.
        i.e. a massively uneducated _and_ unthinking bunch.

        ( compare to the “Pegida”nista in Germany )

        • You cannot disparage all who voted out by assuming they fit into your stereotypes.

          I know very educated professionals who work in multi-national companies that voted out.

          I also know that inferring an out vote would lead to war in europe is trying to push people by fear to vote remain.

          Personally, I hope for a ground up restructuring of the EU – and that restructuring enables all countries (including UK) to clearly see the benefits and thus for all to be happy to be a part of it. For too long has business in Brussels been conducted in the shadows with the EU frequently over-reaching itself and intruding into matters without explaining the benefits of its intrusion and why it should be getting involved.

        • Oddly that is exactly the sort of attitude that led many vote leave.

          • IMHO that is a strong indication of “dumb squared”.

          • Maybe frustration?

            A lot of frustrated Americans will vote for Trump.

            Not because they think he is worth anything or believe anything he says, simply because the is not the same old same old.

            You keep seeing wealth accumulate at the top and then you have to decide it making it worse is really going to make it worse (and for whom?)

            Last valid I saw, 1% would change their vote and it still means exit.

            And don’t get me wrong, I neither think Trump is anything other than a disaster and this at the minimum is a blow, but I do understand the frustration.

    • “Without giving an judgement, I have the impression uninformed, frustrated voters, over the edge miss-information combined with flag waving played a significant role. BREXIT voters are mostly older, less educated and from England (except London). The older scared generation went voting, youngster stayed home & are in shock now. Are see some clear parallels to the Trump successes in the US.”

      Wow, for not giving a judgement that seems rather judgemental!

      • The offered statistics and
        the “Ups, not the desired outcome” repentitures from voters
        are rather telling, aren’t they?

        • Not really, what is telling is the rationalizationing going on now by the defeated side.

          • Keep in mind, its all in percentages.

            Its not like 100 of the less educated voted to exit, its the tendency was higher there.

            A lot of frustrated and angry people up and down the lines.

      • “The older scared generation went voting, youngster stayed home & are in shock now.”

        The youngsters did vote in great numbers, like the rest of the population. And they voted massively for the Remain. They were just outnumbered.

          • Yes, in all elections younger people do have a lower turnout. But in this election younger people went voting in great numbers, as your graph indicates (60-65%). The percentage might be lower than for older people (70-75%) but it was still much higher than in any other “election” where we normally see a much wider gap between younger and older people.

            My impression is that the younger people understood very well the importance of this referendum, and therefore I don’t think we can blame them for the results. What I found appalling though is that for two months the polls were clearly showing that the Leave vote was in the lead. It’s only after Jo Cox was murdered that the trend reversed. When I saw this I asked myself how long this reversing was going to last. Since we were then very close to the referendum date I was not sure if enough time would have elapsed on voting day to make people go back to their original position. It was too close for me to call. But the bookmakers and business analysts thought the Remain vote was going to prevail for sure. I remember asking myself “do they know something I don’t?” Well, I now know they didn’t.

        • Actually the % UK wide for remain among the youngest age group was something like 75%. But this is normal behaviour. In the UK (maybe other countries) a clear vote for the, I guess you might call it community, side (manifests as left of centre in traditional politics, liberalism in general) appears to be always the case. As people age they become more conservative. But the overwhelming driving factor in the referendum was disenfranchiesment and this was driven solidly simply by where that person lives. In a fast regenerating, full of oportunity ‘multicultural’ big city, often somewhere UK citizens have themselves migrated to, the overall vote was remain. Away from these and away from the South East especially, it was leave.

          • “But the overwhelming driving factor in the referendum was disenfranchiesment and this was driven solidly simply by where that person lives.”

            It is indeed very interesting to take a close look at the UK map to see where the people voted to remain and where they voted to leave. It’s the city versus the country; England and Wales versus Scotland and Northern Ireland; and there, Catholics versus Protestants. Not forgetting the youngsters versus the retirees. Before being British, let alone European, people are English, Scottish, Irish or Welsh. We now know that they don’t collectively want to remain in the EU, while individually some of them (Scotland and Northern Ireland) want to remain in the EU. The irony here is that they may end up not being part of the UK anymore while still being part of the EU! I think we owe a big thank you to David William Donald Cameron for this.

          • Woody: I was a republican and an NRA member when I was younger.

            I am neither now. Maybe that’s a bit too much of a blanket statement?

