Leeham News and Analysis
There's more to real news than a news release.
Singapore Air Show pictorial
Feb. 2123, 2016: The Singapore Air Show ended last week with a dearth of news. William Bain, associate professor and co-editor of International Relations, provided LNC with these photos.
Welcome news for Bombardier, Mitsubishi
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Introduction
Feb. 22, 2016, © Leeham Co.: The large order (Letter of Intent) last week by Air Canada for 45 firm and 30 option CS300s was welcome news for Bombardier.
And the LOI from the US lessor, Aerolease, for 10+10 MRJ90s was welcome news for Mitsubishi.
We take a look at both announcements and what this means for the two programs.
Summary
- The Air Canada order breaks the long drought in C Series orders, but it’s not enough for smooth sailing (to mix metaphors) for the aerospace company.
- Continuing the mixed metaphor, Bombardier still has a long hill to climb.
- MRJ order, by little known lessor, helps diversify customer base.
Pontifications: Tax breaks in Washington State
By Scott Hamilton
Feb. 22, 2016, © Leeham Co.: A group of Democratic legislators in Washington State will introduce five bills aimed at repealing some tax breaks and also taking yet another run at holding Boeing’s feet to the fire by tying jobs and tax breaks. The latest effort died in committee this year. This is the second year in a row by Boeing’s two key Washington unions, SPEEA (engineers) and the IAM 751 (touch labor) to get a bill out of committee to tie jobs to tax breaks. Boeing opposes the effort.
Most of the bills relate to non-aerospace industries. Two, however do:
Boeing CEO sees strong fundamentals
Feb. 17, 2016: The fundamentals of the aerospace industry remain strong in commercial and defense, says Dennis Muilenburg, CEO of The Boeing Co. Airlines are becoming more profitable, allowing them to accelerate fleet replacement, he said.
Dennis Muilenburg, Boeing chief executive officer. Source: Boeing.
In his first public appearance since the disappointing 2016 earnings call guidance on Jan. 27 and news of an investigation by the US Securities and Exchange Commission over the practice of program accounting, Muilenburg faced questions at a Barclays investors conference today.
Boeing stock is off about 22% since the beginning of the year and was off about 15% since Jan. 27. Stock has been recovering in recent days. Aerospace analysts say that Boeing has been buying back the stock, propping up the price.
Air Canada orders up to 75 C Series; announced with BBD 2015 financial results
Feb. 17, 2016: The long drought is over.
Air Canada has ordered up to 75 Bombardier C Series.The press conference is at 11am EST today. These will replace 25 Embraer E-190s. BBD now has orders and commitments for 678 C Series.
The announcement comes with the company’s fourth quarter and year-end financial results and a 90-seat version of its Q400 turboprop.
The Air Canada deal is a Letter of Intent for 45 CS300s and options for 30 more, including conversion rights to CS100s. Deliveries are from 2019.
- BBD to cut 7,000 jobs: Bloomberg News. The cut includes 2,000 contractors.
The earnings call webcast summary is below the jump.
Airbus, Boeing cash, stock, dividend strategies similar
Feb. 16, 2016, © Leeham Co.: Boeing has been under pressure since its Jan. 27 earnings call, when its 2016
guidance fell short of analyst expectations. Then the news that the company is under preliminary investigation by the US Securities and Exchange Commission over how its program accounting assumptions were reached.
Free cash flow (FCF), shareholder buybacks and strategy all have come under scrutiny is recent years. But just how different is this compared with its bitter rival, Airbus?
It turns out that other than Boeing’s use of program accounting and Airbus’ use of unit accounting (except for the first several A350 deliveries, for which contract (program) accounting is used), the approaches toward cash flow and shareholder buybacks are very similar.
Credit Suisse’s European analysts who follow Airbus issued a long research note on Feb. 5, just days before the Bloomberg News report on the SEC investigation. The Feb. 5 note doesn’t address program or contract accounting. But as does Credit Suisse’s US analyst who follows Boeing, the Airbus note discusses FCF and stock buybacks at great length.
Pontifications: Gifts that keep on giving
Feb. 15, 2016, © Leeham Co. In the news business, it’s called the gift that keeps on giving.
By Scott Hamilton
These are news stories on topics that just won’t go away. And we get to write about them over and over and over and over. And then we get to write about them some more.
For most of the decade of 2001-2009 and into 2011, we journalists got to write about the USAF aerial refueling tanker scandal and procurement process. First, Boeing struck a deal to lease 100 KC-767s to the USAF. This deal blew up like an IED in late 2003 when Sen. John McCain (R-AZ), who sat on the US Senate’s powerful Armed Services Committee, challenged the fiscal responsibility of the deal. His investigation uncovered improprieties. A former USAF procurement officer who was hired by Boeing after the contract award went to jail. So did the CFO. And Boeing CEO Phil Condit resigned, giving us as his successor former McDonnell Douglas CEO Harry Stonecipher. (This later became story in its own right.)
- See my column at Forbes about last week’s bad news day at Boeing.
- See Reuters story on Boeing’s use of program accounting.
Bombardier earnings preview
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Introduction
Feb. 16, 2016, © Leeham Co.: Bombardier’s fourth quarter and full year 2015 financial results will be reported
Wednesday, and we don’t expect the situation to be pretty.
Yes, officials will highlight the recent closing of the sale of 30% of the Transportation (Rail) subsidiary.
Yes, the C Series is now on a world tour and appearing at the Singapore Air Show this week.
Yes, the CS100 will enter service in the second quarter.
Yes, the CS300 should be certified, delivered and enter service before the end of this year.
But missing will be any concrete information about new orders.
Summary
- Still no C Series orders since September 2014.
- Bombardier has its hand out for more government aid.
- ATR is making a new push in China and North America, the latter a stronghold for the Q400.
Dissecting Boeing cost-cutting
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Introduction
Feb. 11, 2016, © Leeham Co. The news yesterday that Boeing is undertaking a new round
of cost-cutting has been buzzing around management and labor circles for months.
LNC last year began hearing management at Boeing Commercial Airplanes would likely face personnel cuts of 10% to 15%. Cuts were expected within the marketing/sales departments, in part due to struggling sales of the 7-Series airplanes, sources told LNC.
The leading labor unions, SPEEA (engineers) and IAM 751 (touch labor), each told LNC last year they expected workforce layoffs were in the future.
More ominously, a consultant who occasionally worked with Boeing, told LNC that the elevation of Dennis Muilenburg from president and chief operating office to president and CEO (and, eventually, chairman) would make former CEO Jim McNerney’s cost- cutting efforts pale by comparison.
Summary
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Posted on February 11, 2016 by Scott Hamilton
Airbus, Boeing, IAM 751, Leeham News and Comment, Premium, SPEEA
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