HOTR: Airbus’ view on recovery from COVID; why Southwest stayed with MAX 7

By the Leeham News staff

May 11, 2021, © Leeham News: Domestic traffic throughout the world is returning to 2019 levels, but at different rates, according to an Airbus analysis.

Robert Lange, Head of Business Analysis and Market Forecast, said today that the fragmented cross-border travel regulations and uneven vaccinations continue to inhibit passenger traffic recovery from the COVID-19 pandemic.

 

 

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Pontifications: A330-300 could be great deal ahead

May 10, 2021, © Leeham News: The COVID-19 pandemic prompted airlines to ground more than 8,000 aircraft at the peak.

By Scott Hamilton

Among widebodies, no aircraft was hit harder than the Airbus A330ceo.

Traffic within China, the US and Asia recovers with narrowbody airplanes. European short- and medium-haul traffic is not recovering as quickly due to continued boarder closings. International traffic, for the same reason, remains awful.

But in chaos some see opportunities.

Jep Thornton, managing partner of the boutique lessor Aerolease, last week said the A330-300 could be a great trading opportunity.

At April 1, there were 267 -300s and 286 A330-200s (of all types) in storage, according to data reviewed by LNA.

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Calhoun says next new airplane isn’t about engines, it’s about production

David Calhoun, Boeing CEO. Boeing photo.

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By Scott Hamilton

Introduction

May 3, 2021, © Leeham News: The Next Boeing Airplane (NBA) will not be driven by propulsion. Rather, a transformation in design and production to dramatically lower the cost will be the driving factor.

At least this is what Boeing CEO David Calhoun said last week in his final remarks on the 1Q21 earnings call.

While brief on this topic, his remarks are the most expansive yet in the public domain by a Boeing CEO or CFO.

LNA first was tipped to the importance of an entirely new approach to production years ago. That’s when a Boeing corp com official said the proposed Middle of the Market Airplane would be as much about production as it would be about the aircraft. LNA’s investigation subsequently revealed Boeing’s effort to revolutionize its engineering and production under the code name Black Diamond. LNA was the first media to write about this in detail. Even today, few recognize the code name.

Summary
  • The NBA, whatever form it takes, won’t wait for revolutionary new engines.
  • A transformation in design, engineering, and production will be key.
  • Calhoun believes Boeing has the advantage, but Airbus isn’t standing still.

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Pontifications: Long road ahead, but Boeing will recover

By Scott Hamilton

May 3, 2021, © Leeham News: Cowen Co. called the Boeing 1Q21 financial results “messy” with questions unanswered.

Credit Suisse characterized a “challenging 1Q, though recovery should begin to accelerate.”

My take falls in line with Credit Suisse. It was a challenging first quarter and lots of variables overhang Boeing going forward. But I was struck by the confidence displayed by CEO David Calhoun and CFO Greg Smith going forward. And I’m not one to drink the Kool-Aid by any stretch.

To be sure, many challenges lie ahead for Boeing. Returning the 737 MAX to service has been anything but smooth. New issues popped up that resulted in Boeing (not the regulators) grounding the airplane again. Deliveries were suspended once more.

After 10 years of production, Boeing suspended deliveries of the 787. The KC-46 tanker still isn’t performing as required after nearly two years of delivery delay and limited operations with the US Air Force.

This is not The Boeing Co. of decades past.

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Why the MAX isn’t back – yet

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By Judson Rollins

Introduction 

April 29, 2021, © Leeham News: Much virtual ink has been spilled in recent weeks over an apparent surge in demand for Boeing’s 737 MAX, as a slow drip-drip-drip of cancellations finally reversed into net new orders.

The Boeing team must be grateful to see a shift toward positive headlines for its single-aisle family. Longtime 737 customers provided badly needed votes of confidence with top-ups to their previous orders.

However, such momentum has been slowed by a continuing wave of cancellations. Boeing logged just 12 net orders in February and 40 in March. More cancellations are due to be announced; Turkish Airlines recently said it would cancel or convert to options 50 of its previous MAX orders, and ch-aviation says a single unidentified customer cancelled another 45 in March. Aeromexico swapped MAX orders for other MAX orders, saving $2bn in the process – a revenue hit for Boeing down the line.

The total backlog, net of orders in doubt under ASC 606, is down from a high of 4,708 to just 3,240 as of this week. This is enough to support average production of just 30 airplanes per month through 2029. Boeing CEO David Calhoun said on yesterday’s earnings call that he remains confident the MAX demand will recover from this point forward.

Summary
  • New orders are mostly from large existing MAX customers, and likely include mitigation discounts for delivery delays.
  • Boeing has 400 undelivered aircraft in storage, some of which were due for delivery to now-defunct airlines.
  • Pricing trends are quite negative, depriving Boeing of badly-needed free cash flow.