  4. Well BREXIT is a disaster for the UK and Europe and was a result of politicians playing games on all sides:

    The leave crew offered a viewpoint without any real consideration as to whether it could be achieved.
    The remain campaign was massively complacent and could not give a single positive of remaining
    The labour leadership (main opposition party) opted out of any ringing endorsement at all and left it to the conservatives to fight it out.

    I can’t believe that exit will happen in the manner it is being suggested as even the leave campaign has now become strangely muted. As it is it will overshadow Britain and Europe for years. Scotland will look to leave the UK and France and Germany (amongst others) will flirt with damaging the EU further.

    Rant over, will it affect the market for commercial aircraft? Well I believe it will trigger a loss of confidence globally that has been bubbling under the surface for months. Political risk in a major trading bloc of this magnitude helps no one. As such I expect the world economy to catch a cold and the aviation sector to be adversely affected.

    • Keep Calm and carry on.This famous poster was intended to be issued in the event of a Nazi invasion. I don’t think that we need panic now

    • “The remain campaign was massively complacent and could not give a single positive of remaining.”

      It’s hard to convince others when you don’t believe in it yourself. Jeremy Corbyn still refuses to say for which camp he voted. He has never been pro-european himself, so how could he have convinced British people to remain in the EU? But the real tragedy here is that this referendum was completely unnecessary in the first place. This may turn out to be the greatest political blunder in British history.

      • Much of the voters took the wide array of less visible / invisible benefits of the EU membership for granted.

        Now that cutting of those less visible / invisible benefits are on the agenda, those same people are asking themselves WTF is happening. (or “what did we do”? but quietly that one..)

        Boris Johnson and Nigel Farage are hiding / changing their story lines / denying responsibility.. I think they didn’t really expect this to happen.

        A warning for the folks voting Trump’s bold promises as a kind of protest against “them” (the invisible guys up there causing all your problems).

        • “Boris Johnson and Nigel Farage are hiding / changing their story lines / denying responsibility.. I think they didn’t really expect this to happen.”

          It looks like no clear winner emerges from this referendum. Actually I think almost everyone lost: the EU, the UK, London, Scotland, Northern Ireland, and the younger generation as a whole. The next elections will be interesting to watch because many politicians will not know what to say while others will offer drastic solutions. People are upset, and when people are upset they either don’t listen, or if they do they end up opting for the first alternative, whatever this might be, e.g., Donald Trump in the US.

          • The usual, when the going gets tough, the politicizations hide.

            I don’t know if I am comforted or depressed that is true world wide.

          • Overall the difference in numbers is that in 25 people 1 more voted leave than remain.
            Even in Scotland which was the highest % remain region, out of that 25 voters 6 more voted remain than leave.

          • Thank you, that puts it in some interesting perspective.

            It still means that in 100 people, 48 voted to stay and 52 voted to leave (we don’t want to be slicing and dicing people up so I am using whole numbers!

            That is a lot of lets leave when you add it up.

      • Whether this specific referendum at this specific time was necessary or not, the simple fact is that pressure has been building in many EU countries and needed a release. The referenda pre-Lisbon Treaty come to mind as a point that the release should have been recognised. Had the EU been managed/constructed with adequate non-destructive means to release pressures this sort of thing may have been avoided. A lesson to be learned for the reconstruction.

        • “Had the EU been managed/constructed with adequate non-destructive means to release pressures this sort of thing may have been avoided.”

          This may be the good side of this referendum, as it will force the EU to become more openminded and flexible.

          • The day that happens I have a bridge to buy in Brooklyn (US saying for no to be short though not accurate)

            First its outrage, then its finger pointing, these are politician we are talking about.

  5. If the “hair apparent” becomes President there will be no Boeing or Airbus for Iran unless they are second hand.He has spoken!!

    • He’ll build walls…. great walls with walkways on top so people can walk across seas and oceans.

  6. LNC: “However, negotiating the [Brexit] will likely take several years.”

    The longer this process will take the more it will hurt the economy. Markets don’t like uncertainty. The ongoing turmoil following the Brexit referendum is the last thing the world economy needed at this time. The climate of uncertainty that it created might linger for at least two years, the minimum time it will take for the administrative process to be completed. During this period it will be anything but “business as usual.” Earlier last week the world economy was already showing signs of a global slowdown, and Brexit can only make it worst. In order to have any significant impact on Airbus and Boeing though this situation would have to last for a prolong period of time. But I am afraid it will.

