Leeham News and Analysis
There's more to real news than a news release.
Pontifications: The Bottom Line isn’t always about The Bottom Line
By Scott Hamilton
June 6, 2016, © Leeham Co.: Sweetheart deals to win strategic aircraft orders are nothing new in commercial aviation.
John Leahy, COO-Customers for Airbus, last week poked Bombardier for its order from Delta Air Lines. Citing a reported airplane sales price of $22m, which Leahy estimated cost BBD $7m per airplane, Airbus’ chief salesman—known for his barbs and quips—said if BBD sold more C Series faster, the company would go out of business quicker.
Set aside for the moment the numbers he cited as unknown quantities. LNC has different figures we’ve reported and in two posts on my column at Forbes, here and here, there are other aspects to the Delta deal that affect economics.
It’s undisputed that BBD took a US$500m charge against the Delta, Air Canada and AirBaltic deals. The second Forbes post explains why. It’s all about the learning curve. Airbus and Boeing know about this: the first A350s are being chalked up to big losses and the 787 has $29bn in production costs. But it’s not to their benefit to acknowledge this when criticizing the C Series deals.
All this is neither here nor there, however. Airbus, Boeing and McDonnell Douglas all have (had) done deals that don’t seem to make commercial sense when key, strategic transactions were necessary.
Airbus stepping up innovation
By Bjorn Fehrm
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Introduction
June 6, 2016, ©. Leeham Co: In January last year I had a discussion with Airbus CEO Fabrice Bregier regarding the innovation level at Airbus. The background to the discussion was that Airbus was trailing its direct competitor, Boeing Commercial Airplanes, in innovations since the early 2000s.
Airbus started life as a more innovative company than Boeing. It was using new technology in an aggressive way to gain product advantages on the incumbent Boeing. Examples are the universal use of Fly-By-Wire (FBW) and the standardization on a common cockpit layout for all its aircraft, whether single or dual aisle, Figure 1.
Figure 1, Airbus A320 cockpit laying the ground for a common cockpit standard. Source: Wikipedia.
The FBW and common cockpit enabled customer pilots to cover a wider range of aircraft with minimal training. Airbus also led the aerodynamic development with high aspect ratio wings for its A320 and A330/340 series aircraft.
Somewhere during the problems with the A380, the creative and innovative spirit got caught in the aim to unify the group, to make sure that the “I make it my way” initiatives stopped in the different national industries that made up Airbus.
Airbus changing production to be more competitive
By Bjorn Fehrm
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Introduction
June 1, 2016, ©. Leeham Co: With the large aircraft development programs being on the way to fade out and give way to incremental improvement programs, Airbus is shifting its focus onto making its production more competitive.
The revenue and profitability of Airbus commercial aircraft depends on up to 90% on delivered airliners. With the pricing determined by the market, the production costs are virtually determining Airbus’ bottom line.
Figure 1. The forward part of an A350 loaded into Station 50 in the Final Assembly line. Source: Airbus.
The classical Airbus production system was designed to satisfy industrial-political rather rational production criteria, with each participating national aeronautical industry vigorously carving out its piece of the production pie. The result was a production system that had non-optimal efficiencies.
With the coming 5-10 years being a period of incremental development amid a further ramp up of production, the time has now come to focus the Airbus production system and to change this to an efficient and streamlined operation.
Airbus aircraft programs in review
By Bjorn Fehrm in Hamburg
Introduction
May 31, 2016, ©. Leeham Co: Airbus went through a complete review of all their aircraft programs as part of their yearly briefing for media in Hamburg today. A lot was said regarding the status for the different programs by Airbus CEO Farbice Bregier, its COO customers John Leahy and Executive VP Strategy and Marketing Kiran Rao.
Figure 1. Most recent A350 delivery was to Cathay Pacific. source: Airbus.
The briefing was given against a backdrop of weak orders and deliveries for the first five months of the year. Both Bregier and Leahy said, “This is to be expected, it’s not sustainable that we have Book-to-Bill ratios (orders vs. deliveries) of over 1.5 or even close to two for many consecutive years. We have a backlog of 6,700 aircraft that customers expect us to deliver and they have little appetite to order new aircraft when they can earliest get them by 2021 at the earliest.
“We are now in a period of focus on deliveries and we can expect and be happy with a book to bill ratio of around one for the coming years. The extraordinary backlog also justifies our decision to increase production to 60 units per month for our A320 single aisle program.”
Here follows what was said for each of the programs.
Airbus will recover 2016 production
By Bjorn Fehrm in Hamburg
Introduction
May 30, 2016, ©. Leeham Co:
Airbus has got off to a slow start for A320neo and A350 production this year. The Airbus Hamburg and Toulouse airfields are filled with A320neo aircraft waiting for engines and the A350 Final Assembly Line (FAL) in Toulouse has 40 aircraft in different states of readiness but very few are being delivered. Out of target of 50 A350 delivered in 2016, a total of nine have been delivered to customers so far.
