Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- SPEEA, Boeing at impasse over safety program, union says April 23, 2024
- Better transparency needed on Boeing’s 1Q earnings call April 22, 2024
- Bjorn’s Corner: New engine development. Part 4. Propulsive efficiency April 19, 2024
- Boeing unlikely to meet FAA’s 90-day deadline for new safety program April 18, 2024
- Focus on quality not slowing innovation, says GKN April 18, 2024
Odds and Ends: Picking up an A380; testing the 787; VLA backlogs
Picking up an A380: No, it’s not about lifting one. It’s taking delivery of one. CNN International Travel has this story about the delivery process. It’s not what you’d think would be your usual story from a travel section.
Testing the 787: Since we started off with delivery of an Airbus, let’s continue with testing about the 787 with this piece from All Things 787.
A380, 747-8 backlogs soften: Well, Aviation Week says they are under siege. We wouldn’t quite go that far, but the article is more balancedthan the headline.
A320 GTF testing begins: Aviation Week has this story.
A350 first flight ‘not easy’: Fox News has this story in which Airbus acknowledges the first flight of the A350 by mid-2013 won’t be easy. Airbus is trying very hard, though: there’s a lot of pressure to have the airplane at the Paris Air Show.
A320neo vs 737 MAX: This story has a good summary of the battle between the two giant OEMs.
Boeing details 737 improvements
With a tip of the hat to Jon Ostrower and his Tweet, here’s a link to some detail about the improvements to the Boeing 737.
Given the Airbus write-up in its advertisement about the MAX, we thought this link will be of more than passing interest.
Ad wars, continued–Airbus fires Round Three
This week’s issue of the trade magazines has Round Three of the Airbus response to Boeing ads. Click to enlarge.
Odds and Ends: Progress on the KC-46A; Southwest and AirTran; British Air’s A380
KC-46A Progress: National Defense magazine has this update on progress of the Boeing KC-46A tanker. According to the article, progress is proceeding well.
Southwest Airlines and AirTran: Southwest Airlines is the USA’s legacy low-cost carrier, and it has grown through selected mergers. The acquisition of LCC AirTran fills a big gap in Southwest’s system (the Southeast) and is the most ambitious effort yet. This article wonders if it’s too much.
British Airways’ A380: BA has revealed its interior plans for the Airbus A380. The news article is here. BA becomes another airline to configure the super-jumo with fewer than 500 seats.
Cattle Car: Airbus is looking at a 236-seat configuration for its A321, using 28-inch seat pitch. Ouch.
Airbus v Boeing: another round of what the customers tell us
With the recent spat upping the media war between Airbus and Boeing over whose airplanes offer better economics, we’ve been once more asking customers what their analyses conclude.
Nothing has changed from our earlier conversations.
As recent media and advertising wars relate, Boeing claims the 737-8 MAX is 8% better on a per-seat basis than the A320neo. Airbus claims its aircraft is 3.3% better than the MAX-8. The differences come in the assumptions of fuel burn, with Airbus claiming the neo will save more fuel than the MAX. Boeing claims the MAX, being lighter, will match the fuel savings and with 12 more seats, this is how Boeing comes up with the 8% figure.
Boeing also claims the 737’s maintenance costs are 24%-27% better than the A320, a figure which drives Airbus officials right up the wall as ludicrous. (We’ve written several times why we dismiss the validity of the Boeing claim as relying on old data on the one hand and data that can be manipulated on the other.)
In the last 10 days we have had conversations once more with customers and potential customers who have analyzed data from Airbus and Boeing and reached their own conclusions. These are additional customers to those we’ve talked with previously, thus adding to the list and data points.
The conclusions are the same:
- The A320neo and the 737-8 MAX are about equal in economics, with Boeing retaining a slight edge on a per-seat basis, but nothing like the 8% it claims. Boeing’s maintenance claims are laughed off. Commercial terms therefore become the deciding factor.
- The A321neo has the advantage over the 737-9 MAX, in part for the same reason the 8 MAX has the advantage: the neo has more seats than the MAX.
- The A321neo is a closer replacement for the Boeing 757 than the 9 MAX, although neither is a true replacement.
EADS Investors Day–Analysts reports
EADS held an investors Day this week; here are takes from two who attended.
Airbus presentations may be found here.
Bernstein
EADS is holding its annual Global Investor Forum. We describe key themes from Day 1, which focused on EADS overall and Airbus. A key message we took away was that EADS is headed toward governance changes that should make it a more normal company.
We now expect reduced government involvement with independent directors becoming the majority on the board. The free float is planned to rise from 49% to 70%. Although the sale of shares may depress the stock in the near term, long term it is positive.
Margin upside remains the key value driver for EADS, with higher margins likely on A320 and A330 from cost reduction and pricing. A380 performance appears to be improving. We see the main risk as the A350 production ramp in H2 2013.
First flyable Airbus 350 rolls out of the factory. Airbus photo.
