Does 777X assembly site matter to airlines? Yes, up to a point; and a retrospective to 2009

As Boeing awaits responses to its Requests for Proposals from 15 sites around the US and possibly Japan, Washington State officials, company employees and other stakeholders fret that Boeing will choose someplace other than Everett (WA).

Everett has all the logical advantages: the 777 Classic is assembled here. There are vast, mature facilities here. There is an experienced workforce here. As we note in our previous post today, there are a lot of points to ponder when it comes to choosing a site.

But what about the airlines? Do they care where the airplane is assembled?

This isn’t entirely clear. Emirates Airlines and Qatar Airways said at the Dubai Air Show they want the airplane built at one location, in the US, not outsourced to a bunch of countries and industrial partners in the fashion of the Boeing 787–an industrial model that proved disastrous for Boeing and the customers.

But do they care whether the 777X is built at Everett, Boeing South Carolina or some other site? Emirates and Qatar didn’t say, at least publicly. Etihad Airlines, another launch customer for the 777X, hasn’t said anything publicly. The first customer for the X told us that what’s important to it is an accessible location for inspections–in other words, a location with good air service, which could be one-stop connecting service.

This would rule in any of the cities that have been mentioned publicly in Boeing’s RFP search. It would rule out a city like Moses Lake (WA), which has ambitions of becoming an aerospace cluster but which has no airline service. The closest major airport is Spokane (WA), a 90 minute drive. Sea-Tac International Airport is a three hour drive. Lufthansa seems unconcerned whether Everett or another site is the choice.

Lufthansa is also not a 787 customer, but officials are well aware of the issues and delays involved in the program. It seriously considered ordering the 787-10 but for route system operational requirements chose instead the Airbus A350-900. But for some 787 customers, assembly location does matter. We understand from our sources that some customers want their Dreamliners assembled in Everett, not Boeing South Carolina, where by most accounts slow production rates and quality control issues remain a challenge.

Retrospective to 2009

As we sort through the events surrounding the IAM 751, Boeing and the 777X, we went back and re-read some of the coverage from 2009 when Boeing put 787 Line 2 in Charleston. There are some similarities–notably Sen. Patty Murray’s involvement then and now–and a lot of differences. Here are links to our posts; be sure to click through to the links of newspaper coverage contained within our posts. Reading the stories linked have amazing relevance to recent events.

Boeing talks a sham: This story, in The Everett Herald, paints a much different picture than:

How South Carolina won the deal. Also: The click-through to The Everett Herald story from this link has a familiar ring to our “loyalty” post of November 21.

Back to today:

Stan Sorscher of SPEEA, the Boeing engineers’ union, has a guest column in The Huffington Post, taking Boeing to task (not a particular surprise) over the current site search and efforts to cut benefits with the IAM 751 “because they can.”

Danny Westneat, a columnist for The Seattle Times, wrote Sunday that perhaps Washington State should look beyond Boeing for aerospace. This isn’t new. We advocated this in October 2009 (just days before Boeing announced it would put the 787 Line 2 assembly in Charleston) at the Governor’s Aerospace Summit conference in Spokane (WA). Be sure to click on the link to the PPT presentation, too.

Odds and Ends: AirAsia on A330neo, A380; 777X specificiations; A380 engine PIPs

AirAsia on Airbus: AirAsia Group is one of Airbus’ largest customers, and its CEO Tony Fernandes is increasingly influential in the Asian sector. He’s also into car racing, often betting Virgin Group’s Richard Branson. This short interview details Fernandes’ view on the prospective A330neo–something Fernandes has been pushing for some time–and what he thinks Airbus should do with the A380.

Looking at the 777X: Aviation Week has a detailed look at the Boeing 777X “under the skin.” Fuel burn, engine thrust and general specifications are in the article. Aviation Week also has a series of videos from the Dubai Air Show here. Topics: 777X, Qatar Airways and A380 engines. On the latter, Emirates CEO Tim Clark suggests putting the new GE9X or Rolls-Royce Trent on the A380 to reduce fuel burn by 10%.

