Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Boeing unlikely to meet FAA’s 90-day deadline for new safety program April 18, 2024
- Focus on quality not slowing innovation, says GKN April 18, 2024
- 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
HOTR: Values, rents leveling off for 5-year old aircraft
By the Leeham News staff
Aug. 25, 2020, © Leeham News: Lease rates and aircraft values on narrowbody, mainline jets appear to be leveling off, except for the Boeing 
737-700.
Ishka, the UK-based appraisal company, revised its tracking presentation in last week’s update. Moving from text to a graphic, it’s visually apparent that values for the A320, 737-700, Boeing 737-800 and -900ER began to level off in May. Values for the Airbus A321 began to level off in June.
Lease rates for all airplanes except the 737-700 began to level off in June. Rates for the -700 continue to decline.
These are for off-lease, half-life aircraft that are five years old.
Half-life means an airplane half-way through its maintenance cycle.
Hasta la vista, baby
Bernstein Research yesterday issued a pessimistic outlook about recovery in the demand for airliners.
| In a note entitled “Commercial Aircraft Demand: Hasta la vista, baby – The long wait for recovery,” Bernstein reiterates its forecast that traffic won’t recover until 2023-24. (Others forecast another year to this timetable.)
Bernstein looks at the Chinese market, where coronavirus originated.
|
Bernstein thinks production plans at Airbus and Boeing are too high.
| “Plans at Airbus and Boeing through 2023 are too high relative to deliveries,” Bernstein writes. “This is particularly an issue for Airbus, which intends to produce 40 A320neos per month through 2021. Airbus was able to deliver those in July, but we do not believe that rate can be sustained. It is an issue for Boeing and Airbus on widebodies, who are already delivering far fewer airplanes than they are producing.” |
Just off the top, those recent relatively flat CMV lines for the bigger 737s (vs Airbus) suggest a lack of confidence in MAX to me. Airlines wanting to stick with them rather than switch to MAX. Or will MAX deliveries continue to lag A32x deliveries for a considerable time even once RTS OK’d (I forget)?
I don’t know that you can compare them, there are significant variables.
People can just dump at least some of the MAX obligations and get their money back. Not so for Airbus.
Airbus A321 is unique with no competition, so how that fits in is not valid comparison wise, its got the arena to itself. One clue is how AK airlines deals with its A321NEO.
Overall its a dismal business situation (and a tragedy for nations) not one aircraft vs another.
Recovery is unknown and initially even those that take up new aircraft will have excess older but very good condition in a low fuel environment. Those will be very competitive.
Or keep them and negotiate new MAX deals (and Airbus may have to do that at least to some degree as well)
Not so easy to dump only those Max overdue for delivery and keep the rest, Boeing has said a ‘smaller order’ means the discounts because of volume will change too and it will cost you more.
Better to come to a financial settlement, maybe on spare parts down the road or any of the sweetness on offer
Legally its an interesting point on delay.
If yours are not delayed, are you legally off the hook for your 2023 delivery if they have a bird for you? I kind of think not.
That said, 450 are off the table for sure (or can be) and we are well into year 2 of the MAX debacle.
Boeing has to get those 450 out into the world. How many are cancelled, how many are taken up (South West say who had a small group in service)
Production is measly (for good reason).
So each month pushes the Boeing caused delay to the right and more orders are legally cancelled.
My vision is a juggler with 500 MAX in the air trying to sort it all out and pull out the one to be delivered.
And with a number of vaccines on the close horizon, how soon things start to chagen.
The transactions can be assumed in the graph. There can’t be many, right. Is this the reason why we didn’t see 787-9 values till now?
Sometimes Ishka might do a general downgrade of values.
The 737-700 might fall more now because it didn’t fall in January.
Today we see former generations. More interesting would be current generations, for example A321neo and A320neo, from bankrupt airlines, there must have been some trades. Who bought those NEO’s?
One value must be wrong.
On January 1 the A321ceo was $35.25m,
in the graph now for mid January around $37.5m.
Production rate of 40/month for the A320family isn’t bad, last month Airbus delivered 47, but today new deferrals were announced. At least Airbus gets money for late deliveries.
Scott, what’s new with 787 for Emirates, did you HOTR something? Thanks
Emirates should take a look on A330-800, if they want long range they might not find something cheaper.
Leon: Part of the calculi will be how any aircraft fits int he fleet now and the future. Ergo, Emirates was never big on the A330. If I remember they tried to convert some to F?
We are seeing a lot of deferrals, so how long 40 a month can hold up?