    • Difference between uncertainty and working thorough a process.

      No one is moving fast, markets will calm down.

      Oh that’s right, the markets looks well ahead (and other nonsense)

      • “No one is moving fast, markets will calm down.”

        Down is the key word here. They will probably get calmer, but will most likely remain down for the foreseeable future. London is not only a major European capital, it is also one of the most important financial capital of the world.

        On any given day markets are nervous and any bad news will send the world stock market down while a good rumour will help to bring it back up. But this dynamic does not apply in this case. We are not talking of a transitory event here. Brexit signifies the end of London as the main financial hub where all European transactions are handled. This was an immense privilege that London had been enjoying ever since the Big Bang (deregulation), and even before that. There were a lot of bad transactions (commercial paper) and cheating (LIBOR rates), but overall it has been a refuge for economic stability and efficiency. It was a big advantage for London to be the central hub for Europe. But what we see today is the potential dismantling of this financial structure. Many jobs will likely start to move to the Continent, and in many cases this will be an opportunity for some employees to return home, because many workers in London are from Europe.

        I hope it will stop there. But I am afraid a worst case scenario might push Great Britain to where it was before the Acts of Union of 1707 and 1801 if there is a new referendum in Scotland. For if Scotland leaves the Union Northern Ireland might follow suit. This is not political fiction. If I doubt Northern Ireland will ever reunite with the Republic of Ireland, I think the independence of Scotland is not only a possibility but also a probability.

        • So, with all that in play,

          Insanity will subside once all the ranting and raving is past the initial spike.

          And with something to hide behind it may get refuted (NI and Scotland aspects).

          There are something like 2.5 million signature to re-do the vote. That has to be considered if not acted on.

          Keep Calm, Carry on.

          • Lets see, we had a nuclear stand off with the Soviet Union for 60 years, markets were remarkably calm.

            You have to understand, there is a thing called “Normalizing Deviation”. Short version is it means we get used to a bad situation and get habituated to it so its seems normal.

            Bombing in WWII comes to mind (both sides)

            Nuclear standoff not to mention hundreds of thousand of troops across armed borders (Seoul South Korea being built under and in range of North Korean artillery)

            People are quite adapt bile in the oldest ways and situations.

  7. It should say a word immediately on the decision to Southwest. The 125 CSeries purchased by Delta change several airlines strategies and planning. We can already anticipate another great game of chess between them to make money on small margins. So, push as many planes over such a long period raises a lot of questions. The fact that one should keep in mind is this: in the history of Southwest, we have seen very little error related to the planning of its fleet of …
    http://www.investors.com/news/boeing-started-at-overweight-on-margin-expansions-commercial-demand-up/?ven=YahooCP&src=AURLLED&ven=yahoo

  8. It seems that a primary factor was the disconnect of all but one political party from the process. My background (and my relatives in the UK) is from Wales and it seems that there the Welsh political parties did nothing, regarding the event as nothing but a welcome civil war between Conservatives. Of course with nothing to contradict the inventions of the Leave it meant that Wales, the biggest recipient of EU aid, shot itself in its brain.

    • Yep, so we wait and see what falls out.

      Whales may joint Scotland and NI in changing the whole thing.

      Nothing will happen until Clause 50 is invoked.

      Of course there are no preliminary talks between UK and EU until that does (hmm, if we can talk to Russian we can’t talk amongst ourselves? really?

      Keep Calm, Carry On.

  9. I do think the SW situation is a Harbinger.

    Apparently they found 67 used that are good enough to defer 67 new. That means those 67 new will NOT be taken up for 15 years (depends on terms but no less I would think)

    That is going to have ripple affects.

    SW has to believe oil will be stable in the 40-70 range to buy used (foreseeable future)

    If SW being a blue chip does this, others will too.

    I suspect it will affect Airbus as well.

    Those backlogs are going to wobble a lot.

    • It’s not quite that simple. Southwest hasn’t been able to reach an agreement with its pilots to segment flying 737 Classic flying — as a result, it’s not willing to operate the remaining 737-300s alongside new MAX 8s. There’s no way that Southwest could have gotten enough new 737s in 2017 to replace over 100 Classics that need to be retired in the next 15 months. Hence turning to the used market to fill the gap…

      Southwest doesn’t plan to start retiring its 737-700s until they hit 25 years, which starts right at the beginning of 2023. But if oil goes past $100 in the next few years, I think it might exercise some MAX 8 options in 2021/2022 and move up some of those retirements.