Wells Fargo
Summary. We attended the EADS Global Investor Forum in the UK. Given that Airbus is the primary competitor to Boeing in manufacturing large commercial aircraft, its outlook is important to the suppliers in our coverage universe. Overall, we believe the key highlights of the forum on day 1 were 1) demand for airplanes remains strong as Airbus now says 2014 is overbooked for A320 2) the A350 and A320neo developments remain on track 3) Airbus has about 300 A320 current engine option airplane slots to sell in 2016-2017 that could see some pricing pressure and 4) Airbus is intently focused on reducing its costs which could lead to some pricing pressure for suppliers. In particular, Airbus highlighted Spirit Aerosystems as a supplier that has been challenged on the A350. For the suppliers in our coverage universe, we believe the positive commentary on a stronger 2014 and the order backlog should give investors increased confidence in Boeing and Airbus production ramp ups despite recent economic weakness. In addition, while Airbus has focused on reducing costs, we believe pricing pressure has been continuous for the suppliers in our coverage universe and do not expect substantial changes in the profitability of work for Airbus. We continue to be positive on the commercial aerospace suppliers based on the OEM upturn.
A350XWB. Airbus confirmed its schedule on the aircraft with first flight in mid-2013 and entry into service in H2 2014. We do not know how many aircraft Airbus plans to deliver in 2014, but the company did say that one of its two launch customers, Singapore Airlines, has shifted its planned aircraft deliveries into 2015 leaving only Cathay Pacific to receive the aircraft in 2014.
A320neo. Airbus continues to highlight its re-engined narrow body A320neo as superior to Boeing’s 737MAX. The company believes that its larger fan size allows total cash operating costs to be 3.3% better than the 737MAX. Boeing of course calculates different economics and can show its offering is superior to the A320neo. Airbus said it has about 300 open delivery slots for the current generation A320 aircraft before production transitions to the A320neo in 2017. Not surprisingly, most of these appear to be at the end of A320ceo production in 2016-2017. The company said that its 2013 and 2014 delivery slots are now fully booked (and 2015 is nearly so), an improvement from the company’s Q3 earnings conference call when there were still 2014 delivery slots available.
Backlog Growth in 2013. Airbus has about 7.5 years worth of production at planned rates (similar to Boeing’s production in backlog). Management thinks this long backlog has reduced the cyclicality of the airplane manufacturing business since 2004. On the other hand, Boeing has said it desires to reduce its backlog such that it can deliver airplanes on a more timely basis to customers.
Focus On Cost Reduction Could Mean Pricing Pressures For Suppliers. Airbus is targeting a 10% EBIT margin by 2015 (excluding A350 losses and the impact of a weaker Euro) and is aggressively looking to take out costs. As part of its cost reduction efforts, Airbus will have reorganized its plant management process beginning in January 2013. The new structure empowers plant managers with increased authority to manage production problems. At the same time, Airbus has implemented a single procurement organization to more effectively and efficiently manage the costs of the supply chain.
Airbus’ A330 improvements aimed at maintaining market position vs 787
Airbus last week announced additional gross weight upgrades and improvements to the A330-200/300 that increase range and reduce fuel burn. Aviation Week has this story about the enhancements.
This is the latest in a series of improvements taking advantage of the four year delay in the Boeing 787 program that Airbus believes will enable the airplane, which first entered service in 1994, to remain viable well into the 2020 decade.
Boeing launched the 787 in December 2003 and promptly claimed the aircraft would kill the A330. Had the aircraft entered service in May 2008 as originally planned, Boeing might have been able to make strides to do so. But delays allowed Airbus time to incorporate several Performance Improvement Packages (PIPs). The European company has sold more A330s post-787 launch than it did before.
The latest improvements give the A330-300 an anticipated range of more than 6,000nm, compared with less than 4,000nm when the airplane entered service.
Odds and Ends: Boeing’s next twin-aisle strategy; Lion Air/Airbus: you read it here first
Boeing’s next twin-aisle strategy: Aspire Aviation has this long article looking at when Boeing will launch the 787-10 and 777X.
Our thoughts on the topic: We are hearing EIS for the 787-10, as Aspire reports, will be 2018 or beyond and that EIS for the 777X will likely be 2020 or beyond. As always, the situation is fluid and things could change. Aspire’s projection of a formal 787-10 launch in June is timed, probably not so coincidentally, for the Paris Air Show. (Unlike the boring Farnborough Air Show, Paris already is shaping up as a prospectively exciting show. Bombardier announced first flight of the CSeries is now expected in June [before, during or after the Show?] and Airbus would like to fly the A350 before the show–something that will likely be a challenge.)
We know Boeing continues to wait as long as it can in hopes Airbus will commit to a final design of the A350-1000 before launching the 777X, but time may be running out unless Boeing is willing to extend the gap between EIS of the -1000 and EIS of the 777X.
A 2018 or later EIS of the 787-10 means Boeing will avoid the EIS of two airplanes (the MAX and the -10) simultaneously, which could be a lesson-learned from the 787/747-8 programs. Readers may recall that Jim Albaugh, former CEO of Boeing Commercial Airplanes, said Boeing would avoid this in the future after experiencing the problems of the two programs.
Perhaps, and this is speculation, extending the time between EIS of the 787-10 and the 777X is partly driven by the same concern.
Given program history, at least some Wall Street analysts we’ve talked with are already raising the prospect that the 737 MAX EIS (4Q2017) might slip. Why? They are concerned about the broadening design creep as well as development of the CFM LEAP-1B. Can they point to anything concrete? Not yet. Chalk the conversation up to Boeing’s poor performance on the 787 and 747-8 programs and the fact that there are still industrial issues with the 787 suppliers, according to the chatter.
You read it here first: Aviation Week reports Lion Air is considering Airbus A320s to supplement its Boeing 737 fleet. We reported this on September 24.