Implications of the Dubai Air Show orders

With the Dubai Air Show wrapped up, it’s time to assess the events and the implications.

 

Boeing launches 777X

Boeing launched the 777X at the show with orders and commitments for 182 777-9s and 43 777-8s, the latter the Ultra Long Range (ULR) version. These orders were driven by Emirates Airlines, which ordered 115 -9s and 35 -8s.

 

All had been widely telegraphed, and follow Lufthansa Airlines’ order for 34 777-9X previously anounced.

 

The 777-8 competes directly with the 350-passenger Airbus A350-1000; the 777-9, at 407 passengers, is in a class by itself between the -1000 and the 467-seat Boeing 747-8.

 

Boeing forecasts a 20-year demand for 670 350-400 seat (including the 405-seat 777-9) sector. Airbus forecasts a need for 779 aircraft in this sector. Airbus had booked 176 A350-1000 orders going into the show and added 10 more.

 

This means Airbus and Boeing have sold 186 and 259 aircraft in this sector respectively, or 445 in total. Boeing converted three options of the 777-300ER to a firm order. Now we’re at 448, of 67% of the Boeing forecast or 58% of the Airbus forecast. There are 278 777-300ERs in backlog, for a total of 692.

 

There are 306 747-400 passenger models in service and another 23 Combis, or 329. There are 501 777-300s in service. This equals 830 excluding the 777-300ER backlog or 1,108 including the backlog,

 

 

747-400

777-300ER

A350-1000

777-8

777-9

In Service

329

501

0

0

0

Backlog

0

278

186

43

182

Total

329

779

186

43

216

 Sources: Airbus, Boeing

 

We believe the Airbus and Boeing forecasts understate the 20 year demand just on the replacement potential of today’s 1,108 747-400s and 779 777-300ERs in service or on backlog. In addition to the replacement requirement, traffic growth will support more aircraft orders.

 

Airbus and the “A350-1100”

We previously analyzed the Airbus dilemma over how it should meet the development of the 777-9. Airbus doesn’t have a direct competitor to this aircraft, though officials claim the A350-1000 is this competitor. We disagree and so do Emirates Airlines and Qatar Airways. According to our Market Intelligence, Airbus has held conversations with Emirates about a stretch “A350-1100” version. Qatar’s CEO, Akbar Al-Baker, publicly expressed interest in an “1100” model.

 

Airbus previously dismissed the idea of an “1100” of roughly equal capacity to the 777-9 because it did not see a market for the airplane of this size. Based on its forecast of 779 airplanes and the existing sales, this logic is apparent. Since then, however, Airbus officials indicated they are at least looking at the possibility, though no formal study is underway.

There is a concern in some quarters that Airbus has already missed this opportunity and Boeing has too great a lead.

We continue to believe Airbus will eventually proceed with the “1100.”

 

Boeing 747-8

We think it significant that no orders were announced for the Boeing 747-8I passenger model or for the 747-8F. We have long believed the 777-9 spells the end of the 747-8I. While Lufthansa Airlines has ordered the 8I, the 777-9 and the Airbus A380 and sees a need for each of these as each serves different market sectors, there is little the 747-8I can do that the more economical 777-9 can’t. Lufthansa likes the 747-8I for hot-and-high airports, such as Mexico City, but there are few of these markets that support the continuation of this airplane now that the 777-9 is official.

 

The 747-8F’s future depends on the recovery of the cargo market. Boeing forecasts this to occur next year. But one cargo conversion company, which doesn’t play in the 747 space, doesn’t see the business case of a new-build 747-8F when there are abundant 747-400Fs parked in the desert and those 329 more passenger and combi aircraft available for conversion at a far less expensive price than it costs to buy new. Additionally, this company believes the belly capacity of the 777-300ER and Airbus A330-300, and the existence of the 777-200LRF, provides plenty of capacity that diminishes the economics and requirement for the 747-8F.