Airbus COO Tom Williams. Source: Airbus
“We have been making gliders for some time now,” said Airbus COO Tom Williams in an Airbus briefing in Hamburg,”but that is about to finish. We are getting delivery of engines from our partner Pratt & Whitney, which has a fix for a prolonged starting time and we have fixed other issues for the A320neo with software updates and changed procedures”.
“When it comes to A350 we have enough aircraft in final production ready for customer delivery after cabin installations,” Williams said. “Now we just got to work through some persistent supplier problems for the cabin side.” Read more
New KC-46A delay means more charges probable
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Introduction
May 30, 2016, © Leeham Co.: It’s the classic maneuver to bury bad news: Boeing
Boeing KC-46A. Source: National Defense Magazine via Google images.
announced on Friday, the start of the three-day Memorial Day weekend that its KC-46A tanker will be delayed yet again. Only 16 days earlier, Boeing CEO Dennis Muilenburg said the tanker was on time under a schedule that had been revised previously.
That wasn’t all, according to the announcement. Even when the tankers are delivered, the wing pod refueling systems won’t be operational. (The Boeing statement is below the jump.)
If all this has a familiar ring, it should.
The previous version of the KC-46A, the KC-767 International Tanker, was delayed four years in part because of flutter issues with the pod refueling systems.
Only eight of these tankers were built: four for the Italians and four for the Japanese. Boeing took huge write-offs for these tankers.
Summary
- Will the latest delay be the last?
- Boeing is building tankers despite the need for rework and some internal design changes.
- Are we facing the prospect of a new set of “Terrible Teens”?
- Another write-off is probable-and it may not be the last.
- Will the full USAF tanker procurement yield a profit on the sale?
Pontifications: The crystal ball
By Scott Hamilton
May 30, 2016, © Leeham Co.: We at Leeham Co. and Leeham News and Comment take some risk when we make analyses, forecasts, projections and predictions. These often put us out on a limb, open us to criticism and even ridicule and as often as not really pisses off those companies that are the target of such predictions.
Some recent events and news stories caught my eye that validated something I predicted eleven years ago.
First, the set up.
Dissecting Wide-Body deliveries through 2030
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Introduction
May 26, 2016, © Leeham Co.: A softening of trans-Atlantic air traffic, with declining yields and passenger demand, raises anew concerns that there is an oversupply and over-ordering of twin-aisle aircraft.
Air Lease Corp. addressed this concern at its May 19 investors day, arguing that growth plus retirements over the next 25 years more than supports the orders.
ALC, which is headed by Steve Udvar-Hazy and John Plueger, considered two of the leaders of the lessor industry, note that there is an average of about 150 wide-bodies approaching 25 years in age each year for the next 20 years. Coupled with long-haul traffic growth, ALC—which has a modest number of wide-body orders—is comfortable with the future supply-demand.
We’ve dissected the known delivery dates of wide-bodies at Airbus and Boeing, using the Ascend data base as of January. Wide-body orders have been announced subsequently, but not all have been firmed up and the total number won’t materially affect the trend lines.
Figure 1. Source: Air Lease Corp. Click on image to enlarge.
Summary
- We look at announced production rates by 2020 of Airbus and Boeing. We don’t include our own forecasts.
- We look at the defined delivery dates of the A330, A350, A380, 747-8, 777 and 787. These are all models, including ceo/neo and Classic/X.
- We look at factors that indicate a softening of wide-body demand across the Atlantic.
Finnair exanding Far East faster than planned
By Bjorn Fehrm
May 26, 2016, ©. Leeham Co: Finnair could tell the participants on its Capital Markets Day yesterday that its Asia expansion plans are going better than planned. Being the Finnish national flag carrier, Finnair has had its slew of legacy airline problems, fighting the up-and-coming LCCs on its European network.
Figure 1. Finnair’s Airbus A350-900 taking off from Toulouse. Source: Airbus
After a restructuring period 2008 to 2012 to adjust costs, things have turned for the better. The company announced a revised strategic plan 2014, which would build on the strategic position of its hub, the Helsinki Vaanta airport, for traffic to the Far East.
Finnair CEO, Pekka Vauramo, could yesterday announce that this strategy is working better than planned.
Pontifications: ICAO continues to drag feet on real-time data transmission
By Scott Hamilton
May 23, 2016, © Leeham Co.: Malaysia Airlines MH370. Air Asia 8501. Egyptair 804.
Three passenger flights lost over the oceans. One, MH370, remains undiscovered to this day. Air Asia took a couple of weeks to locate. Egyptair debris took about 36 hours. The black boxes are still missing from MH370. Once the Air Asia wreckage was discovered, the boxes were recovered fairly quickly. According to media reports, the black boxes of 804 have been “generally” located, but Egypt has dispatched a submarine to more precisely locate them.
The absence of real-time data transmission from the Flight Data Recorders contributed to the mysteries of what happened to these aircraft and spurred wild theories and conspiracies. ACARS, which does transmit data from airborne aircraft, does so at intervals–not real-time. Real-time data streaming from on board transmissions could provide immediate answers to what happened to an airliner.