Leeham News and Analysis
There's more to real news than a news release.
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.
PNAA Day 2: Airbus says Boeing has product gap.
Feb. 10, 2016 © Leeham Co. Boeing has a product gap that Airbus is filling with its airplanes, says Simon Pickup, strategic marketing director.
Pickup said Boeing has a gap in its product line between the 737-8 and the 787-9. The 737-9 and 787-8 aren’t selling, creating a hole in the market for Boeing that is filled by Airbus.
Feb. 10, 2016: Today is the second of three days of conference meetings organized by 
the Pacific Northwest Aerospace Alliance (PNAA), in Lynnwood (WA). We’re providing live reporting throughout the three days.
The A321 and the smaller A330 fill this gap, says Pickup, who noted the A321neo outsold the 737-9 by 9:1 in the last two years and the A330-200/800 dramatically outsold the 787-8 during the same period.
PNAA Day 2: Cautionary note raised
- Feb. 10, 2016: Today is the second of three days of conference meetings organized by
the Pacific Northwest Aerospace Alliance (PNAA), in Lynnwood (WA). We’re providing live reporting throughout the three days.
Feb. 10, 2016: Large commercial aircraft deliveries hit just under $104bn in 2015, a 4.9% gain over 2014. Regional aircraft values, however, were just $7.1bn, a decline of 10.5% year-over-year, said Richard Aboulafia, a consultant with the Teal Group.
Deliveries of all aircraft types, including military, rotocraft, etc., saw only a 0.6% increase YOY. Jetliners account for 60% of the total values.
PNAA Day 1: Boeing’s view of the global market
- Feb. 9, 2016: Today is the first of three days of conference meetings organized by the Pacific Northwest Aerospace Alliance (PNAA), in Lynnwood (WA). We’re providing live reporting throughout the three days.
Randy Tinseth, VP-Marketing for Boeing, said forecasts predict oil as low as $7/bbl and as high as $80/bbl–as always, “giving themselves a lot of leeway.”
Asia remains the top growth market, adding 100m passengers every year (the size of Atlanta’s international airport, the world’s busiest, which served 100m passengers lasgt year.
The cargo market has been challenged over the last six years, and it comes and goes, but it will come back when trade comes back, Tinseth said.
- Tinseth compared the 787-10 with the A330-900 to show a claimed 165nm range advantage–but the A350-900 (new generation-to-new generation) was omitted. The A350-900 has a much longer range than the 787-10. (Updated to correct the A330-800 to the A330-900.)
The single-aisle market represents 70% of the market and half the value, including Airbus and all other competitors.
“We as an industry and we as a company have to focus on doing the right things…and build at the right cost” to be successful, Tinseth said.
He said that given the total forecast of 35,000 airplanes from regional jet to Very Large Aircraft, there is a need for 60% of the sales still to be made.
Tinseth said the company will deliver fewer 737s this year because the supply chain can’t keep up as the transition between the NG and MAX takes place.
Update: This email was received later from Boeing’s Corporate Communications department:
I wanted to touch base on this bullet in your coverage of Randy’s PNAA presentation.
After talking to Randy, I believe his response was lost in translation.
He was making the point that the transition to MAX is the reason we’ll deliver fewer 737s—because we’re producing several MAX airplanes this year that won’t deliver until 2017.
On a follow up question about separate production lines, he was simply making the point that the NG and MAX share a common supply chain.
So the supply chain is delivering precisely to our 42 per month rate. We’re producing 42 per month, but won’t be able to deliver to that rate this year due to MAX certification.
His point was the opposite of “can’t keep up.” Our suppliers are doing exactly what we need them to do. We can’t expect them to deliver at a rate higher than 42 right now just so we can build more NGs to make up for the MAXs that won’t deliver this year. And of course, that would go against our own rate hike schedule.
China’s market has slowed, but the government is restructuring the economy but “we see robust, double-digit growth” for the future, he said.
Despite the fluctuation of oil prices, “we haven’t seen a change in the replacement pattern,” Tinseth said. Aircraft reach maintenance requirements, interior upgrades and certain ages that simply need replacement.
PNAA Conference Day 1: Aerospace Clusters
- Feb. 9, 2016: Today is the first of three days of conference meetings organized by the Pacific Northwest Aerospace Alliance (PNAA), in Lynnwood (WA). We’re providing live reporting throughout the three days.
Aerospace clusters are evolving throughout the world, said Kevin Michael, vice president of ICF International.
California is on the decline. Two new clusters on the rise are Mexico and the Southeastern US. The Netherlands and Singapore are successful, long-term clusters.
California was the premier aerospace cluster for decades, but its demise began when Lockheed chose Georgia as the location to build the C-130. The founding of Airbus was not good news for SoCal, and neither was the end of the Cold War. The acquisition of McDonnell Douglas by Boeing in 1997 further precipitated the decline of SoCal.
Irkut MC-21, first analysis
By Bjorn Fehrm
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Introduction
Feb. 08, 2016, © Leeham Co: We recently covered China’s COMAC C919 and now the time has come to the other new narrow body aircraft from the old Communist bloc, the Russian MC-21.
The aircraft is called Irkut MC-21. Not many have heard of Irkut, so the first reaction is that this aircraft is made by a new Russian aircraft firm. The change is that United Aircraft (the Russian aircraft industry holding company) this time called the aircraft after its manufacturing company and not the design bureau, Yakovlev, that Irkut acquired in 2004. There are discussions to change back to the project’s original name Yakovlev 242 once certification is done.
When we looked at the first civil airliner that the Russian federation designed after the fall of Soviet Union, the Sukhoi Superjet 100, we found a well designed aircraft equipped with Western system. The MC-21 follows the same lines, but has more Russian technological development. It is therefore well worth a look.
Summary:
- The MC-21 has its own profile. It is not a copy of a Western aircraft. It has a wider cabin than the A320, a wing which allows a higher cruise speed and a higher capacity in its base variant, the MC-21-300.
- To make a meaningful comparison between the MC-21 and established aircraft, we have chosen to compare the MC-21-200 with the Airbus A320neo, as the MC-21-300 is larger than the A320neo but smaller than an A321neo. The MC-21-200 is closer in size to an A320neo. Read more
The MAX flies ahead of time
By Bjorn Fehrm
2 February 2016, ©. Leeham Co: The Boeing 737 MAX flew for the first time Friday. On Saturday it was in the air again. Boeing has communicated they will deliver the first aircraft to Southwest next year in the third quarter. We doubt it.
Boeing 737 MAX 8 takes off for first flight. Picture: Seattle Times.
It will be earlier, barring a major problem cropping up (and the chances are good there will be none).
Delivery of aircraft projects ahead of time is almost unheard of. And when it is Boeing that looks like being early, people start to think about the Dreamliner debacle. It was over three years late.
We would say: absolutely be skeptical, but in this case, there is reason for optimism.
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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