All Air Lease Corp’s single-aisle airplanes are delayed

By Laura Mueller

Airfinance Journal, April 14, 2022

Reprinted with permission

 April 27, 2022, © Airfinance Journal: Air Lease Corp’s executive chairman, Steven Udvar-Hazy, told Airfinance Journal that “every one” of the lessor’s single-aisle Airbus aircraft is delayed.

Steven Udvar-Hazy. Source: Air Lease Corp.

“Our Boeing 737 Max deliveries also are delayed this year,” he said. “The supply chain, starting with the engine manufacturers, the people who make landing gear, the people who make avionics… are not equipped today to meet the production goals of the two manufacturers.”

Add in increased absenteeism and working from home, and it is clear further delays are ahead. “You can’t build airplanes on a Zoom call.”

The situation means Airbus and Boeing are “faced with very difficult strategies”.

ALC’s chief executive officer, John Plueger, echoed those thoughts. He told a JP Morgan conference on 16 March that 18% of the Airbus workforce was off due to Covid-related matters. Plueger confirmed to Airfinance Journal that Airbus told him that figure, but the information was “probably a month or two old” as of April.

“It would not surprise me to get further delays beyond that,” he added.

Scheduled deliveries

ALC is scheduled to take delivery of 27 Airbus A320neo-family and 33 Boeing 737 Max-family aircraft in 2022. All of the aircraft are already placed with customers.

There is much debate about whether an increase in production supports a post-pandemic recovery of the narrowbody sector, especially given the wide variance in airline recovery by region and with increases in output that are well above pre-Covid rates.

Udvar-Hazy dismisses an uptick in production rates no matter how much the manufacturers argue for them.

“Between them, they’re talking about 110 and 120 aircraft per month. We don’t see that. We just don’t see that the supply chain infrastructure and the aerospace industry, at this point, can support 110 to 120 single-aisle deliveries of just Boeing and Airbus. On top of that, there’s the Airbus 220, the Embraer E2, and a whole host of military programmes that are also taking a tremendous amount of resources. I think these over-optimistic forecasts of production rates are not achievable.”

Market share is a concern for Boeing.

“In February, Boeing delivered 22 airplanes, just 22 airplanes. Is that where they want to be? The writing is on the wall,” he said.

He admits Airbus was “unexpectedly successful” after the A320neo was launched. “I don’t think Boeing anticipated that a re-engined A320 family would be as successful as it was. At that time, people were worried about fuel prices and emissions, so I think there was this frenzy that, if you can have 15% fuel savings, that’s really meaningful, and it’s worth transitioning to the new technology.”

He recalls that Boeing had a number of designs for new-generation aircraft “that were totally new, clean sheets of paper”. However, Airbus’ top salesperson John Leahy, “with his successful penetration of the airline markets with the Neo, stopped that in its tracks”.

Still, Boeing did not “fully understand” that airlines were migrating to larger average-size aircraft.

“That’s where the market share has changed. If you take the A320neo and the 737-8, it is a pretty good equilibrium, very close.”

He argues that the A321neo has changed that dynamic, and that’s how Airbus is inching towards a 60% market share. “And I think Airbus could even reach 65% because Boeing does not have a credible response.”

The 737 Max 10 is not as effective in “its overall versatility, performance capacity and passenger appeal as the A321. That’s just the bottom line.”

Certification up in the air

On 24 March, the US Federal Aviation Administration warned Boeing that it might not gain certification of the 737 Max 10 ahead of a critical safety deadline set by US Congress.

Congressmen Peter DeFazio, who leads the US House of Representatives Transportation and Infrastructure Committee. said at a hearing that he would oppose an extension to the 31 December 2022 deadline for the aircraft’s certification.

The aircraft certification bill gave the FAA a two-year grace period to certify the aircraft without the advanced flight crew alerting system.

But if Boeing misses the deadline, it faces costly disruptions to the programme, warned a C-suite lessor source, speaking on condition of anonymity.

“I think the Max 10 certification risk is real, and I am not sure that Boeing can hit those targets,” said the lessor. “Boeing may have to redesign the aircraft, and then the delays will be significant. The Max 10 backlog is not insignificant. Size does matter. Delta and Boeing are close to a significant Max order that will have Max 10s. Also, Qatar is taking Max 10s.”

Delta Air Lines is reportedly in discussions for up to 100 units of the Max 10, even though it has not placed any Max orders thus far.

Little progress

Boeing does not break out Max orders by type, but Airfinance Journal data shows 560 737 Max 10s on order. The OEM recorded 749 gross new orders across the 737 Max family in 2021.

The Max 10 is “unfortunately” another item on a long list of certification issues Boeing is trying to navigate, according to Avolon CEO Domnhal Slattery. “And it feels that they are making little progress.”

The Max is still not flying in China.

Boeing said in 2021 that it expected China to give the green light on 737 Max certification by the end of 2021, following the ban on the narrowbody in March 2019.

But 2021 has come and gone, and there is still uncertainty over when the Max will resume flying in China.

Udvar-Hazy would not be drawn on a date for certification.

