Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Embraer downplays tariff impact on 2025 results May 6, 2025
- JetZero readies effort for private equity fund raising May 5, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 20. May 2, 2025
- Supplier Howmet exceeds expectations despite tariffs May 1, 2025
- Airbus 1Q2025 results: So far, so good, but US tariffs make future results unpredictable May 1, 2025
Lufthansa to use A340s in “lower cost” operation; our analysis against the 787
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By Scott Hamilton and Bjorn Fehrm
Introduction
Low cost long haul service is gaining traction, but previous efforts proved difficult to be successful.
Dating all the way back to Laker Airways’ Skytrain and the original PeoplExpress across the Atlantic, airlines found it challenging to make money.
More recently, AirAsiaX retracted some of its long-haul service, withdrawing Airbus A340-300 aircraft when they proved too costly. The airline recast its model around Airbus A330-300s as an interim measure, unable to fly the same distances as the longer-legged A340. AirAsiaX ordered the Airbus A350-900 and now is a launch customer for the A330-900neo.
Cebu Pacific of the Philippines is flying LCC A330-300 service to the Middle East. Norwegian Air Shuttle famously built its entire LCC long haul model around the Boeing 787, initiating service with the 787-8 and planning to move to the 787-9.
Canada’s WestJet is leasing in four used Boeing 767-300ERs to offer LCC service,
Legacy carrier Lufthansa Airlines plans to use fully depreciated A340-300s to begin “lower cost” (as opposed to “low cost”) long haul service. LH says the fully depreciated A340s come within 1%-2% of the cost per available seat mile of the new, high capital-cost 787s.
Summary
- AirAsiaX’s A340 LCC long haul service proved unprofitable. Can Lufthansa’s similar service with fully depreciated A340s work?
- Our analysis shows that it can. It can even support the lease rates that would be charged for a 10 year old A340 if the fuel price remains at the present level.
- When doing the research for this article and going through the results of our proprietary model we started to ask ourselves, is the A340-300 the ugly duckling of the airline market?
Airbus wins Delta wide-body order
Airbus has won the hotly-contested competition for 50 wide-body airplanes, two sources tell Leeham News and Comment.
Artist rendering of Delta Air Lines A350, via Twitter, original source unknown.
Airbus will sell Delta 25 A350-900s and 25 A330-900s, our sources say. Rolls-Royce is the sole-source engine supplier.
Boeing hoped to sell Delta the 787-9 and also offered five new 777-200LRs as bridge lift until delivery slots for the 789 were available, according to our information.
Delta looks to double Seattle gates as wide-body decision nears
Delta Air Lines wants to double the number of its gates at Seattle, potentially allowing more than 300 flights a day, Bloomberg News reports. The story appeared just weeks before Delta will make its decision whether to order 50 wide-body jets from Airbus or Boeing, with about half of them planned for trans-Pacific service from Seattle and Delta’s Detroit hub; and the other half for trans-Atlantic service from New York and Atlanta.
Best-and-final-offers from Airbus and Boeing were due last week or this week and an internal decision is due after Thanksgiving, we are told. Delta is expected to announce its decision at its annual investors day, which is December 11 this year.
Airbus has its annual investors days December 10-11 in London. We don’t ascribe any significance to the concurrent dates, since these are dates of long-standing in years past.
Boeing fails to assure on 777 production gap
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Introduction
Boeing’s ability—or inability—to bridge the production gap for the 777 Classic to the 777X entry-into-service in 2020 was a top concern of a series of Wall Street types during a recent series of meetings we had across the USA.
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There is a great deal of skepticism over whether Boeing can successfully maintain the current production rate of 100/yr (8.3/mo). People we talked with look at the number of orders Boeing needs to bridge the gap, the Boeing claims that it can obtain 40-50 or 40-60 a year, and, in a more recent development, the falling oil prices depressing the need for a new, more efficient 777-300ER compared with the 2004 model and the even older 777-200ER series.
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We have been telling our clients since March that Boeing will have to reduce the production rate of the 777 because of the large production gap. Aerospace analysts began waking up to this possibility by May and the broad consensus today is that Boeing will have to reduce the rate—the only questions remaining is by how much and how soon.
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As recently as the 3Q2014 earnings call, Boeing continues to assert it will be able to maintain rates with new sales. Boeing has booked 43 firm orders through October for the 777 Classic—39 for the 300ER and four for the freighter. This is as the low-end of the range Boeing says it needs.
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However, our Market Intelligences gathered over the summer and into the fall indicates sales efforts are struggling.
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Summary
- Boeing clearly hasn’t been persuasive in its claims it will bridge the production gap at current rates;
- Boeing has open delivery slots in the second half of 2016;
- The big drop off in backlog begins in 2017 and gets worse going forward;
- Key airlines that have been pitched have said “no;”
- Emirates sends the industry’s first operational 777-300ER to scrap;
- Bow wave of 777s coming to 12 years and off lease begins soon, creating cheap alternatives to new sales; and
- Lessors will be compelled to offer -300ERs for low prices, depressing opportunities for Boeing.
Airbus group reports Q3 and first nine month 2014 results
Airbus today reported Q3 and first nine months results for 2014. It could be summarized with one sentence, “steady so”.
It is an Airbus group more in control of their destiny and programs then it has ever been, also when it was called EADS. There are still challenges in several programs but these are addressed from a position of strength and against a backdrop of these programs having passed their most risky periods.