 

Airbus A380

The order by Emirates Airlines for 50 A380s is a badly needed shot in the arm for the program, which saw sales stall at 262 for an extended period (259 net of cancellations). There are several orders that are iffy (Hong Kong Airlines, Virgin Atlantic, two for Air France) and dead (Kingfisher Airlines), among others. Emirates plus a pending confirmation of an MOU for Doric Lease are needed to fill near-term production slot vacancies and boost the book-to-bill deficit in the program.

 

But customer concentration is increased with the Emirates order, now accounting for 140 (42.5%) of the 329 orders confirmed and announced. Airbus continues to bank on airport congestion and traffic growth combining to boost sales. We think the 777-9 will cut into this demand. The question is whether Airbus proceeds with an A350-1100 to retain some of this diversion in the family or whether it allows Boeing the monopoly to do so.

Odds and Ends: WA Gov chases Boeing, IAM; CSeries EIS; Yank

Pursuing Boeing, IAM: Washington Gov. Jay Inslee told KING5 News (NBC, Seattle) yesterday that he will ask Boeing and the IAM to go back to the bargaining table to reach a deal on the contract extension that would build the 777X in Washington. This verifies our prediction the night of the IAM vote rejecting the contract with a 67% result.

We believe other politicians, such as US Sen. Patty Murray, will do likewise.

We think this will be an uphill climb for Washington to wind up with this production. A former state Legislator thinks the state should stop ponying up incentives for Boeing.

On a related issue, we’ve previously reported that Washington’s proposed environmental protection of salmon threatened to make Boeing an endangered species in the State instead. Crosscut, a political web newspaper in the State, reports today that this issue apparently has been solved.

Standing by CSeries: Bombardier’s CEO brushes off skeptics of the CSeries and its small number of flight tests compared with other programs. The Toronto Globe and Mail reports. No surprise there. But did he give a hint on the entry-into-service date? The Globe writes:

On Thursday, Mr. [Pierre] Beaudoin stood by his forecast. He noted that the company has 177 orders so far and “we still have a good year to go before our first delivery.” (Emphasis added.)

BBD has always said EIS would be 12 months after first flight, which was September 16. Beaudoin’s remark suggests this schedule has now slipped at least two months and possibly more. Most analysts believe EIS will be in the first quarter of 2015 rather than late 2014, a timeline with which we agree.

A380’s future: The Economist has an analysis of the future of the Airbus A380. Separately, Airbus explains to AIN Online why it thinks A380 sales will pick up.

Wrong landing: That landing by a Boeing Dreamlifter, operated by Atlas Air, could have impacted the 787 program if the plane had been damaged and put out of service, reports The Tacoma News Tribune.

Yank: Every once in a while we get struck by an irreverency we just can’t resist. We noted a story in The Seattle Times about research by Bill Gates (yes, of Microsoft fame) into developing new condoms. One contestant (no kidding) remarked on developing a stronger condom, “I could yank all day and it won’t break.”

Loyalty is a one-way street at Boeing

Boeing’s move to shop around the 777X assembly site, while telegraphed and certainly expected, is another example of the shifting loyalties at Boeing that have been more than a decade in the making.

Before we start, it must be acknowledged that Boeing is a publicly traded stock company and it has fiduciary duties to make sound financial decisions. That being said, one can debate endlessly whether the decisions executives have made have been financially sound (and there is ample evidence with respect to 787 outsourcing and opening a second line in Charleston that the decisions were not sound). Setting aside this debate, since Boeing moved HQ to Chicago in 2001, loyalty appears a thing of the past.

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Odds and Ends: 777X Shell game; CSeries updates; EADS unions; More oops

777X Shell Game: TheStreet.com asks whether the Boeing 777X orders announced at the Dubai Air Show amounts to a massive shell game. By this, the column means whether these orders merely will come from other airlines as traffic is diverted from the legacy European, US and Asian airlines to the Middle Eastern carriers as the latter expand their services.