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(Updated) Airbus 1Q2021, a strong quarter in difficult times

April 29, 2021, © Leeham News: Airbus presented its results for the first quarter of 2021 today. It was a reassuring result when other aircraft manufacturers suffer.

The Airbus operations delivered an operational profit of €0.7bn with a net profit of €0.5bn, reflecting good progress in sizing the company for the new reality and a solid performance in operations. Commercial aircraft delivered 125 planes during the quarter against 122 last year. The outlook for 2021 from the 2020 results briefing in February was maintained.

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Pontifications: Balance shareholder value with product development and strategy

April 26, 2021 © Leeham News: Balance shareholder value with the long-term strategy of The Boeing Co.

By Scott Hamilton

This is what Boeing needs to do. But there were conflicting signals from the 2020 annual shareholders meeting held April 20 via virtual webcast and dial-in participation.

“We want to get back to a dividend policy. I can’t give you a date and we need a return in our commercial aviation department to support that.” So said David Calhoun, CEO.

Yet Calhoun was circumspect about a new airplane program.

When asked about developing a new airplane, Calhoun said—as he has before—that Boeing’s current research and development focus is on refining engineering modeling and production methods. These will be the “real differentiators” for the next new airplane.

“Calhoun vowed to return Boeing to its engineering roots,” reported Bloomberg News.

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“There’s light at the end of the tunnel, but the journey is just beginning.”

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By Scott Hamilton

Introduction

April 26, 2021, © Leeham News: Aerospace suppliers generally had worse delivery and quality control performance in 2020 than in 2019. By next year, executives think timeliness and quality will return to 95% of pre-pandemic levels.

Eighty-three percent of executives surveyed see delivery rates for narrowbody aircraft improving this year and next.

Forty-nine percent of executives surveyed see airline industry revenues returning to 2019 levels in 24-36 months.

And eco-aviation and sustainability drives will be an increasingly important topic over the next three years.

These are just some of the findings in the annual survey of aerospace and airline executives conducted by the international consulting firm Accenture.

Summary
  • “There’s light at the end of the tunnel, but the journey is just beginning.”
  • 6-18 month outlook. 2019 survey skipped as the pandemic spread.
  • The shift in sustainability-driven is by today’s younger generation.

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Unsustainable – and growing – airline debt load weighs on OEMs, suppliers

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By Judson Rollins

Introduction 

April 22, 2021, © Leeham News: COVID-19 has forced every layer of the commercial aviation supply chain, apart from cargo airlines, to streamline their businesses and raise cash to survive. Nowhere has this been more true than for passenger airlines, the end-customers for most aviation products.

Before the pandemic, passenger carriers were taking advantage of cheap capital to invest in both new and used aircraft. However, most have stretched their balance sheets beyond imagination by pledging every unencumbered asset – even frequent flyer programs – to raise additional debt.

International Air Transport Association (IATA) economist Brian Pearce said in a February webinar that governments provided $101bn of repayable loans and tax deferrals in 2020 alone. Another $125bn was raised from banks, capital markets, and lessors. More will be required this year.

Governments and markets backstopping the world’s airlines, aided by central bank money printing, are why fewer than 50 have ceased operations since the start of the pandemic. This is not materially worse than a typical year, but it doesn’t begin to reflect the scale of the ongoing financial shock to airlines.

Summary
  • Airline demand recovery is prolonged in most regions; new tax and cost pressures loom.
  • Debt loads will continue to grow this year; interest expense is mounting.
  • High leverage may depress airline capital expenditures through 2030.
  • Governments may finally ground loss-making state carriers, adding to used aircraft inventory.
  • Aircraft production cuts are already impacting the supply chain.

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The conundrum of a new airplane design vs a derivative

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By Scott Hamilton

Introduction

April 19, 2020, © Leeham News: When it comes to a decision by an aircraft manufacturer whether to develop an entirely new airplane or a derivative, these multi-billion dollar decisions involve hundreds of thousands of considerations.

Airbus missed with its first A350 design, but has a winner with the A350 XWB. Source: Airbus.

Sometimes derivatives will do the job. Sometimes a new airplane is the better choice.

Given that Boeing faces a decision whether to launch the Next Boeing Airplane (NBA) and Airbus must decide how to respond, all within the next few years, looking at the considerations and some history is timely.

Today’s examination is going to focus at the 40,000 ft level. We’re not going to delve down into the decisions over suppliers or the minutiae into production. Rather, we’re going to look at general strategy.

Summary
  • Airbus wins big gamble with A320neo decision.
  • Boeing was victor with 787, while Airbus missed with first A350 design.
  • Boeing missed with 747-8I and, it appears so far, with 777X.
  • Next airplane decision by Boeing will drive Airbus response. Read more