Leeham News and Analysis
There's more to real news than a news release.
Boeing tries to tamp down oil price fall concerns
Boeing’s Investor Relations department in Chicago sent a message to aerospace analysts to tamp down concerns about falling oil prices and questions over the impact on airplane orders.
Its message is:
A look behind the headlines of Airbus’ Investors Forum
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Update, 0530 PST Dec. 15: Aviation Week posted an article that indicates Airbus and Rolls-Royce are closing in on an engine deal that will lead to the A380neo and a stretch.
Introduction
Last week’s Airbus Global Investors Forum proved to be a debacle due to a rogue customer and two miscues by management.
First, Group CFO Harald Wilhelm indicated Airbus may decide in 2018 to terminate the A380 program, causing consternation from Tim Clark, president of Emirates Airlines, which has 44% of the order book. Airbus Commercial management spent a good part of the next day in damage control.
Second, with little forewarning, Airbus told analysts that production rates for the A330ceo would come down in advance of introduction of the A330neo. This news shouldn’t have come as a surprise, but for some it did. If they had closely followed sales efforts for the A330ceo, the lack of success and the production gap, news that Airbus will bring rates down more than the 1/mo decline previously announced shouldn’t have surprised. Still, Airbus had not previously sent strong enough warning signals.
Third, profit and free cash flow warnings weren’t well received.
Finally, Akbar Al-Baker, the prickly CEO of Qatar Airways, chose the first day of GIF to announce he wasn’t going accept delivery of the first A350-900 three days later.
The result: the stock price plunged 10% on Day 1 of GIF and another 4.3% on Day 2.
Summary
- It’s time to look behind the headlines of the debacle and analyze what the meaning is;
- The implications of Wilhelm’s A380 statement;
- Better detail on the A330 rate reduction; and
- Implications for Boeing.
Odds and Ends: 757 replacement search continues; Qatar’s A350; PNAA aviation conference
757 replacement: Aviation Week has a good piece about Boeing’s studies of a replacement for the 757, harking back to the era when Boeing designed the 757 and 767–a New Small Airplane and a New Light Twin. Guy Norris’ story hits on many of the same themes we discussed in October when we interviewed Kourosh Hadi of Boeing’s product development team. Our post then was behind our paywall; we’ve opened up today for all readers.
Qatar’s A350: Flight Global takes a look at what’s up with the acceptance delay by Qatar Airways of the world’s first Airbus A350-900. Free registration required.
PNAA aviation conference: The Pacific Northwest Aerospace Alliance will hold its annual conference Feb. 10-12 in the Seattle area. This has become the largest conference of its kind on the US West Coast, expected to serve about 500 delegates at this event. Airbus, Boeing, Embraer, suppliers and a suppliers fair are key elements. You may click through to the conference via the banner advertisement above.
Fallout from the Airbus investors days
Dec. 11, 2014: The fallout continues from the disastrous Airbus investors days held yesterday and today in London. Company investor days are supposed to bolster the stock. Yesterday, Airbus stock tanked 10% on cash flow and profit projections, the delivery delay of the first A350 and, according to some commentary, news that theA380 program might be terminated.
We’ve talked with a couple of the analysts who were at the meeting, who reacted with a mixture of eye-rolling, chuckles and “what where they thinking?” moments.
Airbus’ Bregier vows future for A380 with a neo, stretch
Dec. 11, 2014: Fabrice Bregier, CEO of Airbus Commercial, Thursday vowed there is a solid future for the A380, a day ofter Airbus Group CFO Harald Wilhelm cast doubt over the airplane.
“We have commercial momentum on A380, we will get additional customers. We have to get more customers, and convince them there is much more upside than downside to the A380. We are reducing the recurring costs. Longer term this aircraft has stronger potential. We will one day launch an A380neo and one day launch a stretched A380,” Bregier said on Day 2 of the Airbus Investors Days.
Analysts weigh in on Airbus investors day #1
Airbus announced on Day 1 of its two-day Investors Days that it will shift the A350 program to contract accounting for the first few airplanes, reports UBS Ltd. in its research note wrapping up Day 1.