You can see average but each individual situation has so many variables as to be a huge ?????? what it means.
Two guys in the desert, one dies of thirst. Is that 50% bad outcome or good. Depends on who didn’t have the water.
TW,
it’s all about load factor.
If Emirates could only sell 240 tickets they should not use A380 or 777. The 251t A330-800 should come next year if Airbus didn’t stop it. Emirates only need some for weak sectors, if they can’t get 787-9.
A320neo and A321neo are new. There will be lots of airlines which want to retire older NB. A321LR with 4000nm range could do the job WB did before. There is a shift to smaller planes and A321neo will be taken.
WB of course will be deferred or cancelled.
It’s nice to see 5 year old values, but they are former generations. Backleased NEOs should be much more interesting for airlines.
Think positive.
Most new generation planes don’t fly the distances the benefits of fuel efficiency to be worthwhile especially with the low fuel prices.
Passengers don’t care about the engine hanging on the wing, more important is the installed in flight entertainment.
Mid life planes have become more popular in last few years, can be to fill a gap in an existing fleet of same age.
Leon:
All I see is everyone scrambling to defer (and in a number of MAX outright cancel).
No one knows how this thing goes so its in the Airlines interest to buy time while it sorts out (very deeply hopping)
Fuel cost is no longer a driving factor.
Take 10 airlines and you have 10 calculeses. Not two are going to be the same.
I am making no predictions, Airlines have to but its a guess not a prediction.
Does South West take the MAX to fill out a partial fleet in lieu of one that is being retired already? Likely. Not as many, they deferred a number.
So the weighing and balancing and outright guessing goes.
EASA going to Canada to do the tests
https://www.claimsjournal.com/news/international/2020/08/27/299030.htm
This is good news, it means that EASA will be able to test within the comment period, allowing them to include any concerns within the comments on the FAA recertification proposal.
I’m glad too that the JOEB will meet in London, that will allow full participation by people in Europe and elsewhere around the world. It’s good that the regulators are collectively finding ways around the US travel restrictions.
I too would like to see test run and the assessments made.
For all concerned, they should send comments that are open on the FAA website. Agree or disagree is not the issue, putting the comments in is.
Its a national shame and embarrassment that Boeing has to go around the US Government to get a mutual international issue handled.
I don’t care if EASA puts the kabosh on the MAX, this is abhorrent as well as disgusting way to run things.
A good clean well run and fully cooperative process has the end result of integrity.
The comments are entered into the docket of the Federal Register. Here is the URL:
https://beta.regulations.gov/document/FAA-2020-0686-0001/comment
You can place your own comment there as well. 102 comments thus far, all from the general public. I saw that our Richard has posted his concerns.
Not sure if EASA or other regulators will post there as they are likely to use other submission methods. Those comments will be included in the docket as scanned documents.
The FAA will summarize and respond to relevant & substantive comments in the preamble to the final AD. So it will be interesting to read that when issued.
I think outside there is new weight to the additional requirements, tests and 737 MAX certification of the EASA. Boeing and the FAA will avoid a situation where they agree, but EASA not. Business as usual was 2 years ago. I have strong confidence a mutual agreed certification will be achieved.
More quality control and out of Charleston again. You have to wonder if it was not Everett that caught it again.
https://simpleflying.com/boeing-787-structural-worries/
Singapore is using the 787-10,
Air Canada 787-8 and -9,
it might have nothing to do with the length.
Also strange why only 8 planes.
Boeing can’t catch a break.
The aft section 47 to 48 join, which is also the location of the pressure bulkhead. It appears that the issue was identified at Boeing. You may be right that it was found in FAL at Everett, but not before other units passed FAL at Charleston.
If so, with Everett on the chopping block, Everett staff will be highly vigilant with regard to Charleston flaws. Again, I really hope Boeing finds a way to keep Everett.
But why did they find the issue so late?
Maybe those 8 planes are the last 8 delivered and there might be more undelivered with the same issue.
Yes, they were recent deliveries. If TW is right, it was missed at Charleston during FAL and then found when similar modules were shipped to Everett for FAL. That would be plausible but we don’t know for sure.
It sounded like it was combination of the improper shimming plus the interior ridges and roughness of the aft section surface, that can allow stress concentrations to build to unacceptable levels.
It points up the nature of composites, in that the entire cross-section of the material carries the load. So deviations in thickness can accumulate stress, such that the local value is very much higher than the average value.
You make your own breaks.
Good management and you don’t have this sort of thing happening.
I suspect management had no knowledge of this, as they acted immediately once they knew. The failures point to workmanship and inspection.