      In any case, mid-aged 737-700s acquired today will hit retirement age in the late 2020s and will (almost certainly) be replaced with 737 MAX planes at that time. So I don’t really see this as a loss of orders: just a deferral. And that’s just fine by me: Boeing has no lack of 737 MAX orders for the first five years of production. The late 2020s time period is exactly when it will most need orders to keep the 737 lines busy.

      • “The late 2020s time period is exactly when it will most need orders to keep the 737 lines busy.”

        If I read this well it means you don’t expect a slowdown before 2025-2030, correct? For that is what “late 2020’s” means to me. In other words the 737 line is good for another 10 to 15 years before new orders will be “most needed”. But at the end of the same paragraph you also mention that “Boeing has no lack of 737 MAX orders for the first five years of production [2017-2022].” Which begs the following question: what will happen between 2022 and 2030? This is a fairly big production gap Adam! What I expect instead is a slow depletion of the order book as the number of new orders will likely be insufficient to replenish the backlog. I say this because the 737 MAX will already be obsolete before EIS, except for the MAX 8.

        But for now this is only number 3 priority for Boeing; number 2 is for the period when the 787 will likely be facing its own order book problems (production rates versus new orders); and number 1 is for the 777 Classic to 777-9 transition period. All happening one after the other in quick succession, more or less within the same timeframe. Therefore, early in the next decade we can expect to see Boeing scrambling for cash, showing lower revenues, cutting dividends, and a depreciated stock. Unless a flurry of new orders keeps coming in regularly as it did for the last ten years. But that is not what I expect for Boeing, nor for Airbus. For there is a World Recession in the works. They say that in bad times gold is a good refuge. That is my two cents advice Adam. For with an once of gold we will soon be able to buy quite a few Boeing shares.

        • Just a matter of cutting back on production.

          Well that and not buying back shares like a heroin addict.

  10. The UK is not a kind of a direct democracy as Switzerland. The parliament has to vote for leave.

    From a Swiss point of view the vote failed because the vote did not achieve a majority among the British Kantone (England, Wales, Northern Irland, Scotland and Gibraltar). The British politicians will notice this point some day.

    The Brexit will hurt the EU but will hurt the UK far more. Just leaving the EU and use the common market as before will not happen. If you want priviliges you have to pay.

  11. To unite behind the flag, maybe we need a common evil entity we can bravely attack, defending our values, interest and other good stuff. Been tried before over the ages, from the Romans to ISIS..

    • You should have pointed out the irony. Most of the time, you say really smart things, but this is not one of them. It’s nothing to joke about, not even to be mentioned as a faint possibility. ;-|

      • Well in reality we have the Russian bear stirring and ISIS.

        Usually that sort of thing is common to dictatorships (n. Korea, China) but out own DT is fear mongering.

        So maybe not such an outlandish notion after all.

  12. In further S.W. discussions, they take 67 (eventually) but defer another 67 and in affect never take the order.

    That does send a long term ripple through the single aisle chain and we are seeing the same in the wide body arena.

    People went crazy and now its starting to shake things.

  13. One thing missed in the Brexit discussion was talk earlier on by Boris and co that Britain could renew ties with the commonwealth. There are very large minorities in the UK from Australia, Bangladesh, India, Pakistan, West Indies, Hong Kong, South Africa etc. They will have formed a lot of the older voters who wanted to leave. Perhaps lost is how willing India etc are to closer ties with the UK.

    I see demands already for a new referendum. Under 18s are furious and UK risks a mass departure of younger working age people if they can find a way out. Causing much more economic damage than has already been assumed.

    • “I see demands already for a new referendum. Under 18s are furious and UK risks a mass departure of younger working age people if they can find a way out.”

      The problem is that there will soon no longer be a way out since Europe will eventually be closed for them. And that is precisely the reason the younger are so concerned by Brexit. Free movement works in both directions.

      • As I undersandt it, there were 330,000 legal movemnts ihnto the UK last year.

        That is socialy devasntating. US does not have anyting like that.

        So there is a concern and should be a control mechanism to stop that sort of disruption.

        Unfortunately the EU is a cobbled, hashed, political muck up that clunks along.

        Nothing like the nice clean American way of doing things of course!