“That decision is to be made at the highest levels of the Chinese government, not at the China Aviation Authority level,” he said. “The only thing I can tell you is that the Chinese airlines that already have 737 Max aircraft… are yearning to put those airplanes back in the air. There’s no shortage of demand from the Chinese operators that already had those aircraft in the inventory. But there’s a lot of dynamics going on between China and the US right now. And I think the 737 Max is a relatively insignificant part of that total relationship issue between the two governments.”

787 deliveries

Deliveries of the 787 Dreamliner have been halted since 2021 as Boeing addresses a series of manufacturing fixes and inspections. The manufacturer only delivered 14 787s in 2021.

“Boeing’s focus needs to be on getting that backlog cleared because there are nearly 130 aircraft parked and that cannot deliver,” said Slattery.

Asked what Boeing has said about possible delivery dates, Slattery said: “They don’t have clarity. They literally don’t have any clarity on the delivery.”

Udvar-Hazy agreed the timing of delivery schedule remains elusive: “There is a department in Washington DC called the Department of Transportation, or the US Federal Aviation Administration. Right now, it is a headless ship, but why don’t you call them and ask for a date on 1-800-FAA-787?” he quipped.

FAA administrator Steve Dickson left the agency on 31 March. Dickson had been in the role since 2019 after being nominated for the position by then-President Donald Trump.

“Manana, Manana, manana” is Boeing’s response to questions about the restart of 787 deliveries, Udvar-Hazy said. “I have heard that for the past nine months. We have 11 787s in Charleston that are ready and painted, but we can’t take delivery.”

However, a source indicates there is talk of the FAA signing off on newly produced aircraft soon. “That may trigger one to two deliveries per month starting next month, but there is still no clarity on already produced aircraft,” the source said.

Resuming deliveries soon is optimistic

Udvar-Hazy called a summer resumption of deliveries “optimistic” and stressed the timing is “really a regulatory question” between Boeing and the FAA.

The slow pace is “all because of the Max, and what Boeing did with the Max.”

There is oversight of Congress on the FAA. “It’s an overreaction to a tragic set of events. But I have to say that Boeing did this to themself.”

The 777X programme also has a big question mark over the timing of its certification approval. The aircraft is late after originally being  targeted for delivery in 2020.

 

50 Comments on “All Air Lease Corp’s single-aisle airplanes are delayed

  1. So, if/when 787 deliveries resume, they’ll be at a rate of about 2 per month.
    Stellar!

  2. “That’s where the market share has changed. If you take the A320neo and the 737-8, it is a pretty good equilibrium, very close.”

    So wiki has a count of 2,255 Max 8’s ordered, with some delivered. Some customers and variants haven’t been disclosed.

    The real Max backlog, right off the BA website is 3,365 for all variants.

    https://www.boeing.com/commercial/#/orders-deliveries

    There’s about 1,000 Max 7’s & Max 10’s ordered total, so we can surmise that the 2,255 Max 8 number is pretty accurate, give or take.

    https://en.wikipedia.org/wiki/List_of_Boeing_737_MAX_orders_and_deliveries

    There are 3,746 A320 Neo’s ordered.

    https://en.wikipedia.org/wiki/List_of_Airbus_A320neo_family_orders_and_deliveries

    2,300 vs 3,700

    Throw in the Max 9 orders

    2,600 vs 3,700

    Boeing Max 8 is still 1,000 aircraft short of the A320Neo.

    I guess that’s close enough…he must have a bunch of Max’s on order, that he needs taken, if he is saying that.

    • Hello Frank,

      Re: “The real Max backlog, right off the BA website is 3,365 for all variants.”

      The 3,365 MAX orders for all variants you cite if after ASC 606 adjustments for orders that Boeing’s accountants consider to be in jeopardy due to the customer’s financial condition or non compliance with contract terms. Airbus does not make similar adjustments to their publicly released order tallies. From the link you gave to Boeing’s orders and deliveries web page here are the with and without ASC 606 figures for MAX order backlog as of 4-27-22.

      Total Unfilled Orders: 4,171
      ASC 606 Adjustment: -806
      Backlog after ASC 606 Adjustment: 3,365 (i.e. 4,171 – 806).

      The apples to apples comparison would be to the Airbus A320neo order backlog with ASC 606 style adjustments (i.e. 3,746 minus ASC 606 adjustments) to Boeing’s 737 MAX 8 order backlog minus its ASC 606 adjustments.

      Re: “So wiki has a count of 2,255 Max 8’s ordered, with some delivered. Some customers and variants haven’t been disclosed.”

      To be precise, the Wiki 737 MAX order and deliveries page as of today lists 1,599 orders for unknown variants. For the known variant orders, 63.7% of the orders are for the MAX 8 according to Wiki’s figures[ (2,255 / (286 + 2,255 + 281 + 717) = 0.637]. If one assumes that the percentage of MAX 8 orders in the unknown variants orders, is the same as the percentage of MAX 8 orders in the known variant orders, that would give a total of 2,255 + (.637 x 1,599) = 3,274 Max 8 orders (including delivered aircraft) according to the Wiki figures.