“Airbus has changed the accounting treatment for the early A350 deliveries from unit to IAS 11 contract accounting, using average costs over the contract for each aircraft delivery. This boosts group profits by 50bps in 2015 and 2016 (about €300m benefit) and reduces profits by the same in the later years of the early contracts (est 2017-18),” write UBS.
This is similar to Boeing’s program accounting method, but Boeing uses this for an entire program rather than the first few airplanes.
UBS also wrote, “We have increased our 2015forecasts by €70m or 2% to €4,042m, brought 2016down by 5% to €4,069m and reduced 2017 by 15% to €4.3bn and 2018 by 10% to€6.1bn. The five main drivers were (1) €300m benefit to 2015 and 2016 and €300mdrag to 2017 and 2018 from an accounting change tothe A350, (2) Pricing at Airbus,mainly on the A330; (3) weaker civil helicopter markets; (4) €200m reduction in EBIT from the expected Dassault disposal; (5) A330 production rates could fall further than the 9 per month rate in Q4 2015 (we had already factored in this final point,forecasting 6.4 per month in 2016 and 5 per month in 2017).”
Bernstein Research wrote the following: Read more
Airbus stock hammered on airplane news, Boeing caught in the downdraft
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Introduction
Dec. 10, 2014: As company investors’ days go, Day 1 of Airbus Group didn’t go well. Airbus stock traded off 10% on news that the A330 production rate, already to reduced from 10/mo to 9/mo in 4Q2015, will be further reduced in 2016. No number was given.
Then Airbus acknowledged it may decide by 2018 whether to terminate the A380 program. There were no sales this year.
And true to form, the CEO of Qatar Airways, Akbar Al-Baker, did another one of his famous U-Turns. Only a short time ago he was singing the praises of the A350, the first of which was to be handed over to his airline on Saturday. Today he announced delivery was postponed “until further notice,” with no explanation for the delay.
The stock reverberation didn’t end there; it migrated across the Atlantic, sending Boeing stock down on Wednesday at a rate twice that of the Dow Jones index.
Summary:
- A330ceo sales have dried up in advance of the A330neo introduction. A large Chinese order appears to be going nowhere.
- The A380 program is supposed to finally hit cash break-even in 2015, but no sales put this program in doubt.
- The only way to boost the A380 is to do a neo and the business case is iffy.
Airbus investors day Dec. 10-11: here’s our preview
The annual Airbus investors days are tomorrow and Thursday in London. Airbus will webcast the event; go here to link up.
The presentations will include a mix of commercial and military, with John Leahy, chief operating officer of customers, presumably presenting on the commercial. Group CEO Tom Enders, along with the chief financial officer, are likely also to present; the agenda won’t be posted until tomorrow.
On the commercial side, we expect discussion of the pending delivery Saturday of the A350-900 to launch customer Qatar Airways. Entry into service won’t happen until next month.
We expect the analysts to drill down on the A330ceo production gap; Airbus has had little success selling this airplane, and the hoped-for large order from China for the A330R has once again failed to materialize. The gap falls off the cliff in 2016. Airbus previously announced a production rate cut from 10 to nine in 4Q2015 but we think this will have to drop even more, and dramatically.
737 MAX 8 could be enabler for some LCC Long Haul
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By Scott Hamilton and Bjorn Fehrm
Introduction
Figure 1. Nominal range of 737 MAX 8 from Oslo Source: Great circle mapper, Boeing. Click on Image to enlarge
Dec, 8, 2014:The Boeing 737-8 MAX is the successor to the 737-800 and has largely been thought of in this context.
Our analysis, prompted by Norwegian Air Shuttle (NAS) plans to use Boeing 737-8 MAXes to begin trans-Atlantic service on long, thin routes, comes up with a conclusion that has gotten little understanding in the marketplace: the 8 MAX has enough range and seating to open a market niche below the larger, longer-legged 757, and the economics to support profitable operations for Low Cost Carriers interested in some trans-Atlantic routes or destinations beyond the range of the -800.
Summary
- We based our analysis on our proprietary, economic modeling, assumed Norwegian cabin configuration standards.
- We compared the operating costs of the 737-8 with Norwegian’s present long haul aircraft 787-8 in a similar cabin configuration.
- The comparison range is the max endurance range for an LCC long haul 737-8, eight hours or 3,400nm air distance (no wind included).