Leeham News and Analysis
There's more to real news than a news release.
IATA, Lufthansa cargo reports are discouraging
July 6, 2016, © Leeham Co.: Going into the Farnborough Air Show (#FIA16 on Twitter) next week, ominous signs continue to emerge about the health of the air cargo
Photo via Google images.
industry.
The International Air Transport Assn. (IATA) Wednesday said yields and traffic remain under pressure. Freight tonne kilometers fell 0.9% year-over-year, IATA reported.
“Yields remained pressured as freight capacity measured in available freight tonne kilometers (AFTKs) increased by 4.9% year-on-year,” IATA said. “reight demand decreased or flat lined in May across all regions with the exception of Europe and the Middle East. These regions recorded growth in air cargo volumes of 4.5% and 3.2%, respectively, in May, compared to the same period last year.”
Lufthansa Cargo saw yields in a “landside” drop, according to a Bloomberg report.
Farnborough Preview #3: Analysts weigh in
July 6, 2017: The industrial portion of the Farnborough Air Show (#FIA16 on Twitter) officially begins Monday and runs through Thursday. There are also some special events Sunday. LNC will be reporting from the Show throughout the week.
Below are a few final previews from aerospace analysts, followed by other analyst reports for the last week. There will be no Weekly Analyst Synopsis next week because of the Show.
Highlights below:
- Expectations for orders modest-to-slow. (Credit Suisse, JP Morgan).
- Southwest MAX deferral (Credit Suisse).
- Airlines face softer environment. (JP Morgan.)
- MOM Aircraft and 777X. (Buckingham Research.)
- Spirit Aerosystems looks to A350 charge.
Book Review: The Crash Detectives
July 5, 2016, © Leeham Co.: The Crash Detectives, by Christine Negroni, © 2016. Penguin Books. Available on Amazon.com.
As an avid follower of The Smithsonian Channel’s “Air Disaster” series and The Weather Channel’s “Why Planes Crash,” as well as knowing Christine Negroni, I was anxious to read her new book, The Crash Detectives. (Negroni is also the author of Deadly Departure, about TWA Flight 800.)
Negroni is no wanna-be aviation disaster geek. Her resume qualifies her to understand aviation accidents and speak and write with knowledge about them.
Negroni writes about dozens of aviation accidents and mysteries. Some of these are well known (the de Havilland Comet I accidents, for example). Some were miraculous outcomes (United Airlines 232, US Airways 1549, Qantas Airways 32). Some are ancient history (pre-World War II, including the disappearance of Amelia Earhart.)
Among the most interesting are the accidents in which hypoxia of the pilots are involved. These make fascinating reading. And it is hypoxia that is the leading cause of Negroni’s theory of one of commercial aviation’s most infamous mystery.
Pontifications: Boeing is back
By Scott Hamilton
July 4, 2016, © Leeham Co.: It’s looking like all the pain and agony of the 787 development is behind Boeing. (Except for the deferred production costs, of course.)
Boeing is back into airplane development mode.
To be sure, only one of these is a new airplane. The others are derivatives. But at least Boeing seems to be on the move after slowing the train (to mix the metaphors) considerably following the 787 debacle.
Farnborough Air Show preview: expectations and possible surprises
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Introduction
July 4, 2016, © Leeham Co: The Farnborough Air Show begins next Monday and predictably, focus will be on orders.
With new airplanes from Airbus and Boeing past their development stages, conventional wisdom says there won’t be much new in this arena.
Don’t be so sure.
Bombardier is now on an upward trajectory, but don’t look for a big splash at #FIA16 (for those looking for this year’s Twitter handle). Embraer will have its E190-E2 at the show.
It’s Boeing’s 100th Anniversary and the company is rolling out the history for the show.
Summary
- No new products from Airbus.
- Boeing may have a surprise.
- Low number of orders anticipated.
Analysts opine on Airbus, Boeing, Iran and Brexit
Click on image to enlarge.
June 24, 2016: Brexit continues to creep into US analyst reports for the potential impact of companies doing business in the United Kingdom.
