Leeham News and Analysis
There's more to real news than a news release.
Odds and Ends: AirAsiaX orders A333; WA and Airbus; Boeing names COO
AirAsiaX orders A330-300s: As forecast earlier this week, the budget carrier ordered 25 Airbus A330-300s. According to reports, AirAsiaX may not be done. Group CEO Tony Fernandes wants Airbus to develop an A330neo. Stay tuned.
Washington State and Airbus: The Associated Press wrote a story about the courtship of Washington State of Airbus, making a link between the Boeing 777X site selection Schizophrenia and the Airbus effort. Some headline writers made an even more direct cause-and-effect link. This vastly overstates what’s been going on. Gov. Christine Gregoire began reaching out to Airbus in 2010, but the effort was stalled by the then-contentious and bitter competition between Boeing and Airbus over the USAF KC-X tanker competition. Gregoire, who was just named chairman of the advisory committee to the US Export-Import Bank, naturally backed the Boeing bid but was wisely measured in her rhetoric when it came to the EADS KC-330 offering. The Washington Congressional delegation, however, was often vitriolic and as a result, Gregoire’s efforts largely stalled.
Once that competition was over in 2011, Gregoire resumed her efforts in the last year of her governorship, meeting with EADS and Airbus officials at the 2012 Farnborough Air Show. The WA Dept. of Commerce had continued efforts throughout. This past summer, Commerce and the Pacific Northwest Aerospace Alliance hosted an Airbus suppliers meeting in the Seattle area, attended by about 120 suppliers (about 30-40 had been expected).
So while the AP story is factually correct overall, any linkage to 777X and the Airbus courtship is overstated. This has been a long-term effort by Airbus, PNAA and it is a concept we called for in October 2009 in a speech before the Governor’s Aerospace Summit just days before Boeing announced it was locating 787 line 2 in Charleston (SC). The Airbus effort, if anything, has more of a link to that event than to the 777X.
Boeing names Muilenberg COO: Dennis Muilenberg, CEO of Boeing’s defense business, has been named COO of The Boeing Co. He is succeeded by Christopher Chadwick. Ray Conner, CEO of Boeing Commercial Airplanes, was named Vice Chairman of the Board and continues in his current position. The press release is here.
McNerney reaches retirement age next year but given the timing, we think he’ll stick around a bit longer to give Muilenberg more time in the #2 corporate position. Since Muilenberg is younger than Conner, we think Muilenberg is the more likely choice for successor.
Another Day, Another 777X story: The obsession continues. Seattle Times columnist Danny Westneat has this commentary worth reading. The Everett Herald has a good wrap up of where things stand in Washington State right now. The Seattle Times looks at Long Beach (CA) in depth and its potential for the 777X.
Odds and Ends: AirAsiaX plans A330 order; AA’s livery; vote for TWA heritage livery
AirAsiaX plans A330 order: AirAsiaX, the long-haul low cost carrier, plans a large order for the Airbus A330 this week, according to Bloomberg.
A380’s future: Bloomberg News talks about the future of the Airbus A380 with CEO Fabrice Bregier. Among his comments: no stretch anticipated until 2030.
American Airlines livery: Doug Parker, the new CEO of American Airlines, says employees will get to vote whether to keep the new American livery or restore the double AA/eagle livery to the tail. American will also add a TWA “heritage” livery airplane. US Airways has several heritage paint jobs in its fleet.
So…which TWA era would you like to see? Vote in the poll following the photos.
In focus: the 777 Classic
This week we take a look at the Boeing 777 Classic primary and secondary markets as a follow-on to our report last week in advance of the A340 Summit hosted by Airbus, Rolls-Royce and CFM International with additional presentations by Lufthansa Airlines and HiFly. We have a follow-up of this meeting on Leeham News and Comment.
The 777 Classic presents a very different picture compared with the A340. As a reminder, here is the current status of the A340 program, which is now out of production:
|
Status |
A340-200 |
A340-300 |
A340-500 |
A340-600 |
|
In Service |
19 |
175 |
20 |
90 |
|
Stored |
6 |
27 |
14 |
7 |
Source: Ascend Leeham Co Chart
On the other hand, Boeing has delivered 1,156 777 Classics and has a current backlog of 318. There are 259 orders and commitments for the 777X, officially launched last month at the Dubai Air Show, for a total of 1,415.
The Ascend data base, which tallies Letters of Intent, Options and Option LOIs, (and calculates orders and commitments somewhat differently than Boeing), has 2,059 units listed.
|
|
777-200 (All) |
777-300 (All) |
777 Classic TBD |
777-8 |
777-9 |
777X TBD |
|
In Service |
637 |
504 |
|
|
|
|
|
Orders |
43 |
272 |
|
8 |
45 |
|
|
Options |
35 |
68 |
1 |
|
|
62 |
|
Option LOIs |
20 |
5 |
15 |
|
|
|
|
LOIs |
42 |
75 |
6 |
35 |
179 |
|
|
Stored |
6 |
1 |
|
|
|
|
|
Total |
783 |
925 |
22 |
43 |
224 |
62 |
|
Source: Ascend |
|
|
|
|
Leeham Co. Chart |
|
The 777 program has been more successful than Boeing’s wildest dreams, and the 777X is off to a promising start.
