Leeham News and Analysis
There's more to real news than a news release.
British Air’s exit from dedicated cargo fuels doubt over 747-8F future
The decision by British Airways to exit the dedicated freighter business by returning three Boeing 747-8Fs to ACMI operator Atlas Air demonstrates the continued weakness of the global air freight market.
Boeing is counting on the global freight market to improve this year, and with it, sales of the 747-8F. We’re not so sanguine.
Even if the global freight market improves, we are skeptical that Boeing will see much in the way of orders to boost this faltering program. There remain a large number of 747-400Fs in the desert that can be recalled to service at a cost a lot less than a new-build 747-8F will cost. Likewise, there are still a fair number of 747-400 passenger aircraft in service and in storage ready for conversion.
We recognize that the 747-8F is more fuel efficient and maintenance is less than the 744s, but the much higher capital cost demands high utilization and risks greater financial impacts if the airplane has to be parked during a downturn.
Boeing’s 777F is smaller, less costly and uses less fuel than the 747-8F. While it also carries less, it can be argued that the 777F is “right-sizing” aircraft for the changing market conditions. But Boeing is struggling even with this model. The company sold just one nine 777Fs since late 2011.
Boeing plans a 777-8F, but this will not enter service until well after the 747-8 program is likely terminated.
Airbus hasn’t had much success for its new-build A330-200F. Some customers proved to be unable to take delivery, while another—Intrepid Aviation—changed its entire order of 20 for the passenger version and up-gauging these to the A330-300 in almost all cases. The cost-benefit analysis by some concluded the price of the new-build A330F was too high for the benefit gained through economic efficiencies and payload. Airbus announced a small sale at the Dubai Air Show, but otherwise has seen a steady decline in the backlog over and above deliveries.
Aside from the continued economic weakness and a surplus of available used equipment, the belly cargo-carrying capability of the Boeing 777-300ER and the Airbus A330 enables shippers to take advantage of these aircraft for many flights. Interestingly, when Boeing prepared to ship all the equipment and repair components around the global for its 787 battery repairs, it used belly-freight capacity, not dedicated main-deck freighters.
The proliferation of 777s, A330s and the forthcoming A350 and the 777X may well further spell the demise of the 747-8F as nothing more than a niche aircraft based largely on sales already completed. We certainly expect to see a few more sales, but nothing consequential.
Odds and Ends: CSeries timeline; KC-46A roll-out; China’s new airplane
CSeries timeline: Bombardier last week announced a third delay in the CSeries program, this time for as much as a year.
This probably should have been expected. BBD originally planned a five year period between program launch and entry-into-service. As we saw with the Boeing 787, launched with a four year timeline, even five years was too ambitious.
CSeries Timeline. Leeham Co Chart
The EIS period for the 787 turned out to be the standard seven years, almost eight–and even then, the EIS was anything but smooth.
Airbus’ launch-to-EIS for the final A350 version is somewhat more than eight years. Even though BBD is a sub-contractor on the 787 program and said it benefited from lessons learned, it’s clear officials were far too ambitious.
KC-46A roll-out: Boeing’s first tanker for the USAF based on the 767-200ER will roll out this summer. The Everett Herald has this story. The airplane is a somewhat revised 767-200ER called the 767-2C. In addition to upgrades with the airframe, the Pratt & Whitney PW4000 engines will have upgrades which improve fuel consumption.
China’s new airplane: China isn’t just developing the ARJ21, C919 and some military airplanes. It’s also developing the world’s largest amphibian.
Boeing notified supply chain: prepare for 52 737s per month
In a letter dated January 3, Kent Fisher, vice president of supplier management, set the date for going to 47/mo in July 2017. The year had previously been announced by Boeing. Fisher continued that demand is “sufficient” to take the “protection rate” to 52/mo “later in the decade.”
“Protection rate” means the Boeing and the suppliers need to protect the ability to increase to the desired rate in terms of tooling, machinery, parts, and their own suppliers. This notification isn’t as firm as announcing an actual production rate increase, but it’s pretty close.
Airbus, meanwhile, continues with construction of its Mobile (AL) plant, with a target operational date of next year. Initial production will be 2/mo, ramping up to 4/mo. The plant has the capacity of 8/mo. This means Airbus increases production of the A320 family to 44 in late 2015 or early 2016, then 46 later in 2016 and 48 to 50 thereafter.