        Maybe it is time for the top to think about the impact to the people on the lower rungs and give them consideration.

        Funny how all that money may not buy you a vote when you need it.

      • Free movement didnt work in both directions. The economic growth in UK ( no euro) meant it was overwelming towards Britain, the refugee/migrant camps at Calais would tell you that, and those that could do it legally werent leaving London for Paris or Lyon or Warsaw

        • The pile up of refugees on the borders to the UK means that
          these refugees don’t enter the destination country.
          ( i.e. They are a liability in France and not Brittain.)
          Everywhere else they are absorbed at their destination.

          Like the other colonial powers the UK has been a traditional
          immigration country ( predominantly from the Commonwealth )

          I’d look into the distribution of originating countries before making any final statement.
          Polish immingrants in the UK: Poland traditionally had much better relations to the UK than its neighbours.
          ( and there is a reason so many people in the “Ruhrpot” have names ending in “..ky” or adaptions and why a big hammer is called a “Mottek” the polish word for hammer there. Massive immigration influx to support industrialisation 100++ years ago.)

          My observation is that groups with the smaller percentile of foreigners make the most noise over these. In Hamburg most every body has no problems with “Ausländer” while people in Blankenese are up in arms.

      • As somebody who has lived in several countries there is always a way out for anybody who is worth employing. Maybe not to your first choice country but somewhere interesting.

        • Point ignored that there were 330,000 legal movement from EU to Britain.

          That has an impact on roads, schools, public services of all kinds.

          The only movement the US ever saw like that was the Oregon land rush (which impacted Native Americans)

          There does need to be remedial work outs done to stop sudden shifts.

          Amongst other things border controls also are a check (not a stop but a possibility in revealing terrorists and or plots

          • Percentage wise that is not dissimilar to what Australia takes every year an has been taking since before I was born. If it comes down to infrastructure you have to finance it with debt then pay it back over time with the increased GDP of your larger population.

            USA did it for years.

            What messes things up is an aging native population which refuses to work or….. NHS spending was one of the biggest issues here. Funnily enough the leave campaign used being able to increase it as a reason to leave, then walked that back the morning after the referendum. Fastest broken promise in electorial history.

          • I don’t say there are not unique situations. Supposedly that’s with concurrence of the populace.

            Having been through a couple of so called booms, its a mad scramble to keep up with services.

            Taxes keep going up to pay for them (not sure how they handle it over there, here its bonds).

            The price of your taxes only went up $11 last year, well that was one bond, there were 10 issued, so it went up 110 buck and that’s the 6th year in a row they have done so.

            And 330,000 even legal people moving in has a massive impact.

    • I am far from young (sadly) but the offer of 5 years in Singapore made last month has never seemed more appealing. It was 50/50 (ageing mum, wider family etc etc) now it is not. So job sorted, Irish passport in the post, and retirement to the south of France. Just one fly in the ointment my UK property was not sold quickly enough.

      I don’t care about brexit per se, what I know is that this uncertainty has destroyed the confidence of the city and likely its long term future. It could return but that relies on some basic certainties that will not be in place for at least 2 years and probably much longer.

      I understand so much of the many frustrations of those wanting to leave, it was complex and more about damning the professional political establishment for many. To suggest we keep calm and carry on is a bit trite in my way of thinking. Maybe I should sit back and listen to Vera Lynn (look it up)

      Scott, bjorn, if you are coming through Changi the first Singapore sling is on me.

      • Does anybody here remember Vera Lynn?
        Remember how she said that
        We would meet again
        Some sunny day?
        Vera! Vera!
        What has become of you?
        Does anybody else here
        Feel the way I do?

        Pink Floyd
        The Wall

      • have you forgotten the economic disaster of the euro over the past 3 years. That has had a far bigger impact than this and the Brits with their pound ( remember how they were once told it was very foolish to ‘go it alone’ and not join euro) just sailed merrily on.

        • If you follow the ups and downs of the British Pound it did not sail so well. When I first traveled to England the “new pence” was new and 10 of those were nearly worth 1 DM i.e. in todays currencies ~4+€ per Pound Sterling.

          Then, in view of buying power and for trade purposes the Euro was significantly overvalued in its high time past ( 1E beyond $1.30 ). For Airbus this has changed the profit situation much more than from what any efficiency initiative can achieve.

      • Sowerbob:

        For this hit, no, the Keep Calm Carry on does not cut it.