There is no question there will be a diversion of traffic. Boeing a few years ago pointed out the diversion, then at around an estimated 5%, as the Middle Eastern airlines–Emirates, Qatar and Etihad–rapidly expanded into markets. But this is what competition is about. And this is what has got Delta Air Lines of the US so exercised over the US Export Import Bank financing the likes of Emirates Airlines.

Air traffic growth will accommodate some of the competition.

There are more than 1,000 Boeing 747-400s and 777 Classics in operation or on order that will require replacement by the 777X and the Airbus A350-1000. Business Week raises the question, how will Boeing maintain sales of the 777 Classic now that the 777X program has been launched?

CSeries Updates: Bombardier is “mulling” a new program schedule for the CSeries, according to this story from AIN Online. BBD should announce any new timeline for its flight test program, and presumably entry-into-service, within a few weeks. Flight Global reports that the program will see the addition of the second flight test vehicle shortly, which will increase the frequency of flights. Flight Global also reports that BBD officials see more orders and better pricing starting to flow as more flight tests and data from the program comes forth.

Bombardier now has 419 orders and commitments for the airplane.

Here is a profile of BBD’s top official in China.

EADS unions: Lest one forget, Boeing isn’t the only aerospace company with union issues. Airbus parent EADS is facing a walkout next week by one of its unions. Reuters reports the walkout is to protest layoffs as EADS restructures its defense subsidiaries.

Speaking of oops: Yesterday we reported that a Washington State advertisement supporting the Boeing 777X used a picture of an Airbus airplane. This lit up Twitter and made news all over the country. Today we woke up to find Twitter and the news lit up with reports that a Boeing Dreamlifter landed at the wrong airport in Kansas.

Washington State wants Airbus business but this is a big oops

The Washington Aerospace Partnership is a state agency to promote aerospace in Washington.

We’ve written about WAP before, criticizing its membership as totally devoid of any industry representative–it’s all economic development commissions, chambers of commerce and bureaucrats. We think the absence of industry representation is a major defect.

This full page ad in The Seattle Times today illustrates the point. We’re sure our readers will spot why.

WAP Ad

Dominic Gates of The Seattle Times certainly did.

Odds and Ends: 777X site; A380 reconfiguration; 777 flashback; PNAA’s 13th annual conference; A350; MC-21

Build 777X “where it makes the most sense:” A Boeing executive, in a CNBC interview, said the 777X would be built “where it makes the most sense.”

CNBC writes that Shephard Hill, president of Boeing International, said, “Honestly, we’re looking within the United States at this point because of the large infrastructure we have there. But again, with the mandate to do it on time, to do it in a quality way, that will drive the decision.”

Meanwhile, Alabama officials revealed they talked with Boeing about locating “some [777X] work” at Boeing’s Huntsville operation. Stories are here and here.

A380 reconfiguration: After our post concerning the secondary market of the Airbus A380 and a figure cited by a lessor that it could cost as much as $20m to reconfigure the airplane (assuming all bells and whistles), we received two emails from readers giving a different perspective.

One wrote that Airbus took the Emirates Airlines specification, which is not as customized as perceived, and outlined three scenarios for reconfiguration.

  • Simply change the cabin colors: $600,000 from Airbus and $500,000 for Buyer Furnished Equipment (BFE).
  • Change three class to two class, with only the upper deck changing: $3.6m in Airbus costs, $1.6m for BFE.
  • High-density, all Y-class, both decks: $4.3m for Airbus costs, $3.5m for BFE.

Another reader wrote that the $20m figure is correct if all existing cabin stuff is tossed and the reconfiguration starts from scratch, but seats and other equipment could be sold to reduce the cost. Going one class, this reader wrote, had a price of between $8m-$10m (slightly higher than that reported by the first reader) and a two class configuration would cost about $5m, roughly the same as noted above.