      An article in the 4-18 to 5-1-22 issue of Aviation Week and Space technology, gives the following breakdown of the 737 MAX order backlog by model, which adds up to a 4,101 order backlog for all models, which is a number fairly similar to Boeing’s figure of 4,171 orders before ASC adjustments.

      Model/Orders
      737-7: 330
      737-8: 2,697
      737-8200: 318
      737-9: 119
      737-10: 639
      Total All Models: 4,103

      If these are orders without ASC 606 adjustments, then adding the 2,697 737-8 orders in backlog to the 318 737-8200 orders in backlog gives a total of 3,015 737-8 and 737-8200 orders in backlog, which is a figure which could be used as an apple to apples comparison against the figure of whatever number of the 3,746 non ASC 606 adjusted A320neo orders remain in backlog. Alternatively, one could compare total orders whether delivered or not; however, you were using Boeing’s backlog figure for comparison, and my main point is that you are comparing Boeing’s backlog figures adjusted for at risk orders to Airbus backlog figures which are not adjusted for at risk orders.

      The following is from a 7-27-20 post by Vincent Valery on this blog.

      “July 27, 2020, © Leeham News: Since the first quarter of 2018, Boeing applies a new revenue recognition accounting standard, ASC 606, to its aircraft order book.

      As a result, the OEM needs to remove orders from the backlog when a customer deviates materially from its contractual obligations.

      ASC 606 adjustments affect all Boeing commercial aircraft programs apart from the 767. Orders removed from the 737 backlogs increased from 183 to 622 between the end of 2019 and June 2020. The figure should rise further as more airlines have strained finances due to the COVID-19 outbreak.

      Other aircraft OEMs, notably Airbus, do not apply such standard. As a result, the firm backlogs of Airbus and Boeing aren’t apples-to-apples comparisons.”

      https://leehamnews.com/2020/07/27/applying-asc-606-to-the-airbus-order-book/

      • Re in my post above: “The apples to apples comparison would be to the Airbus A320neo order backlog with ASC 606 style adjustments (i.e. 3,746 minus ASC 606 adjustments) to Boeing’s 737 MAX 8 order backlog minus its ASC 606 adjustments.”

        Correction:

        If comparing order backlogs one possible apple to apples comparison would be the following (corrections capitalized).

        The apples to apples comparison would be to the Airbus A320neo order backlog with ASC 606 style adjustments (i.e. 3,746 MINUS A320NEO’S ALREADY DELIVERED minus ASC 606 adjustments) to Boeing’s 737 MAX 8 order backlog minus its ASC 606 adjustments.

        Alternatively, if one wanted to compare total orders whether delivered or not, one possible apples to apples comparison would be as follows.

        Airbus A320neo orders (whether delivered or not) minus ASC 606 style adjustments, compared to Boeing’s 737 MAX 8 orders (whether delivered or not) minus its ASC 606 adjustments.

        Alternatively, one could omit ASC 606 style adjustments for both manufacturers.

        Airbus A320neo orders (whether delivered or not) with no ASC 606 style adjustments, compared to Boeing’s 737 MAX 8 orders (whether delivered or not) with no ASC 606 adjustments.

        • @Robert

          “The apples to apples comparison would be to the Airbus A320neo order backlog”

          This is the statement from SUH:

          “That’s where the market share has changed. If you take the A320neo and the 737-8, it is a pretty good equilibrium, very close.”

          Market share is not backlog – market share is how much of the market you have. Of course this number moves the dial towards Boeing, because the Max was grounded for 2 years (read: zero deliveries) and the current airframes are moving at a trickle to customers, while Airbus has been rolling them out.

          “The apples to apples comparison would be to the Airbus A320neo order backlog with ASC 606 style adjustments (i.e. 3,746 MINUS A320NEO’S ALREADY DELIVERED minus ASC 606 adjustments) to Boeing’s 737 MAX 8 order backlog minus its ASC 606 adjustments.”

          While it is not the backlog, as I mentioned above, your calculation should be: Boeing’s 737 MAX 8 order backlog minus, MINUS IT’S DELIVERED AIRCRAFT and its ASC 606 adjustments.”

          “Alternatively, one could omit ASC 606 style adjustments for both manufacturers.”

          Yes, we could. But then Boeing has this “Unknown” category for some 1600 orders. How would you like to deal with that?

          So we’ll us the ‘No ASC’ adjustment numbers, that you provided:

          737-8: 2,697
          737-8200: 318
          737-9: 119

          Throw them all in, against one airframe, the A320Neo.

          3,134 against 3,746. That’s 45% to 55%.

          That still looks like 600 airframes short to me, in the best of circumstances for Boeing. I see no A320 production slots available until 2026. I see a bunch of Max’s still parked in the employee car park at BA.

          But I’m sure the guys in Chicago are looking at the same numbers as us (except they know which of those 3,134 are really shaky) and are seeing the same market share.

          Big Picture?

          It’s a 20,000 aircraft worldwide narrow-body market, give or take.