        That is for the rest of us, it does not change the immediate impact on those affected and for that you have my apology.

        And yes I know of what you speak, my wife and I have a house that has the vast majority of what we have been able to accumulate retirement money in.

        Our legislature have mis-managed (pissed away) gobs of money, now oil prices are low and they refuse to deal with the crisis (other than to fire everyone but themselves and their 100,000 a year aides)

        I am physically limited due to a work injury so a stateside move and another job are impossible (people don’t like to hire someone limited to 25 lbs) and we do not know where it all goes in the future.

        That said, we continue to do our best, keep as calm as we can and hope its not as bad as it might be, a slower moving Brexit as it were but still stuck.

  14. The UK have been the brake for the evolution of the EU since their entry. So go in peace my British friends and come back when you are ready for proper membership and the Euro.

    • I think the EU has been the brake for the evolution.

      Its too hashed and cobbled. You have Greece clinging on and Germany saying we won’t bail them out.

      There is a huge amount of cherry picking going on, as we say in the US, it really needs to do your business or get off the pot.

      If its not corrected there will be another crisis some day that tears it apart anyway.

      You can’t hash and cobble that stuff together and expect it to work. You have created a behemoth that wobbles and affects the whole world.

      Frankly it should never been implemented . Stupid people who don’t see the consequences of their actions.

      The world is stuck with it now (short of total disintegration and the blowout that would be) but the world would be vastly better off without it and trade agreements replacing it, each keeping and controlling their own currency, one wobbling would not take the whole thing down let alone world wide impact.

      Something to think about.

      Its presented as the only solut9ion and its not,

      • The EU is just the same kind of behemoth as the USA. For its early age the EU has come along way and achieved a lot. Please don’t forget that central Europe has been a place of war for the last couple thousand years.
        When you live in the US it is probably hard to understand how difficult live had been in this ancient assembly of small countries with all their different currencies, borders everywhere, different laws, protectionism everywhere,… without the EU Europe would not be the most beautiful place to live in on this planet today.
        Many people in the UK never really understood the important role the EU played for their economy and living standard to recover from the terrible 60s and early 70s after they joined the EU in 1973. But they will discover that soon enough, when and if they really break off. They actually already get a taste of that.

        • “… it is probably hard to understand how difficult [life] had been in this ancient assembly of small countries with all their different currencies, borders everywhere, different laws, protectionism everywhere …”

          I think it is extraordinary that over a relatively short period of time 19 countries have decided to abandon their own respective currency in favour of the Euro. It could be argued that the weakness of the Mark, caused by hyperinflation, may have indirectly led to WW2. And I remember the time when we needed to convert money into different currencies to travel from one country to another throughout Europe, all relatively short distances. This problem was solved by the adoption of the Euro by most European countries. They had a similar problem with electrical appliances, which required different adaptors, depending in which country they were used. This was also solved by the adoption of unique standard for Europe, which was based on the German electrical code (the most stringent in Europe at the time). They also spoke different languages, and in order to alleviate this problem they often use English as the communication language, while showing respect and accommodation for various European dialects. Since this is an aviation blog I need to mention a word about EASA, which allows the EU to certify any aircraft in the name of all member countries, including the UK. Unfortunately the British have always refused to abandon the Pound in favour of the Euro. They have also refused to change their electrical code. And of course they still drive on the “wrong” side of the road.

          Before the referendum the British people should have been told the following: BE CAREFUL WHAT YOU WISH FOR – You might get it!

          • Gundolf :

            I keep hearing that, I hear how the US is a nation of immigrants and we have to keep immigrating them in (rather than work on educating our already unemployed?) Really. Maybe something has changed, maybe is just repeated nonsense.

            Same arguments for Slavery, we just have to have it or….. or cheap Chinese labor or cheap Japanese labor or……

            Funny, every time that actually gets stopped, we figure out how to automate things and make them work.

            Maybe someone should actually back it up instead of just mouthing empty phrases.

            So, Europe had a 2ne WWII because the 1 WW countries that won beat the living daylights out of Germany with gross economic hammer. .

            Round two was worse and at leas the US saw how well that worked out.

            Round 3 did not happen because a more detached US said we did not want to see it again (if we had been as deeply involved I doubt we would have been detached, I am not saying we are something wonderful and pure, we are not)

            So the US imposed the rules because we were the only economy and military power left standing . No retaliation, a Marshal plan to get things going again and an entity that wanted to devour Western Europe as a threat.