One engineer alluded to time pressure on build rate, so if that was a factor, it would be a management failing.
“Management had no knowledge of this ”
You mean in Seattle?
Isnt there a certification process for each plane once its ready for delivery and didnt Qatar reject a 787 built in Charleston of not being of acceptable quality
https://www.nytimes.com/2019/04/20/business/boeing-dreamliner-production-problems.html
Yep ..management had no knowledge …none at all. Its all those robots fault.
Duke, the implication here is that management knew of the defect and delivered anyway. I think that’s unlikely and pointed it out.
You can have a situation where process quality declines due to work-floor issues. Those should be caught at inspection, so if they are not, that represents a second problem.
In this case the part was accepted with excessive roughness. The join was made with insufficient shims to fill the gaps. And the final product was accepted at inspection with these flaws.
It’s the role of management to address these issues when they arise, and then to go beyond that to try to prevent them from arising. There is reason to believe Boeing is doing both. As we’ve discussed before, improving quality control is a work in progress at Boeing.
Charleston has struggled with quality control more so than Everett, yet neither is free of problems. But that isn’t the design or intent of Boeing management. It’s not as simple as that.
After the NYT article, one of the critics was discredited, he had left Boeing two years before. Qatar backed Boeing and expressed their confidence in the 787, as did other airlines. Qatar frequently rejects new aircraft, has done so with A380 and A350 as well. They prefer 787’s from Everett because they see the quality as being higher. I wouldn’t disagree. But certainly other airlines have been happy with Charleston products. So you can’t make sweeping generalizations.
Charleston was taking around 22 days of final assembly per plane, and it would be high fives when a particilar plane only took 19 days.
Everett average was around 17 days per plane.
Those were numbers from 2019 or so.
When an airline refuses a plane because of poor quality , if they knew the faults were excessive , management HAD to know.
and just fobbing it off -‘ As we’ve discussed before, improving quality control is a work in progress at Boeing.”
It also means that stopping the line to pull a defective plane before roll out has to happen.
The real question has to be why Everett can do so much better and Charleston cant.
‘Instant coffee’ like airliner production is never going to work, just as Boeing hoped to be a systems integrator of suppliers design/build never worked either.
Now they are strong arming the suppliers with ‘Supply Chain Finance’ or SCF to avoid Boeing paying for all the sub assemblies and parts of new planes that sit on ramp until sold to airline ( that dont want them right now)
I stated that Qatar refuses new aircraft on a regular basis, as they are very picky. That is true, and is well known to both Boeing and Airbus. When the 787 rejection was publicized, Qatar also issued a statement of confidence in support of Boeing.
I stated that Boeing would not have known of the particular flaws in question here. The aircraft passed inspection. Those are problems that Boeing will have to address. If you have evidence (other than conjecture) that Boeing knew, please feel free to present it.
I stated that quality control is a work in progress at Boeing. That is true. I stated that Charleston’s record for quality control is worse than Everett’s. That is true.
SCF provides suppliers with advance payments in return for better terms. It’s used by both Boeing and Airbus. It’s been a tool to provide a form of capital and sustain suppliers through the downturn. But there are limits to the length of time that can be bridged with that method.
At some point it will no longer be effective if there are not orders to fulfill. And if payments are made for orders that won’t happen, those payments may be refunded. But both Boeing/Airbus and suppliers must comply with the terms of their contracts, or negotiate new terms.
Boeing has made extensive efforts to sustain the supply chain. I have not seen evidence that they are withholding payments for components in constructed aircraft. In fact they have likely paid for those parts in advance, under SCF.
The SEC has asked Boeing to clarify their use of SCF because it represents a form of debt that is not accounted as debt. That makes sense as companies can take on considerable risk as they attempt to sustain their supply chains. Investors have a right to be informed and understand that risk.
The aft bulkhead pressure dome as a single piece of composite was previously made by Premium Aerotec in Augsburg, formerly part of EADS.
But it seems to now-since 2016- be built in Spain by major supplier Aernnova
http://www.aernnova.com/en/spanish-aernnova-delivers-first-aft-pressure-bulkhead-to-boeing-787-production-line/
The problem area , as mentioned, is the section 47 to 48 join, which is parts fabricated by Boeing themselves in Charleston
http://www.aint.com/projects/large_scale_integration_projects/vought_787_section_47_48_integrator
From what I can see the aft section is made up into a barrel from separate
bottom , top and sides linear sections.
This might explain why they dont have the ‘exact size’ section like the other fuselage barrels built as one piece over a mandrel.