          Airbus is at 8,000 and throw in he A220, they’re at 8,700.
          1,300 more orders until they own 50%.
          It’s all over, except for the shouting…

          • Hello Frank,

            You are still not comparing apples to apples. You are comparing 737 MAX backlog numbers, which are remaining orders excluding delivered orders, to A320neo total orders which include both backlog and delivered aircraft.

            Re: “So we’ll us the ‘No ASC’ adjustment numbers, that you provided:

            737-8: 2,697
            737-8200: 318
            737-9: 119”

            These are order BACKLOG numbers, repeat BACKLOG, repeat BACKLOG. They do not include delivered MAX’s. REPEAT: They do not include delivered MAX’s.

            Re: “3,134 against 3,746. That’s 45% to 55%.”

            The 3,746 orders number you cited for the A320neo, is, according to Wikipedia as of 4-28-22 the total number of A320neo’s that have been ordered as of December 2021, which according to Wikipedia increased to 3,817 as of March 2022. It includes delivered A320neo’s. REPEAT: The figure of 3,746 320neo orders that you cited INCLUDES DELIVERED A320neo’s (as of December 2021). REPEAT: The figure of 3,746 320neo orders that you cited INCLUDES DELIVERED A320neo’s (as of December 2021).

            According to the web page at he link below, which is updated several times a month. 737 MAX deliveries by model have been as follows.

            737-7: 0
            737-8: 600
            737-8-200: 66
            BBJ (7, 8, or 9): 7
            737-9: 95
            737-10: 0

            http://737-max.blogspot.com/2018/05/max-deliveries-by-variant.html

            For an apples to apples comparison, we can compare backlog + deliveries without ASC 606 adjustments.

            Below are MAX BACKLOGS, REPEAT: BACKLOGS, for 737-8 and and 737-8-200 as of 4-5-22 according to the Aviatiom Week article that I decided above.

            737-8: 2,697
            737-8-200: 318

            Below are DELVERED MAX’s, REPEAT: DELIVERED MAX’s, according to the link I gave above, probably as of no more than a few weeks ago.

            737-8: 600
            737-8-200: 66.

            MAX BACKLOG PLUS DELIVERIES + TOTAL ORDERS WITHOUT ASC 606 ADJUSTMENTS follow below.

            737-8: (2,697 + 600) = 3,297
            737-8-200: (318 + 66) = 384
            TOTAL FOR 737-8 and 737-8-200: (3,297 + 384) = 3,681

            Thus the (very nearly) apples to apples comparison based on the figures I have cited is 3,681 MAX 8 or MAX 8-200 total orders including delivered aircraft without ASC 606 adjustments (using data from varying dated in April 2022 this month), vs. 3,817 A320neo total orders including delivered aircraft without ASC 606 adjustments (as of March 2022 according to Wikipedia) .

            Do you really believe that you are better informed about who is buying what aircraft than Udvar-Hazy is?

            Re: ” … your calculation should be: Boeing’s 737 MAX 8 order backlog minus, MINUS IT’S DELIVERED AIRCRAFT and its ASC 606 adjustments.”

            That is incorrect, backlog is the number of orders not yet delivered, there is no need to subtract delivered aircraft from a number that already does not include delivered aircraft, unless you are searching for a way to perform a calculation wrong to get the answer that you expect.

            Be glad that you aren’t sitting in front of me for a job performance review or employment probation review in a safety critical scientific or engineering job that requires attention to detail, and being able to perform calculations accurately on the first try.

          • “Do you really believe that you are better informed about who is buying what aircraft than Udvar-Hazy is?”

            No. The question for you is – do YOU believe everything that comes out of someone’s mouth, is said in good faith and without an angle?

            If memory serves, there was a recent article reporting on how lessors were besides themselves when Airbus announced they wanted to bump production to 70 a month. Why? Because they stand to lose leverage in the market.

            But yes, I missed the whole ‘these are the backlog’ numbers in you amended, corrected filings.

            Market share is market share – not what is left to produce. That’s a production balance…

            Performance review? For a job?

            I’ve been in business for years, I’m kinda the cheque signing guy, running my own business, hiring guys like you to do the work. But hey – I’ll put your quote in with the rest of them and check with your references to see what kind of work you do…

            Somebody has gotten employ you guys.

      • @ AP_Robert
        A question for you: if Airbus were to publish a list of its ASC606 deletions, do you think that that list would be proportionally as large as in the case of Boeing?
        I certainly don’t, for a number of reasons:

        (1) Any MAX ordered prior to the grounding can be canceled free 0f charge — with refund of any funds paid — because of contractual clauses on late delivery. This effectively means that the entire non-delivered pre-grounding order book is in ASC606 territory — though BA accountants (like to) use more selective criteria in making the ASC606 cut.
        The NEO family doesn’t suffer from this effect.

        (2) As referred to in the article above, “the China effect” is a big difference between BA and AB. The US has been locked in open trade acrimony with China since the Trump presidency, and the Chinese are using Boeing as a pawn in this conflict; this puts a dark cloud above the entire Boeing order book in China. Knock-on effects: Boeing hasn’t made a sale in China since 2017, and the MAX is still grounded there.
        Airbus doesn’t suffer from this effect.