The Airbus and Boeing production rates dwarf those of Bombardier, which is challenging the Big Two OEMs at the lower end of the 100-220 seat sector with the 110-145 seat CSeries, and Embraer, which produces the 100-122 seat E-190/195 E1 today and which is offering the 132 seat E-195 E2 for delivery beginning in 2018.
Airbus’ factories are in Hamburg, Toulouse, Tianjin and from next year, Mobile. Hamburg and Toulouse are currently producing 38 A320 family members a month, weighted toward the latter, and Tianjin is at 4/mo. Tianjin and Mobile have the capacity of 8/mo each; we don’t know the total capacity of the Hamburg and Toulouse plants but are told these are at capacity; Airbus declined comment. This means Airbus has the capacity to go to 54 A320s/mo among the four plants after Mobile is fully operational.
Boeing has the capacity for 63 737s a month at its single Renton (WA) factory. Embraer has the capacity for 17 E-Jets a month. Bombardier plans a capacity of 20/mo for the CSeries.
Odds and Ends: CSeries EIS rescheduled, new deal announced; Airbus seeks unprecedented ETOPS rule
New CSeries EIS: Bombardier today announced a new delay in the entry-into-service of its CSeries, confirming what we reported Monday. BBD now says EIs will be in the “second half” of 2015, compared with the September 2014 planned EIS. We forecast a 6-9 month delay, so this now is a 9-15 month additional delay.
BBD’s statement: “The CS100 aircraft’s entry-into-service is now scheduled for the second half of 2015 and will be followed by the CS300 aircraft’s entry-into-service approximately six months afterwards.
“We are taking the required time to ensure a flawless entry-into-service. We are very pleased that no major design changes have been identified, this gives us confidence that we will meet our performance targets,” said Mike Arcamone, President, Bombardier Commercial Aircraft. “While the process has taken more time than we had expected, our suppliers are aligned with the program’s schedule and together, we will continue to work closely to move the program steadily forward. With the first flight of flight test vehicle 2 (FTV2) successfully completed on January 3, 2014, the CSeries aircraft program will continue to gain traction over the coming months.”
Below is what we published Monday.
We’re now looking at an 18-27 month delay for the originally planned EIS of December 2013.
Update: BBD tells us the the “software maturity” is behind the rescheduling. Basically, this means that all the various software systems have to completely and correctly talk to each other and avoid the issues that “have affected our competitors.” BBD declined to name the specific affected systems nor the suppliers, instead saying that this is a Bombardier “team” project and that the “team” is on board with the new timeline.
In addition, Bombardier and a Middle East airline announced an order for the CSeries.
Airbus seeks big ETOPS OK: The Wall Street Journal reports that Airbus is seeking regulatory approval for a 420 minute ETOPS for its A350. (Subscription may be required.) This means the airplane could fly seven hours on one engine if the other one fails. It opens trans-polar and trans-Antarctica route opportunities.
The Boeing 787 is restricted to 180 minute ETOPS. The Boeing 777 has 330 minute ETOPS.
Via Jon Ostrower, here’s an example of what works beyond 330 minute ETOPS.
Meanwhile, Boeing has begun high speed wind tunnel testing for the 777X.
Airbus v Boeing: The Seattle Times published a good graphic of the Airbus v Boeing order outcome for 2013.
Embraer continues and refines its strategy at the low-end of 100-149 seat sector
While Airbus and Boeing slug it out in the competition for the duopoly and Bombardier struggles to gain respect as an emerging mainline jetliner producer, Embraer continues and refines its strategy in the smaller-end of the jet market with its E-Jets, E-Jet “Plus” (our term) and the E-Jet E-2.
Source: Embraer, Reprinted with permission.
Embraer is broadening its offering from a maximum of 122 seats to a maximum of 132 and dropping its low-end E-170 from future variants. This brings the EMB family to 90-132 seats, following the decision to undertake an extreme makeover of the current E-175/190/195 line by adapting the Pratt & Whitney P1000 Geared Turbo Fan engine to a new wing design and upgrading a variety of systems in the E-Jet E2.
