Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- 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
- Does an Airbus A220-500 need a new wing and engines? May 1, 2025
- Teamsters, Boeing have a new contract April 29, 2025
Key supplier says engine makers unsure of Boeing ramp up plans
A key supplier says engine makers aren’t as positive about plans by Boeing to ramp up production.
Allegheny Technologies hosted an investors’ day last month. In a note issued September 14 by Buckingham Research Group, BRG wites:
ATI has confidence in BA’s production ramp schedule but believes engine manufacturers do not. ATI is confident BA will achieve 787 production rates of 10/mo at the end of 2013 and successful ramp on the 737 and 777. Although ATI has faith in BA’s production ramp, CEO Richard Harshman noted that the engine supply chain may not have the same faith in BA’s production ramp. ATI’s observation is that the engine supply chain is being very tightly managed and that engine OEMs are being very guarded about getting ahead of airframe manufacturers (historically they have gotten ahead, anticipating production increase). This somewhat supports our view; although we think execution on the 787 has been better than BA expected, we think BA will be challenged to meet its production rate schedule of 10/mo by the end of 2013. We also think that view is well within buy-side expectations.
From our conversations with suppliers, we know that there is a general fear of the high rates announced by Airbus and Boeing, let alone those being studied. We believe these concerns are natural, given the unprecedented volumes announced and under study. Concern is also driven by a fragile global economy.
Airbus, Boeing battle for US MAX-NEO market share
With the announcement by Alaska Airlines for 20 737 MAX 8s, 17 737 MAX 9s (and 13 Next-Generation 737-900ERs), Airbus and Boeing continue their battle for the US market.
There are still a number of customers who have not ordered either aircraft. US Airways has been exclusively an Airbus customer. Airbus lost a hard-fought battle to Boeing in the competition for the A321-737-900ER order. ILFC orders seem to be on hold pending its Initial Public Stock offering.
| 737 MAX | A320neo | No Order Yet |
| American* | Spirit Airlines | US Airways |
| Aviation Capital Group** | Frontier Airlines | Delta Air Lines |
| Southwest Airlines | jetBlue | |
| United Airlines | American* | |
| Air Lease Corp | Aviation Capital Group | |
| GECAS | CIT Aerospace | |
| Alaska | Virgin America | |
| *To be affirmed in bankruptcy court**Commitment, not yet converted to firm order | ILFC |
EADS-BAE merger off; government interference, key shareholder kill it
The EADS-BAE Systems merger is off, killed by a combination of government interference and a key BAE shareholder who opposed it. Read here and here and here.
We favored the merger as a way to get the French and Germans out of EADS’ knickers. The British government also meddled in the affair, for its concern about the diminished role of BAE post-merger. BAE is a top UK employer and defense contractor.
Flight Global published a list of the Top 100 aerospace companies in the world. Boeing is #1, EADS #2 and BAE #15. A PDF is here Top 100 Aerospace Companies, avoiding Flight’s annoying new Flight Global Club nonsense.
Military contracts exempt from government subsidies
A new round of news articles has emerged concerning launch aid to Airbus for the A350. This one is typical. It and others tied the subsidies identified in the long-running WTO case received by Airbus to the proposed merger between Airbus parent EADS and Britain’s BAE Systems.
BAE gets about half its revenue from the US Department of Defense. According to Bloomberg rankings, BAE was DOD’s No. 9 supplier last year (down from #5 in 2009 when the US was still engaged in the Iraq War).
Some say the Airbus WTO issue may cause a problem for the merger with US authorities while others say it shouldn’t. The news that Airbus received $4.5bn in launch aid will add fuel to the fire.
(We wrote a couple of years ago that Airbus had received launch aid–it was revealed in the EADS financial statements. We’re a bit perplexed why the big hubbub now.)
Airbus and the European Union say launch aid per se wasn’t deemed illegal by the WTO and only the terms and conditions providing below market interest rates and other T&C were. Any subsequent launch aid would comply with the WTO ruling.
Boeing and the US Trade Representative say launch aid itself is illegal.
But while some try to connect launch aid to military contracts (see the USAF tanker) and even to this merger, the fact remains that military contracts are completely exempt from WTO rules over subsidies.
787-10 decision anticipated very soon, perhaps within days
Boeing’s Board is expected to be asked very soon, perhaps at its meeting in October, to grant Authority to Offer the 787-10 to customers, according to two sources.