        We all knew that there was a big question mark hanging above the AirAsiaX A330-900 order — but can you name any other obviously shaky orders in the Airbus portfolio? And then, with a view to the points made above, can you name the obviously shaky orders in the Boeing portfolio?

        No need to resort to arguments along the lines of “airlines need their orders”: airlines were already financially on their knees after the pandemic, and they now have high fuel prices, a war and an impending recession to deal with. Carriers in Asia are additionally affected by the lack of Chinese tourists, and continuing CoViD travel restrictions in many countries in the region.

  3. “That decision is to be made at the highest levels of the Chinese government, not at the China Aviation Authority level,” he said.

    “Washington DC called the Department of Transportation, or the US Federal Aviation Administration. Right now, it is a headless ship, but why don’t you call them and ask for a date on 1-800-FAA-787?””

    I think Udvar tries to imply it’s all political, instead of regulatory. That’s dangerous. Politics overpowering regulatory authorities is where Boeing’s certification nightmare started off, 10 yrs ago. The FAA Modernization and Reform Act of 2012, and the Congress FAA re-authorizations since.

    https://gama.aero/resources/testimony-and-speeches/hearing-faa-reauthorization-certification-and-u-s-aviation-manufacturing-competitiveness/

    Everybody is trying to ignore, forget, dismiss the widely industrial-political supported FAA aircraft certification Streamlining of the previous decade. Which is at the base of the current MAX & 777X certification drama’s.

    • It’s always possible for politics to overrule regulators. A perfect example is the ban on Russian planes in US/EU airspace: that ban didn’t come from the FAA/EASA.

      • Nor did the action against the Soviet Union occur as a capricious act of the EU or the US as a result of trade issues.

        China AHJ is not remotely independent.

        The FAA and EASA are. They may be badly run but they make their own decisions.

        The FAA is not headless, it has an administrator doing the job until a new head is appointed.

        Nor do I view the FAA as overreaction.

        MCAS logic that was insane, 787 problems of incredible proportion and copy and paste 787 Control Logic into the 777X.

        As long as Boeing management is hell bent on share buy back and dividend to the detriment of the company, the resulting messes (tragedy in the case of the MAX) would have continued.

  4. Southwest is losing patience with the MAX-7 delays:
    AI: “Southwest reshuffles MAX 7 and 8 orders and deliveries”

    “Due to the uncertain time schedule of the Boeing MAX 7, Southwest Airlines has renegotiated its long-term MAX backlog. It has reduced the number of MAX 7s on order by 26 and added 81 MAX 8s to its order book by converting previous orders and exercising purchase rights, it reported on April 28 in its Q1 results earnings release”

    https://airinsight.com/southwest-reshuffles-max-7-and-8-orders-and-deliveries/

    • I wonder how much is to fill the empty production slots in 2022. Can BA charge WN top dollar? Guess not. BA is desperate to show WS it can generate cash this year, fire sale (cash positive) continues.

    • Important to note that even though WN switched many MAX 7 to MAX 8 for delivery in 2022:

      -> The airline maintains its Capex guidance of $5.0 billion for this year.

      • Hello Pedro,

        Re: “Important to note that even though WN switched many MAX 7 to MAX 8 for delivery in 2022:

        -> The airline maintains its Capex guidance of $5.0 billion for this year.

        According to Southwest’s 5-2-22 1Q22 10-K filing with the SEC, the changes Southwest made to their MAX orders in April 2022 increased their capital commitment for their MAX orders in 2022 by 689 million dollars, and prior to their April 2022 MAX orders changes their remaining capital commitment for 2022 MAX orders was 2.1 billion dollars. Since Southwest has about 15 MAXs currently undergoing post assembly testing or on the final assembly line, and took delivery of 3 in April 2022, their remaining capital commitment prior to their April 2022 order changes did not include some progress payments that were made prior to April 2022. Below is an excerpt from the above mentioned SEC filing (see pages 25 and 26).

        “Based on the Company’s existing agreement with Boeing, capital commitments associated with its firm orders as of March 31, 2022, were:
        $2.1 billion remaining in 2022, $1.9 billion in 2023, $1.0 billion in 2024, $839 million in 2025, $975 million in 2026, $1.0 billion in 2027, and
        $6.0 billion thereafter. In addition, subsequent to March 31, 2022, and through May 2, 2022, due to the current status of the -7 certification, the
        Company converted 40 2022 -7 firm orders into 2022 -8 orders, moved one 2022 -7 firm order into 2023, and accelerated one 2023 -8 option
        into 2022. In April 2022, the Company also exercised 16 -8 options for delivery in 2022, exercised 2 -7 options for delivery in 2023, accelerated and exercised 10 2023 -8 options into 2022, and shifted 10 2022 MAX firm orders into 2023. Combined, the Company’s aircraft order book activity subsequent to March 31, 2022, has resulted in additional capital commitments associated with firm orders of $689 million and $188 million in 2022 and 2023, respectively.