Flashback on 777 successor: Jon Ostrower, when he was with Flight Global, Tweeted out a flashback down memory lane when we did a podcast with him six years ago, talking about a Boeing 777 successor. We looked pretty smart back then, as it turns out.

PNAA’s 13th Annual Conference: The Pacific Northwest Aerospace Alliance has released the agenda for its 13th Annual Conference held Feb. 4-6, 2014, in Lynnwood (WA), north of Seattle and south of Everett. Crafted well before the Boeing 777X events of last week, the conference is entitled “What’s Driving Change in the Aerospace Industry”.

Boeing says it will decide within three months where it will build the 777X, or in December or January, the latter just before the conference. Whatever this decision, this specific action will clearly come up at the conference, though it is not specifically a topic on the agenda.

We’re presenting on the State of the Airline Industry on the first day and share a panel on the third day with analysts Michel Merluzeau of G2 Solutions and Richard Aboulafia of The Teal Group. We’ve done this panel each year for several years now, and it’s a free-wheeling discussion of what we’ve heard throughout the conference and events generally.

This conference has now become the largest of its kind on the US West Coast, with nearly 450 attendees this past February. The Big Four airframe OEMs, the Big Three engine OEMs and a host of suppliers and lessors present.

MC-21 program update: ATO.ru, a Russian publication, has this update on the Irkut MC-21 program.

A350-1000: Akbar Al-Baker, CEO of Qatar Airways, is known for his about-faces at a whim, so much so that he has the nickname U-Turn Al. Once a vocal critic of the Airbus A350-1000, he now says it is a great airplane, according to this interview in Gulf Business. He urges Airbus to consider a larger version of the plane.

DXB13 Day 3: Bombardier, Boeing, Airbus announce small orders

Bombardier, Boeing and Airbus each snared some orders at Day 3 of the Dubai Air Show:

Bombardier

  • A Letter of Intent from Iraqi Airways for 5+11 CS300s;
  • Abu Dhabi Aviation ordered two Q400ss; and
  • Nok Air of Thailand announced orders, options and purchase rights for 2+2+4 Q400s.

Boeing nabbed an order from TUI Travel for two 787s. Turkish Airlines firmed options for three 777-300ERs.

Airbus announced that Air Serbia ordered 10 A320s and Air Algerie signed an MOU for three A330-200s.

Other headlines from the show:

Airbus considers boosting A320 production

Engine Alliance ponders A380 engine improvements

Bombardier launches high density Q400

Watch out, US airlines, the Arabs are coming

Emirates to compete engine supplier for 50 A380s

A380 orders boost backlog but future risk remains

The order by Emirates Airlines for 50 more Airbus A380s had been hinted at for some time, and it is certainly welcome for the backlog. This deal, coupled with the MOU announced at the Paris Air Show for 20 from lessor Doric, expected to be firmed up by year end, adds 70 orders to the long-stalled total count, which was 259 prior to either deal (net of three cancellations from Lufthansa Airlines). This now brings Airbus to 329 orders.

It’s still well short of the 650 orders Airbus expects to snare over the next 20 years from its September 20-year forecast. These expectations are on top of the existing order stream, and a figure that hasn’t changed much since its first Very Large Aircraft forecast in 2000.

(The current forecast is for about 1,300 VLA passenger models; Airbus expects to receive 50% of the market. This is before the 777-9X, barely qualifying as a VLA at a nominal 407 passengers, entered the picture. Up to now, Airbus has been capturing nearly 90% of the VLAP market against Boeing’s 747-8I.)

AIN Online beat us to our plan to assess the future risks for the A380, particularly as it heads into the secondary market, with this analysis. We agree with the broad conclusion that there will be little secondary market opportunity for the airplane beginning in 2020 when the first of Emirates Airlines’ behemoths start coming off lease.

One lessor, who is not an A380 owner, says it will cost about $20m to reconfigure an A380 in a typical three-class layout with the usual bells and whistles. Doric Lease, in an interview with Bloomberg, says Airbus needs to standardize configuration to make re-leasing the giant plane easier.