A Boeing spokeswoman said that ATO for the 787-10 is expected to occur before the ATO for the 777X, since the -10 is a more straight-forward project than the X, but could not confirm the October timeline.
The straight-forward stretch of the 787-9 will have less range (about 6,900nm) than either the -8 or -9 models, which comfortably top 8,000 nm but it is expected to carry around 323 passengers, putting it squarely in the class of the 777-200ER and the A350-900.
At 6,900nm, the airplane will cover most missions required by airlines. By foregoing a new wing and added fuel tankage, the operating weight of the airplane is expected to be roughly equal to the 787-9. A slightly higher-thrust engine will be required. Rolls-Royce announced a higher thrust version of the Trent 1000 now powering the 787 at the Farnborough Air Show, and insiders said this engine is specifically intended for the 787-10.
The 787-10 is billed by Boeing as the airplane that will “kill” the Airbus A330-300, but the 787 was also billed as the airplane that would kill the A330-200. The delays in the 787 program have given Airbus time to enhance the A330 family and the rival announced gross weight, range and engine Performance Improvement Packages to the 300 (and which are anticipated for the 200) at the Farnborough Air Show.
Airbus is also selling the A330 family at discounts to the 787 family today and this will continue in the future. The lower capital costs, Airbus believes, allows the A330 to remain competitive. Airbus COO-Customers John Leahy told us that Airbus expects to sell the A330 beyond 2020.
The 787-10 would replace the 777-200ER, which has largely been killed by the A350-900.
Odds and Ends: EADS faces unhappiness over BAE merger; EU rejects US WTO compliance claims; SPEEA Update
EADS unhappiness: In the weeks after the merger with BAE Systems was announced, it’s clear that the proposed merger with EADS hasn’t ben well received by shareholders or the EADS governments. This Reuters story details the reluctance from the German government. Even the head of BAE has been quoted saying the union won’t proceed if BAE’s US defense business is jeopardized. Boeing, after initially saying it sees no impact, now wants a full US defense review and plans to undertake its own evaluation. Some suggest Boeing will try and bring the WTO subsidies issue into the case.
Our take is that Boeing’s initial reaction was based on the largely non-competitive defense lines of BAE and EADS but belatedly realized the strength the combined companies would have to be future competitors across from Boeing’s lines.
But the larger issue seems to be the future role of the French and German governments in the new company. Their shares will be diluted and governance influence will eliminated under the proposed merger. The government influence has historically meant Airbus, the dominate EADS subsidiary, has had to carefully split jobs between France and Germany rather than being free to make commercial decisions without political considerations.
As readers know, we have advocated for years that the governments need to get out of Airbus’ hair.
The Washington Post has this story, aptly characterizing the “blood fued” between Airbus and Boeing.
WTO Claims: It’s absolutely no surprise that the European Union rejected claims by the US it is now in compliance with the WTO ruling that Boeing received illegal subsidies. The tit-for-tat continues.
Airbus issued this statement today:
The WTO final verdict had called in March for:
- Withdrawal of “at least $5.3 billion” of federal subsidies already received by Boeing.
- Elimination of an additional $2 billion in illegal state and local subsidies due in the future under existing illegal schemes.
- Termination of all U.S. Department of Defense (DOD) and NASA research grants to Boeing, including funding, Boeing use of government facilities and the illegal transfer of IP rights to Boeing
The EU’s requested 12 Bn annual penalty is justified by the WTO panel confirmation that the effect of the subsidies is significantly larger than their face value in light of their “particularly pervasive” nature. For example, according to the WTO, Boeing would not have been able to launch the 787 without illegal subsidies. Today’s request belies Boeing’s argument that the WTO’s findings will have no relevant consequences for Boeing.
SPEEA Update: Seattle Times has this update on the SPEEA-Boeing situation.
Debate over the 777X: still studying how far to take improvements
The quest to upgrade the Boeing 777 line, with particular focus on the 777-300ER, is heating up.
The Wall Street Journal has this detailed story. We found it on Google News, so it should be available to all readers but it may turn out to be a subscriber-only story.
Jon Ostrower’s WSJ piece indeed details similar information that we have been told. Flight Global has this story in which Steve Udvar-Hazy, CEO of Air Lease Corp., says Boeing is “gun-shy” about the new program because of the problems with the 787.
There’s more to it than that.
Here’s what we can add from a well-placed source familiar with Boeing’s recent thinking and events.