        Below is a link to the above mentioned SEC filing.

        https://otp.tools.investis.com/clients/us/southwest/SEC/sec-show.aspx?FilingId=15777715&Cik=0000092380&Type=PDF&hasPdf=1

        According to excerpts below from the 4-28-22 Southwest 1Q22 earnings press release at the link after the excerpts, the 5 billion dollar CAPEX guidance for 2022 assumes Southwest will convert their remaining 12 MAX options for 2022 into firm orders, and if these options are not converted to firm orders 2022 CAPEX would drop to 4.2 billion dollars, which includes approximately 900 million dollars of non-aircraft CAPEX. Thus, if the additional 12 MAX options for 2022 are not exercised, aircraft CAPEX would for 2022 would be 4.2 billion USD – 900 million USD = 3.3 billion USD, which would be an average of 32.35 million USD per aircraft for the 102 MAX’s (21 MAX 7 and 81 MAX 8) that Southwest currently has on firm order for 2022 (3.3 billion / 102 aircraft = 32.35 million per aircraft), assuming that all aircraft CAPEX is for the MAX orders. This is about what I would have expected for a large customer like Southwest. I believe that Southwest’s 2022 CAPEX guidance has always assumed that it would convert all of its 2022 MAX options into firm orders.

        “The Company’s first quarter 2022 capital expenditures were $510 million driven primarily by aircraft-related capital expenditures, as well as technology, facilities, and operational investments. The Company continues to estimate its 2022 capital spending to be approximately $5.0 billion, which assumes the exercise of its 12 remaining 2022 options (note 7) and remains unchanged despite the shift of -7 firm orders to -8 firm orders as the Company contemplated various scenarios in its 2022 plan. The Company’s 2022 capital spending guidance continues to include approximately $900 million in non-aircraft capital spending.”

        Note 7: “Excluding any further option exercises, the Company’s 2022 capital expenditures would be approximately $4.2 billion, also including approximately $900 million in non-aircraft capital spending.”

        https://www.southwestairlinesinvestorrelations.com/news-and-events/news-releases/2022/04-28-2022-114542020

        • See below for Southwest’s average cost per MAX for years 2023 through 2027 according to the capital commitment (CC) and order data as of 3-31-22 cited in their 5-2-22 1Q22 SEC 10K filing. These data do not take into account the order changes Southwest made after 3-31-22.

          2023: CC 2.1 billion for 64 MAX-7. (2.1 billion / 64 MAX) = 29.7 million per MAX.

          2024: CC 1.0 billion for 30 MAX 7. (1.9 billion / 30 MAX) = 33.3 million per MAX.

          2025: CC 0.839 billion for 3o MAX 7. (0.839 billion / 30 MAX) = 28.0 million per MAX.

          2026: 0.975 billion for 15 MAX 7 and 15 MAX 8. (0.975 billion / 30 MAX) = 32.5 million per MAX.

          2027: 1 billion for 15 MAX 7 and 15 MAX 8. (1 billion / 30 MAX) = 33.3 million per MAX.

          https://otp.tools.investis.com/clients/us/southwest/SEC/sec-show.aspx?FilingId=15777715&Cik=0000092380&Type=PDF&hasPdf=1

  5. If/when BA doesn’t get an extension from Congress and has to EICAS-upgrade the MAX-10, will it bother to go to that trouble and expense for a 700-order narrowbody subtype?

    If BA *does* go ahead with an EICAS-ed MAX-10, it will lose commonality with the other MAX family members.

    Either way: will customers who have ordered the MAX-10 then revert to the MAX-9, or will they defect to the A321 neo/LR/XLR?

    • > If/when BA doesn’t get an extension from Congress and has to EICAS-upgrade the MAX-10 <

      That won't happen: some type of procedural bypass will be found for Boing, after all the grandstanding, without a doubt.

      "It's Chinatown, Jake."

      • That will look really good in the papers:
        “Congress gives BA an exemption from safety requirements so as to save it some dollars”

        • It won’t be framed that way, of course.
          Expect plenty of obfuscation..

    • Here’s more on this story, without a paywall:

      https://www.bnnbloomberg.ca/airbus-engine-supply-deals-pave-way-for-production-ramp-up-1.1758953

      “In February 2020, when Covid first started to spread globally, Airbus said it was aiming for A320 rates as high as 67 per month by 2023. It was making about 45 a month at the turn of the year after cutbacks during the pandemic, and is moving up from that, targeting 65 a month by mid-2023.

      “At the same time the Toulouse, France-based firm has pushed suppliers to go as high as 75 per month by the middle of the decade. CEO Guillaume Faury said in January that it aimed to reach a decision on the next production goal by mid-year, with scenarios include holding at 65, pushing a little higher or pursuing a significant jump. Faury confirmed the mid-2023 target on Thursday.

      “Safran’s Andries, who had suggested that even the 65 planes would be a challenge, said the new deal with Airbus was struck in the past weeks. He declined to specify the volume of LEAP engines that will be delivered in 2024, but added on a call with analysts that it won’t require more capital spending.”