But there are other issues as well. Highlights this week:
- Spirit Aerosystem is a supplier to Airbus and Boeing. Deliveries to Airbus for the A350 continue despite program delays. Negotiations continue with Boeing over new contract terms. (Buckingham.)
- Don’t freak out over the Southwest Airlines deferral of Boeing 737 MAX. (Credit Suisse.)
- The Iran deal isn’t a big deal yet for Boeing. (Goldman Sachs.)
- Brexit may benefit B/E Aerospace. (JP Morgan.)
- US trans-Atlantic airlines likely will be hurt by Brexit but purely US domestic carriers are fine. (Morgan Stanley.)
Brexit special: analyst reaction
Source unknown. Via Twitter.
June 27, 2016: Aerospace and airline analysts are reacting to Thursday’s vote in Britain to leave the European Union. Below is a synopsis of some of the analyst notes we receive.
Credit Suisse
We are forwarding the analysis our European Transports team put out this morning on Brexit and have a few observations as it relates to US Airlines.
- GBP Exposure: For the US network carriers (UAL, DAL, AAL), GBP exposure averages ~2-3% of total revenues with overall UK exposed revenues ranging 4-6%.
- Impact to High Yield Transatlantic Traffic Primary Concern: For US network carriers, we see the primary concerns post-Brexit on the demand implications on the Transatlantic. Last week IAG issued a profit warning which worries us on corporate demand weakness. Given scheduled seat growth in the Transatlantic continues to outpace demand (H2 seat growth US-EU scheduled at 8.6%), capacity cuts are needed to stabilize pricing particularly since UK GDP is likely to slow even further. We look to Q2 earnings calls next month for additional color from carriers.
- AAL Viewed Most at Risk Given Partnership with IAG, but Our Team Believes IAG is Least at Risk [among EU airlines] from Future UK-EU Air Service Negotiations: Our European analyst believes IAG’s airlines would see limited effect from the UK exiting the EU Open Skies agreement as long as renegotiated UK-EU bilaterals do not limit service levels. This suggests that AAL’s relative underperformance was overdone on Friday; however, we expect Brexit-related uncertainty to continue to weigh on network carriers, and reiterate our confidence in domestic carriers (Outperform on LUV & SAVE).
Pontifications: Time to calm down from last week’s news cycle
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.
Farnborough Air Show Preview: Orders aren’t the only thing to look for
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Introduction
John Schmidt of the consulting firm Accenture, wearing smart glasses for augmented reality.
June 27, 2016, © Leeham Co.: The Farnborough Air Show (FIA16) is closely watched for orders placed with Airbus, Boeing and to a much lesser extent, Bombardier and Embraer. Orders are the headline grabbers and are viewed as indicative to the health of commercial aviation going forward in the near- and mid-term.
But the consulting firm Accenture, in an interview with LNC says there are other benchmarks to watch for at FIA16.
Summary
- A large number of new entrants into aerospace is competing for engineering talent, and it’s not the conventional suspects.
- Execution will be of greater importance than new products.
- The ascent of disruptive technologies; and
- Doubling down on data deluge.
Iran Air, Volga Dnepr deals help Boeing production gaps but don’t solve them
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Introduction
June 24, 2016, (c) Leeham Co.: Boeing’s recent deal with Iran Air for 100 737s, 777s and 747s and its indication that a Memorandum of Understanding with Volga Dnepr may be firmed up will help fill production gaps on the 777 Classic and 747-8 lines. But these transactions won’t fully fill the gaps.
Boeing declined to detail the breakdown of its order–which is still subject to US government approval–but Reuters and The Wall Street Journal obtained the detailed list.
The Volga Dnepr MOU was announced last year at the Paris Air Show for up to 20 747-8Fs. This month, news emerged that this MOU appears to be firming up for 10 plus options or commitments. This contract may be announced at the Farnborough Air Show.
Summary
- Iran Air deal includes four 747-8s and 15 777-300ERs. Helpful, but not enough to fill the production gaps.
- Volga’s firming of 10 orders is helpful for the 747-8, but even at a reduced production rate of six airplanes per year, a significant gap remains.