While Airbus faces challenges with the A340 family on the secondary market, Boeing doesn’t have any similar issues today. There are just seven Classics stored, according to Ascend: six 200s and one 300, compared with 54 A340s of all sub-types, or 15% of the total fleet compared with 0.6% for the 777 Classics.
Most of the Classics remain with the original operators. Only a few -200ERs and five -200LRs have traded, the latter a special case because the original operator, Air India, was in financial distress and elected to dispose of the airplanes at a distressed price to raise cash.
What is the secondary market potential for the Classics? Market Intelligence suggest very little-to-no market for the 86 777-200 “standards,” the light-weight, 545,000 lb, 5,240nm initial version of the Classic family. The heavier weight 777-200ER at 656,000 lbs and 7,725nm range is a secondary passenger market and a freighter conversion candidate. Boeing has been studying a P2F conversion for the 200ER, but this potentially is a costly option, according to the Market.
The -200ER was optimized for passenger service and includes composite floor beams that will have to be replaced with steel beams, according to a 2012 Boeing briefing. Major structures and component work will be required. Then, Boeing assumed early -200ERs would be priced in the high $20m range, and the conversion would cost in the low $30m, for an out-the-door price of the low $60m.
Kostya Zolotusky, managing director for Capital Market Leasing at Boeing Capital Corp., tells us that nothing has changed in P2F timing. Feedstock values, however, are too high and a weak cargo market means there are plenty of Boeing 747-400s and MD-11s surplus today. Boeing does not expect the freighter market being strong at least for a couple years.
He believes there is a potential market for the 777-200 standard for package carriers outside the mature USA market. A 777-200ER P2F would be a different airplane vs the new-build 777-200LRF: an 80 tonne airplane vs 100T.
Zolotusky notes that the 777 “has one of the lowest movements out of the original operators out of all the wide-bodies. There is nothing that is parked or in distress.” All 777s are within 90 percentile of original operator, he tells us and compared the Airbus A330s in 80s and the A340s in 70s.
One of the issues with the A340s are the Power By Hour arrangements with Rolls-Royce for the A340-500/600 engines. “We are talking to engine makers to be sure we don’t have A340 situation that limits the liquidity with PBH situation,” Zolotusky tells us.
While this is a follow-on to the A340 report of last week, Zolotusky urged that we “decouple the conversation from A340. The A340 became economically unviable.”
Airbus to cut new airplane R&D, focus more on derivatives
Airbus is going to cut back its new airplane research and development spending and redirect efforts more toward derivative airplanes, EADS CEO Tom Enders told aerospace analysts at the EADS Global Investors Forum.
Buried in a Bloomberg News report of the GIF is this:
Enders also wants to curb cash-hungry development efforts in favor of milking existing products for higher returns. At Airbus, he backed the re-engining of the A320 narrow-body over building a new plane. No new jets are planned at Airbus beyond the A350, which is due to commence deliveries late next year.
“Why should we spend large amounts of money when we can make significant incremental improvements?” he said. “This principle can be applied outside of just civil aircraft.”
Airbus, like Boeing, suffered under the strain of new aircraft programs, notably the A380 and A400M. As yet, the A350 doesn’t seem to have been a black hole, with normal development costs.
Richard Aboulafia of The Teal Group was critical of Boeing for years for starving R&D for new aircraft and over-relying on derivatives while Airbus invested in new aircraft programs. He had this to say about Enders’ news:
This is only possible as a percent of sales. Airbus is at a twin aisle product line disadvantage relative to Boeing, so this isn’t the time for them to rest on their laurels. Some kind of response to the 777-9X is essential, even if it arrives a few years after the Boeing jet. Whether it’s an A350-1100 or a clean sheet, it requires a significant investment right after A350XWB-800/900/1000 spending winds down. Thus, in absolute numbers, the company would be advised to keep spending high for the next ten years. But on the positive side, since Airbus’s revenue will grow with A350 (and incrementally with the A320 neo), the company’s percent of revenue spent on IRAD will decline.
Enders’ comments reflect the changing nature of Airbus’s shareholder relations more than anything else. They’ll need to focus more on profitability rather than new product development over the next ten years; they may wind up looking more like Boeing.
Odds and Ends: Airbus’ 5th quarter; 777X RFP responses
Airbus’ 5th quarter: John Leahy, COO-Customers of Airbus, is so well known for announcing a whole bunch of orders at the company’s annual review press conference (January 13 this time) that Boeing dubbed it the “5th quarter,” and the quip has stuck. Aeroturbopower has a wrap up of how many orders could be announced at the 5th quarter.
Boeing, IAM Meet: Dominic Gates of The Seattle Times reports that Boeing and the IAM met for the first time since the 2-1 vote rejection November 13 of the contract offer in connection with the 777X site selection.
777X responses to RFP: The following news articles try to detail some of the responses by states to Boeing’s 777X site selection RFP:
California and another California
Missouri: The county votes to add $1.8bn in tax breaks to the State’s $1.7bn.
Washington: The State adds Spokane to the list of alternative sites, according to Glenn Farley at KING5 (NBC, Seattle). (No link available.)
New York Times: Losing 777X would start a death spiral for WA State.
On Tuesday, the day the RFPs were due to Boeing, the Washington Congressional delegation released a letter to Boeing CEO Jim McNerney urging that the 777X be assembled in the state. The letter is below the jump.
This follows an Open Letter to Boeing on December 6 from Snohomish County officials (Everett is in this county), published in The Everett Herald.