  6. I would seriously have to doubt that civilian airline business will experience the growth expected and the ALFC will even really want these aircraft delivered.
    1 Défense expenditure is going up and will suck something out of Europe’s economy. Germany went from 1.4% to 2.0% but the NATO obligation is 3% (2.0% is an minimum) and NATO will loose a war unless all member states get to 3%. Simulations suggest NATO will run out of ammunition in 1 week of hot war. Holland was at 1.45%, with most of it lost to peace keeping missions in Mali etc and clearly will need similar increases as does much of central Europe. If Russia gets its way in Ukraine it will move on the Moldovia and then the baltic states sensing weakness of resolve in NATO members.
    2 Oil Prices have gone from $30 barrel to $120. Gas prices are similarly up. The substitution of LNG for Pipeline gas also adds about 30% at least.
    3 Relations with the Kingdome of Saudi Arabia is poor and they will need 1-2 years of investment to replaced Russian oil fully. The Nixon-Kissinger Saudi Petro-Dollar Security agreement will need to be ratified and honoured in Saudi eyes.
    4 Russia is developing an arctic route that will allow oil tankers and freighters to reach Asia without ice breakers.

    5 Defense spending will generate jobs and new high tech industries that will greatly beneift society but the effect will not be immediate.

    In this context I can’t see demand for civil aviation to climb as rapidly as anticipated except in Asia. It will be like COVID with airliners complaining about late deliveries but secretly glad.

    • “Défense expenditure is going up and will suck something out of Europe’s economy.”

      Seeing as Europe has several large defense companies — which are already benefitting from the extra defense spending worldwide — one would expect a boost for the European economy.

      Tbe only one of your five points that appears to be of any relevance to aviation is point 2 (high oil prices).

      And you forgot to mention high general inflation, high interest rates, and the approaching recession. The US economy contracted by 1.4% in Q1.

      • Never heard of 3% defense spending requirement. Did some one make this up?

        • Yes, it appears to have been whipped out of thin air.
          It seems to have become fashionable to try to pin all the world’s woes on European defense spending.
          Then again, Europe didn’t waste trillions of dollars on recent (completely futile and fruitless) wars in the Middle East and central Asia — so it boils down to how effectively you spend your money, doesn’t it?
          Note the disdainful reference to “peace keeping missions”: it seems that some cultures are far more interested in war than in peace.

          • Yah – it’s the bete noire of Donald Trump supporters; pinning everything on Nato, oil prices, Saudi’s, etc.

            I have to be honest, given Russia’s latest military performance in Ukraine, I’m not so sure that Nato is in peril.

          • @Frank

            Offensive warfare is always (ultimately) more difficult than defensive warfare. Note that both Russia and the USA badly burned their fingers in Afghanistan — against a rag-tag crowd of shepherds with basic weaponry. Similar situations pertained in Vietnam and Iraq.
            A Russian invasion of the EU would saddle the Russians with much longer supply lines, much more co-ordination, and many more fronts than is currently the case in Ukraine — and the military response from the EU would be much more of a problem for the Russians, despite the tired narrative to the contrary. Of course, a full-out nuclear offensive is a possibility — but that’s been a possibility since the 1950s, so why lose any sleep over it? The French can send nukes to Russia also.
            Seeing as the Aussie nuclear sub deal effectively flushed the nuclear non-proliferation treaty, I personally think that Germany should develop its own arsenal of nukes — no harm in having an extra deterrent.

  7. Re: “Udvar-Hazy agreed the timing of delivery schedule remains elusive: “There is a department in Washington DC called the Department of Transportation, or the US Federal Aviation Administration. Right now, it is a headless ship, but why don’t you call them and ask for a date on 1-800-FAA-787?” he quipped.”

    Headless, and woefully understaffed for the additional work that has been suddenly thrust upon it, at least until the dozens of new positions requested in its 2023 budget are filled, at which time it will hopefully no longer be headless but will have a very large number of employees that are very new to their jobs. The US Congress seems to be better at imposing new requirements, than it is at providing funding and staffing to implement new requirements. See the excerpt below from an article that appeared in the 4-4 to 4-17-22 hardcopy issue of Aviation Week and Space Technology.

    “FAA documents released on March 28 show the agency’s bottom line request of $18.6 billion includes $17.5 million to support aircraft certification reform mandates. The agency’s plans for meeting more than 100 congressionally mandated changes to its certification and safety oversight signed into law in December 2020 include adding 57 full-time equivalent staffers (FTE).

    Aviation Safety (AVS) “will increase the hiring of systems engineers, safety inspectors, flight-test pilots, trainers and human factors engineers,” the budget documents say. Among the needs flagged by the agency: “Conduct comprehensive reviews of each manufacturing” Organization Designation Authorization (ODA) holder’s “ability to meet regulations.”

    Within AVS, the ODA office would see a 40% funding increase to nearly $11.6 million and a boost in staff size to 51 from 13. Changes to certification and ODA specifically stem from investigations into the Boeing 737 MAX certification and related missteps that helped set the stage for two fatal accidents, in 2018 and 2019, respectively. The FAA also wants an additional $4.9 million and 28 FTEs to support uncrewed aircraft systems (UAS) integration across the agency.”

    https://aviationweek.com/air-transport/safety-ops-regulation/proposed-faa-budget-boosts-certification-uas-work

    • Are you suggesting that staffing/funding problems at the FAA are (partly) to blame for BA’s woes?