            There was nothing that said you were going to have a major war again. Balkans things yes, those are peanuts (unless you are the one getting killed)

            What you have is elitist so called thinkers coming up with that sort of thing so impose their view of how things should be run. Its not backed up by any facts.

            We have a group called NEOCONS in this country, the do the same thing and are a menace (and have been for along time under different names)

            Of the 3 powers that had a capability to really serious warfare a ware, 2 of the three did not want to in WWII, the one that did had been pummeled into the ground but given a hand back up afterwards.

            Common currency? If you aren’t going to completely control the economies that can crash it you have GIS situation, and then Germany says we aren’t playing? Too bad, you go ahead and crash we are fine! How well did that play out.

            We have been dealing with Canada and Mexico forever. Currency is not an issue, its even less now with credit cards and auto exchange rates at the time of billing.

            We even paid cash for a purchase in Canada one time and their cash machines were setup to calculate the US dollar vs Candia dollars and meat out the right rate of exchange.

            You can have an open trading organization without having to be a union.

            Your currency situation is constantly imperiled as you have Greece and the like that are mucked up and Germany that does not want to pay the prices for all that prosperity.

            So maybe its time to re-think it. Maybe its about egotistical people saying we are as big and powerful as the other 3 economic blocks in the world and not abut anything else.

            Take what’s good, everyone goes back to their own currency and runs their own affairs.

            You don’t have the 2008 crisis all over again, and someday you will.

            One of these days one of those will spiral and then the whole things goes down.

            Thing outside the box they have put you in.

            Why do they get to define the boundaries?

            It an old political tactic to make the discussion on their terms, not reality.

      • When I first travelled to Europe 35 years ago, ouch, Most of the place was trying to imitate the USA because they couldn´t earn enough to remain happily European. The EU has allowed enough economic growth to check that while still remaining Greek/French/Germain etc.

        Looking at recent US events where Texas conservatives what to enforce their views on the whole USA, etc, I am not sure if the EU isnb

        • Somehow sent by accident. I´m trying to say the EU does better at letting it´s states express their individual preferences than the USA

          • First do not get me wrong, I am well aware of the issue the US has (maybe far more so than most).

            I admire certain aspects of the European relationships between companies and employees, we need to take lessons though I doubt we will.

            We have a huge gun violence problem not seen in Europe (terrorists aside)

            However:

            So, if European countries are are completely independent they can have all the country preferences all they want.

            Nothing says you can’t have open trading.

            And then one small country like Greece can’t take the whole shebang down. Rest are buffered.

            The US found either we split up or we were a real entity, not this in between stuff.

            US had one War over it and it was over. I will repeat, either you jump into it complexly or you break up. This in between is just one lurching crisis after another.

            The EU thing has been dragging on and out for a long time and its affecting everyone.

            Maybe its time Europe just quit causing trouble every 40 years?

            Sheese, it its not one thing its another.

            Balkans muck up is a pretty good example of how well it does not work.

          • “Maybe its time Europe just quit causing trouble every 40 years? ”

            Europe was incapable of keeping the US from stirring the Pot of Conflict to no end.

            WWII: the Marshall Plan was a necessity for the US to create
            A: buying power abroad to avoid a national production contraction _and_ B: to entice further allies against the more or less betrayed former allied USSR.

            IMU the only reason that stopped another Versailles like “peace” treaty. The first one as closure to WWI was the dominant foundation for WWII. ( and the way the Versaille treaty conditions were set up was enabled by the US entering the WWI battlefield.

            WWI ( contra ) and WWII ( pro ) shew how rather longstanding periods of peace could be achieved after termination of conflicts. But note that reasonably fair treatment of Germany after WWII was not a philosophical insight but forced on by a new foe.

          • I would agree with most of this, except you need to remember that there are a lot less differences between US states than European ones. They do however badly need a way of isolating problems so they don´t take everybody down.

            A work in progress, the way of the modern world.

          • MartinA:

            I do get that there are some huge differences between EU countries.

            It seems the EU does not get it.

            The US did have a common language and more homogenous culture (at the time of its forming).

            The point is, you have to be all in or all out. An erratic work in progress is dangerous to everyone.

            My contention is there are gaps that aren’t crossable there, you can do what you want as far as creating a trade zone, but a common currency without a complexly common we are all in this together is beyond belief.

