Leeham News and Analysis
There's more to real news than a news release.
Odds and Ends: Asia’s LCCs; Fiscal Cliff Deal; Boeing v Airbus; Desert Airplanes
Asia’s LCCs: Aviation Week has this lengthy piece about Asia’s Low Cost Carriers. Update: Financial Times has this in-depth look at AirAsia vs Lion Air. (Free registration required.)
Fiscal Cliff Deal: The can was kicked down the road and Wells Fargo has this assessment on the affect on the Defense Department:
Sequestration Postponed. The bill passed does not prevent the sequestration procedure from automatically reducing defense spending by $500B over the next ten years, including $50-55B of potential reductions from FY2013. Instead, it postpones the deadline for an agreement from January 2, 2013, to March 1, 2013,–a two-month extension. At that time, the DoD will have three weeks to determine how the sequestration will be implemented, with the reductions kicking in on March 27, 2013, rather than on the same day under the original sequestration legislation. The lack of planning time for the sequestration contributed to the uncertainty of its impact, which the new legislation appears to resolve.
Boeing v Airbus: It certainly looks like Boeing sold more airplanes in 2012 than Airbus, but the annual Airbus press conference is January 17 and you never know what last minute orders John Leahy has up his sleeve. We doubt Boeing is celebrating just yet.
Desert Airplanes: It’s an old story for those of us who follow this sort of thing but the photos are always interesting. CNN has this story, with pictures, of where airplanes go to die.
American to decide on merger Jan. 9, Bloomberg says
American Airlines’ Board of Directors will meet on Jan. 9 to decide whether to merge with US Airways, according to this report by Bloomberg News.
The outcome, of course, has ramifications beyond those employees of both airlines. These include, in no particular order:
- A shift in the oneworld and Star Alliances. US Airways is part of the Star Alliance, though its route system is hardly a key part. Since US says it will adopt the AA name, look for US to move into the oneworld alliance. An AA-US merger strengthens AA’s East Coast reach, but other than this we’ve not seen a great deal of routes that US brings to AA. On the other hand, AA brings a lot more to US.
- Airports will see revisions to facilities as both airlines consolidate.
- Some cities will see reductions in service as duplications are eliminated.
- If the US management is the one that emerges in charge (as we hope), then this will be a major plus for the future of the new American Airlines. If AA’s management is the survivor, we’re much less sanguine about AA’s future.
- Airbus and Boeing should both benefit. Before bankruptcy, American placed orders for hundreds of current generation A320s and 737NGs as well as the re-engined models. US has a large order for A320ceos and A330s, but no A320neos. American’s fleet replacement need is so large that it probably needs both single-aisle OEMs. We could see some adjustment in the orders, which never were firmed up, and taking into account the US outstanding orders. But we’d be surprised if the new AA were to cancel entirely American’s Airbus or Boeing orders.
- Nor do we see US canceling its A350 orders in favor of AA’s outstanding 777 order. US is one of the remaining A350-800 customers and this might be upgraded to the A350-900. But we think there was a fair chance of this happening anyway.
Odds and Ends: Top 10 stories in 2012; A400M; C919 “orders”
Top 10 Stories in 2012: Here’s a piece we did for CNN International on the Top 10 stories, David Letterman style, for 2012.
Airbus A400M: Airbus claims it’s ready to go. First deliveries slated for next summer.
C919–orders, no deposits: How firm are the 380 “orders” for the COMAC C919? Good question. According to a Chinese media report via this Western news story, there are no deposits for the “orders.”
Washington State’s Signal to Boeing: Gov. Christine Gregoire, in her final budget (see leaves office next month), put $25m in for aerospace training and STEM education. The Puget Sound Business Journal explains the significance of this.
Update (already): Seems Mobile (AL) is put out we didn’t include the Airbus announcement of a production plant there in our Top 10. Over at CNN, a reader commented that the Delta Air Lines purchase of an oil refinery was worthy. Feel free to add your comments about what should have (or should not have) been included in this list.
Odds and Ends: Boeing stock buyback; Charging suppliers for doing business; AA+US
Boeing Stock Buyback: Boeing announced a stock buyback of #3.6bn for next year. Wells Fargo has this to say in a research note issued today:
Boeing had more than $11B of cash on the balance sheet at the end of September, and after free cash flow of $5.7B in 2013 and more than $7B in 2014 (i.e., almost $10/share in free cash), we believe Boeing could have over $20B in cash available to return to shareholders over the next few years. This is why we see about a $130MM increase in dividends and a $1.5-2.0B buyback in 2013 as small steps in returning cash to shareholders.
We’re not a fan of buybacks, which serve to prop up stock prices. We believe stock should rise on its own merits, not because of some artificial prop-up. More to the point, however, is that Boeing has a hard time telling SPEEA it needs to cut costs when it is spending billions on buybacks that benefit (among others) Boeing’s largest shareholders–the McDonnell family, Harry Stonecipher and Jim McNerney.
SPEEA is preparing for a strike February 1. Talks resume January 9, but the gulf between the two sides is so great, SPEEA expects them to break down almost immediately.
With Wells Fargo estimating that Boeing might return $20bn to shareholders in the next few years, we somehow think this will be an issue when IAM contract negotiations come up in 2016 and Boeing pleads poverty again (as it inevitably will).
We’d much rather see the money invested in new airplane programs rather than derivatives like the 737 MAX and 777X.
Boeing charges royalties to suppliers: Mary Kirby has this interesting story about Boeing charging suppliers for the price of doing business with the company.
American and US Airways: The Ft. Worth Star-Telegram has this column discussing the case for a merger between American Airlines and US Airways.
Pegasus Buys Airbus: Turkey’s Pegasus Airlines ordered 75 A320neo family and optioned 25 more. The carrier was previously a Boeing 737 operator. Deliveries are from 2015, which means the Pratt & Whitney GTF has to be the engine choice, which is as yet unannounced. CFM’s LEAP-1A won’t be ready until later in 2016.
Before this order, Airbus had a 61% market share of the re-engine order race vs the 737 MAX (firm orders only).
Photo Montage: The Everett Herald has this photo montage of the Flying Heritage Museum’s aircraft. The Museum is owned by Microsoft co-founder Paul Allen.
Freighter Market Softens: Cargo Facts has this analysis of the freighter market.