      The FAA has (repeatedly) had to ask BA to provide information that BA should have provided proactively. It’s not the FAA’s fault that BA has seemingly forgotton what to do to get a plane certified.

      • Hello Bryce,

        I am suggesting that the understaffing resulting from “more than 100 congressionally mandated changes to its (FAA) certification and safety oversight signed into law in December 2020 “, for which commensurate FAA staffing to support the changes has yet to be added, the need to divert resources to 5G issues, and the need to assign resources to rapid developments in UAV’s, are a problem for anyone who has or is trying to get a new aircraft certification, avionics approved for operation near 5G towers, or seeking clarity on UAV certification requirements.

        I agree with the following statement by Udvar-Hazy.

        “There is oversight of Congress on the FAA. “It’s an overreaction to a tragic set of events. But I have to say that Boeing did this to themself.”

        I think that Boeing cut too many corners, but I also think that before and after the MAX, many government agencies, including the FAA, have efficiency problems, which can often be traced to under-funding and high turnover due to low salaries compared to industry. The FAA needs to be both thorough and efficient.

        Boeing is not the only manufacturer having problems with things being required that were never required before (maybe justly), and slow turnaround times on packages submitted to the FAA. I suspect that Airbus is in for a nasty surprise on the A321 XLR if the FAA’s requests for additional personnel are not soon approved by congress, and if the new positions, if approved, are not rapidly filled with highly experienced people. See below.

        From a 4-27-22 AINonline post.

        “Gulfstream Aerospace parent company General Dynamics today warned that G700 certification, planned for the fourth quarter, could be delayed by three to six months due to a new, additional requirement by the FAA. According to General Dynamics chairman and CEO Phebe Novakovic, the FAA has asked Gulfstream to perform a line-by-line validation of the software for the fly-by-wire, ultra-long-range business jet.

        The disclosure validates industry fears about higher FAA scrutiny of future aircraft certifications in the wake of the Boeing Max debacle. Novakovic didn’t specifically mention Boeing, instead skirting around the issue by saying the time-consuming, extra requirement “is the result of events independent of us.”

        Novakovic added that a delay in G700 certification will also have a knock-on effect on the derivative G800. First flight of the G800 is planned for first-quarter 2023—timed to occur just after G700 approval—while certification has always been “six to nine months after the G700.” Delayed certification will also interrupt the start of G700 deliveries, though Gulfstream would increase production of other models to make up for the temporary shortfall, she said.

        https://www.ainonline.com/aviation-news/business-aviation/2022-04-27/gulfstream-g700-caught-crosshairs-max-fallout

        • IIRC General Dynamics is talking about a delay of months, not the same magnitude suffered by Boeing’s 777X: years!

        • Hello AP-Robert,

          The quote from Mr. Hamilton refers to the specific situation of the 737 MAX and 787 — where the FAA has found itself having to vet and sign off on *every individual airframe* rather than entrusting this task to BA. This is a chore that no regulator *should* have to perform, and it’s a task that the FAA *would* not have to perform were it not for the continuing lack of reliability from BA. Put bluntly: the FAA is forced into acting as a full-time baybsitter, because the parents (OEM) of the children (airframes) in question apparently just can’t be trusted.

          The FAA has openly complained that the (new) ODAs with which it has to deal at BA appear to lack the experience / skills required for the job. So the underlying problem seems to be at BA (surprise) — which we know to be suffering from a significant brain drain. If BA got its act together, it would free up a lot of personnel and resources at the FAA.

          I don’t know how many staff the FAA has in its regulatory branch, but the EASA only employs 800 people, and it works to a very high standard. Food for thought.

          https://www.easa.europa.eu/faq/19240

    • -> “Our forecast assumes that what was once a 50-50 single-aisle/twin-aisle market (by value) will stay at 70-30 for most of this decade. This will have big implications for the two primes … a 75-25 market cannot be ruled out.”

  8. SYDNEY (Reuters) -Qantas Airways Ltd is set to announce a landmark order for Airbus SE A350-1000 jets capable of nonstop flights from Sydney to London as part of a wider deal with the European planemaker, industry sources told Reuters.

    The multibillion-dollar order, to be unveiled in a Sydney airport hangar on Monday, brings the Australian carrier a step closer to launching record-breaking direct flights of nearly 20 hours on the lucrative “Kangaroo route” by mid-2025.

    Qantas has touted plans for the world’s longest commercial flights for more than five years, but delayed its “Project Sunrise” due to the coronavirus pandemic.

    The deal is a breakthrough for veteran Qantas Chief Executive Alan Joyce who has described nonstop Sydney-London flights as the Holy Grail for the 101-year-old carrier.
    ****************
    Note: No need to go anwhere near Russia.

  9. Udvar-Hazy is spot on in this article. Airbus taking 65% market share? That would have been impossible three-five years ago. Boeing has it’s issues, many issues? Is Calhoun the right one to captain the ship? Only time will tell.

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