- Recent customer meetings indicated that the proposed 777-8X isn’t particularly well received. The concept as currently envisioned is actually slightly smaller than the current 777-300ER: 350 passengers vs 365 in three class. Customers are much more favorably inclined toward the 777-9X, envisioned at 407 passengers three class, more than 50 passengers larger than the Airbus A350-1000. The extra capacity goes a long way toward the economics, which according to sources, is targeted for the 9X to be 21% better fuel burn and 15% better operating costs, per seat.
- As a result of such cool reception toward the 777-8X, according to our source familiar with the thinking, Boeing is pondering covering the low end of the 777 class with the 787-10 and proceeding only with the 777-9X.
- The 777-9X would go a long way toward killing the already anemic sales of the 747-8I, even though in three classes Boeing advertises this capacity at 465 passengers. Boeing, however, notes that “Our product strategy focuses on a full array of products with seat count capacity in 15-20 percent increments to provide customers maximum flexibility to adjust capacity. The 747-8 is 15-20% larger than the 777X studies and serves those markets requiring more seating capacity.”
- Plans articulated by Jim Albuagh, former CEO of Boeing Commercial Airplanes, to seek Board approval for Authority to Offer (ATO) the X for sale by the end of this year has slipped to the end of 2013 or even early 2014, our source tells us. EIS is still contemplated for 2019. BCA’s new CEO, Ray Conner issued a note to employees following a Seattle Times story which said the program has slowed that it has not. Further, we are told by Boeing in response to this post that the anticipated timeline to seek Board ATO remains late this year or early next, but not as late as the end of 2013. Nonetheless, we did hear the later timeline from a well-placed source.
- Boeing still wants to see what the final design of the A350-1000 becomes. With EIS for this delayed to 2017 (if not longer), there is no rush to make immediate decisions for the X.
- The WSJ article suggests Boeing may elect to stick with metal wings instead of the more expensive and challenging composite solution. We understand that the composite wing remain the favorite but studies retaining the metal wing continue.
We need to emphasize that what may be true today may change tomorrow. The point is that the development of the 777X is fluid. With an extended timeline for the A350-1000, Boeing is in no hurry to make an early decision. The factors reported by the Wall Street Journal and FlightGlobal also are important.
Boeing continues to study whether to proceed with a major makeover of the aircraft–the 777X–or a less dramatic 777+ set of enhancements.
“Just like all other airplane development efforts, it’s an iterative process. We let the data from our studies and the input from our customers drive the best airplane design as we continue our work on this airplane that would enter the market later this decade,” Boeing tells us.
“As we’ve said for the last several months, when we are satisfied with the risks, costs and schedule, we intend to present a plan for offering the airplane to customers that would enter the market late this decade. Teams continue to study the many elements of a complex development process, and we continue to work with customers on their requirements. We are committed to this segment of the market and when we are confident in a plan we can deliver to our customers, we would formally launch the program following additional development work.”
Although Tim Clarke, president of Emirates Airlines, has been vocal in pushing Boeing toward the X model with range that will provide unrestricted non-stop service from Dubai to Los Anglese, this capability is needed for only about 5% of the world’s routes. Boeing (and Airbus) have been open in their reticence to build an airplane for only 5% of the market, considering the return on investment not worth the cost, the weight penalties or engine requirements for so few customers. It remains to be seen, however, what the outcome of the process will be.
New battle emerging in Asia
Our AirInsight affiliate has published a short report in its e-newsletter (subscription only) about a new battle emerging among LCCs in Asia.
An excerpt:
A new head-to-head battle appears to be shaping up in Asia.
Indonesia’s LionAir announced plans to create a new LCC, Malindo, which will be based in Malaysia and take on AirAsia.
AirAsia previously announced plans to acquire Indonesia’s Batavia Air—a deal that’s under regulator review and which may or may not consummate—in a bid to further penetrate the Indonesian market against LionAir.
AirAsia and LionAir are the two behemoths in the region, excluding flag carriers. AirAsia operates 100 Airbus A320s and has 272 more on order. It is poised to place an order for up to 100 more any day now. AirAsia was a launch customer for the A320neo and has been urging Airbus to proceed with a re-engining of the A330 to produce an A330neo—a move Airbus has so far resisted.
LionAir operates about 70 Boeing 737NGs and has an astounding 337 on order. It is the launch customer for the 737-9 MAX and was the first customer to sign a firm contract for the airplane. LionAir is poised to order 100 Airbus A320/A321 neos, presumably for the new venture.