First the financial results: revenue for the first 9 months were up 4% to € 40.5 bn, EBIT up with 12% to € 2.5 bn, both compared to first 9 months 2013. Free cash consumption is down to € 2.1 bn from € 4.7 bn last year and shall be break even on a full year basis.
Looking at the Airbus group divisions and their major programs the following can be noted:
Civil airliners
Has already passed the order target for the year with 791 net orders until 1 October, the strong market for airliners continue. Airbus has also reached both European and US certification for A350-900 and delivery of first aircraft is planned for December to Qatar Airways. Airbus points out that the program is still challenging and can cause provisions, we judge the program to be past its most challenging phase however.
Airbus says they are not worried to firm up the 127 A330neo order commitments they have got, these commitments are not counted in the order tally of 791. We hear good things about the program with airlines. The one program which is still challenging when it comes to sales and execution is the A380, no new orders so far, just the cancellation of the Skymark deliveries. Airbus maintains that A380 will stop costing money to produce and deliver come end of 2015.
Helicopters
The market is weaker then expected, bookings was down to 208 from 276 units a year ago. Backlog has shrinked to 908 helicopters, about 3 years of production. EBIT margin is still acceptable at 5.7% on virtually flat deliveries and revenue.
Defense & Space
Defense is the problem child of the group, the large programs either don’t sell (Typhoon) or are hard to deliver to demanding customers (A400M). Airbus flagged that customers which has taken delivery of A400M are not fully pleased and that a program review will be made in time for full year results that can include further provisions for the program.
The highlight of the division is space which is developing well both for launchers and satellites and this will continue as Airbus sees it. In total revenue was down 2.2% to € 8.2 bn, cost control kept EBIT above 4% at € 370 m.
Summary
All in all no spectacular results but also no surprises. When comparing Airbus results with Boeing’s Q3 results one shall observe that Airbus takes the present development and ramp-up intensive period (A350, A320neo, A330neo and still A380) directly to the bottom line where Boeing uses program accounting and spreads development and ramp up costs for 787 (still costing the company to produce), 737 MAX and 777X over a longer period, the so call accounting block. One shall therefore compare these two on the civil airliner side over a long period of time to understand the real performance difference between them.
Zhuhai airshow: Airbus gains A320 MOU while regional A330 needs explaining
The Zhuhai airshow has not brought the expected slew of announcements from Western aircraft manufacturers. Boeing announced an order for 80 737 MAX Monday but this was characteristically from a leasing company across the Chinese see, SBMC Capital of Tokio.
Airbus on the other hand has not been able to move the much talked about A330 regional to order yet, despite announcing it in China last year and enticing with an announcement for a Chinese completion center for the aircraft before the show. Flightglobal reports that the A330 regional needs further explaining, Chinese carriers seems hesitant to buy what Boeing pitches as “obsolete technology” in a weight variant that only could fly local missions.
Airbus China president Eric Chen explains that the 200t variant is not constrained to Chinese mainland and can fly any missions that its range would allow. He also points out that the weight variant is just that, a de-papered weight version that can be upped to whatever take off weight the customer wishes at a later date by paperwork changes (and perhaps some additional galley equipment). As for technology level, an aircraft shall be valued for its contribution to a carriers business says Chen, not by which years it says on its airworthiness certificate.
The smaller A320 did not disappoint reports Aviation Week, Airbus CEO Fabrice Bregier could announce a Memorandum Of Understanding (MOU) for 100 A320 from state affiliated China Aircraft Leasing whereof 74 would be A320neo. The order, once confirmed, can help Chinese carriers with the aircraft demand for the 2016-2020 economic planning period. Chinese carriers have been slow to place the necessary early OEM orders for the period (needed due to the large backlogs), the lessor sees it can back-fill that demand when the carriers comes around to needing the aircraft.
Airbus also has explaining to do in other corners of the world, Emirates intend to start second round talks around A350 in the next months according to Reuters. The first round of 70 aircraft was cancelled after Emirates did not understand a specification change that Airbus undertook without consulting Emirates. This time Emirates will see the aircraft flying with neighbor Qatar Airways before agreeing to any specifications according to Emirates CEO Tim Clark.
Zhuhai Airshow: China’s aircraft industry is gaining speed
The 10th Chinese airshow at Zhuhai opened today. It was a day with fewer announcements than expected from the usual suspects (Airbus, Boeing…) but the Chinese industry did not disappoint. China is now showing more and more of its coming might as a player on the aeronautics arena.
The most prominent displays at this show were on the military side, where China has two stealth aircraft projects flying (the large Chengdu canard J-20 and the smaller Shenyang J-31) while their canard Chengdu J-10 was flying the display circuits overhead (Figure 1).
Figure 1. Chinas latest fighter developments; the J-31 and J-20 stealth fighters and the canard J-10. Source: China internet.
All aircraft are of latest structural and aerodynamic design if not in engines and systems. This is a big difference to previous shows where the Russian Sukhoi and MIG aircraft and their local copies did the flying display until 2008. Since then everything has changed and now China and USA are the only countries in the world with two different stealth designs flying. USA has one in operation (F-22) and one close to (F-35) whereas China still has many years to go until they have their new aircraft operational. But it is significant that the old aeronautical behemoths Europe and Russia have none respective one (PAK-50) stealth fighter in flight test.