Source: Embraer. Reprinted with permission.
Airbus wins annual results, trails Boeing in deliveries
Airbus announced 1,619 gross orders for 2013–1,503 net orders–and a backlog of 5,559 aircraft. The company delivered 626 aircraft for the year. It ended the year with 51% of the market vs. Boeing.
Boeing won the delivery race but came in second in orders.
CEO Fabrice Bregier said that 10 years ago Airbus delivered only half the aircraft it did in 2013.
Bregier, at the annual press conference, says “re-engining [the A330] is always an option, but not only option,” reports Reuters. “[Airbus COO-Customers John] Leahy says Airbus could eventually add 1-2 rows to A350-800.”
Aviation Week reports the A350-800 EIS could be moved back a couple of years, also reporting it could be enlarged by two rows.
Bregier says A320 production could increase, reports say from the press conference. (We report in our e-mail distribution today what the production rates will be over the next few years–this will be published on this website next Monday.)
The case for an A330neo
With the increasing possibility that Airbus will defer or even drop the A350-800, the case for an A330neo becomes much stronger. Absent the A358, Airbus has no effective competition to the Boeing 787-8. The current A330, which we will call the A330 Classic, is a very good airplane but it is not as fuel efficient as the 788. The Airbus argument that the A330 Classic is competitive is based on the most favorable of assumptions and rests in part on the key capital cost assumption and moderate fuel prices.
In a story on Friday Reuters confirmed our December 23 e-newsletter report (which subsequently was published at Leeham News and Comment December 29) that Airbus is seriously considering an A330neo. This certainly clears the air on this score.
Source: Airbus
Airbus argues that the lower capital cost offsets the higher operating costs of its A330s vs Boeing’s 787-8 and forthcoming 787-9.
The following table includes Airbus’ assumption as well as 2013 lease rates reported by the appraisal firm Collateral Verifications (CV). Airbus assumes a higher lease rate for the 787-8 than CV reports. CV does not yet have an estimated lease rate for the 787-9.
Current Market Value is the price an airplane can be expected to sell for in today’s environment. Current Base Value is the theoretical price in a stable supply-and-demand market.
Would delayed IAM vote had made a difference? We don’t think so
We really hoped we were done with this story, but the saga of the IAM 751 Boeing 777X contract vote lives on.
- Several complaints about the timing of the January 3 vote have been filed with the National Labor Relations Board.The NLRB says it will take three months to investigate the matter.
- More than 1,000 members of 751 local units have called for a recount or a new election; the International rejected these demands. (Note: in government elections, recounts are generally not undertaken unless the margin is less than 100 or the percentage difference is less than 0.5%.) The margin in the January 3 vote was 51%-49% and some 600 votes.
- A local 751 member declared his candidacy for general vice president of the International IAM, in an election to be rerun from a year ago because of procedural irregularities. This is, of course, part of the irony of the entire matter: the International hijacked the election process from 751, which has never been accused of voting irregularities (that we know of). We’ve observed a couple of vote counts by 751 and found them to be scrupulous.
The critics of the election’s timing note that several thousand members of 751 were on vacation on January 3. Absentee voting was allowed for the first time in IAM history, but according to media reports, about 2,700 members did not vote in this election who voted in the November 13 election. The 777X contract was rejected then by a 67%-33% margin.
If these 2,700 members voted in the January 3 election, about 72% of these would have had to vote “Reject” to overcome the 51% “Accept” result. This is 5 percentage points greater than the November 13 Reject vote. We’re not persuaded this would have occurred.
We were involved in local suburban and state legislative elections from 1998 through 2011. In the suburb where we live, voter turnout in presidential years routinely was 85%. We analyzed voting results and voting trends in all but the 2011 election. In no case did absentee votes alter the initial reported outcome by more than 1%. Those on the losing end hoped that absentee ballots would make up the difference. We always calculated what percentage of votes would be required to overcome a deficit. Super-majority percentages were beyond reach.
It is based on this experience, and the percentages achieved in the November 13 and January 3 votes, that leads us to conclude that even if the “missing” 2,700 members had cast votes, the required percentage to win–72%–was impossible to achieve.
We believe the contract still would have been accepted.