            In todays age, dealing with currency transition is a slam dunk, do the conversions when the bill is paid and that’s it.

            How straight a cucumber is to be legal trade is beyond belief.

  15. Overall the EU has been an enormous succes, just like Airbus.

    People / opponents like to zoom in on what could better & spillage.

    The Brexit team went a step further for opportunistic reasons and released something they can’t handle / oversee.

    Who’s speaking for the UK anyway? Who’s the captain?

    • Keesje: How was the Balkans a success? The US came in and straightened that out. Forces meekly surrendered to clown groups and handed population over to be slaughtered. Others would not bite the bullet.

      2008 Crisis. It will come again.

      Ukraine situation was hashed up.

      Maybe consider you could all be independent and work it out anyway?

      The only thing Europe NEEDs is NATO

      The other part I can tell you from our own history, the Southern slave stat4es shaking the republican is the end result.

      You either go to war and make it stick (and I don’t see that) or you let it be separate and work out a common trading block.

      This lurching from one crisis to the next with any country having a veto for a solution is nothing but a prescription for disasters.

      I don’t;’ have much of a retirement account but this is the second time that Europe has clobbered it.

      Airbus is one success, the rest? BAE buyout? shot down in parochial flames.

      Common defense industry, down in flames

      Defense in proportion to number and economy, nope, one squadron of US tankers is larger than any single country and two squadron is more than the entire EU has.

      The reality is that if not for the US, it would have been taken over by the Soviets by now.

      Maybe its time to accept you just can’t make it work and be what you are?

      I am beginning to loose count of the number of bailouts by the US.

      Get a room or get a divorce.

      Ask Poland etc what and where they think the threat is (hint, its to the East not across the channel)

  16. I think its worth examine just the EU protection of itself.

    For all reality it has none, it depends on NATO which in turn is an Alliance of separate countries. A minuscule amount of the military answer to EU.

    As a block it has 500 million people. That’s 150 million more than US. That is 40% larger.

    Not all of those people (countries) are part of NATO.

    The US spends over 500 billions a year on defense and 2,100,000 under arms or in reserve (much of it pretty well equipped and trained)

    EU: None.

    NATO: Hard to get the figure but something around 200 billion maybe, all scattered around and spread out and no common products
    (France, UK, Germany the mainstays each have their own Main Battle Tank). Each has its own APC truck artillery etc, some share fighters but not all (France)

    Armed forces? 600,000 maximum. All with their own equipment and logistical needs (yes calibers (ammo) are common, that helps some and fuel is universal, phew)

    By US standards they should be spending 650 billion plus on defense and have 3 million military personal (mixing EU and NATO of course)

    So does the EU make any sense other than a weird notion in minds of some?

    • The US spends more than anyone else ( percentage, absolutes ) in the military domain but not on defense but on Power Projection.

      • Ok, lets accept your wording, though in reality I would call it a mix of those and power projection not only being a form of defense (keep it as far away as possible) but also a huge benefit to the rest of the world allowing things like the EU to exist.

        So, with even a core NATO population equal to or surpassing the US EU can’t defend itself?

        Shoot even Europe won’t.

        So EU is neither fish nor fowl but a sort of cherry picking of the best but not dealing with the worst.

        In this case one country vetoes all others efforts (German and dealing with Greece) but allows the slacker in in the first place.

        I had to laugh at Merkel and UK enjoying the benefits but not the obligations. And Germany obligation was to refuse to honor that same obligation of taking in a mucked up economy but not deal with the fall out? Me thinks someone speaks with forked tongue.

        Me thinks the EU aught to get off its high horse and deal with the muck up it really is before it crashes the whole world economy.

        • Me thinks the previous world economy crash originated somewhere else & about success of recent muscle politics & interventions, well, let’s not discuss here..

          • I think the guy who made the statement

            Those Who Forget Their History are Doomed to Repeat it.

            No, its not an easy discussion (and I fully know the US has its own discussions of that nature) In this case the EU is front and center.

            I think exemplifies the hash up that the EU is.

            To paraphrase our greatest president : A Badly Built House Cannot Stand.

            That’s true of the old Soviet Union, US or Russia or anywhere else.

            I do know that any entity that is not willing to invest in what it takes to defend itself at a minimum is a lost cause.

            The Hordes are always out there that will take it down.

            they have gone by a lot of different names throughout history, but they do win.

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