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
ISTAT Europe: a tough review by Aeroturbopower, and our thoughts
ISTAT Europe: Aeroturbopower has this recap of last week’s ISTAT Europe conference and he takes a devastating hit at the Boeing presentation. We weren’t at the event this year but we’ve seen plenty of Boeing presentations and agree with Aeroturbopower’s assessment that Boeing takes liberties…something we’ve written about and something we’ve also expressed to Boeing directly. Comparing apples to oranges seems to be a common tactic.
But in fairness, Airbus also selectively chooses numbers that boost its case. We dissected one such instance in this column on AirInsight. Both companies play around with the seating configuration of their airplanes and the opposition to come up with numbers for seat-mile costs. We’ve seen Boeing compare ranges of the 737 NG and MAX vs the A320ceo/neo families by including the auxiliary fuel tank for the 737 but not for the A320, completely distorting the comparisons. Boeing relies on DOT Form 41 data and a study from 2006-2009 in Europe when comparing maintenance costs of the two families to argue the 737 costs up to 27% less to maintain. The figure, on its face, defies logic. If the A320 cost this much more to maintain, airlines would be hard-pressed to buy it. But more to the point, the methodology for the DOT Form 41 data is thoroughly discredited as a reliable source of information. Relying on a study that uses data up to six years old is also questionable.
All these manipulations of data is why we view numbers from both companies with a high degree of skepticism. In this column, we discuss this at the very end.
Manipulation of data like this harms the credibility of both companies.
As for Aeroturbopower’s report on the 737 MAX design not being frozen, this is true and it’s not news. Boeing said it won’t be until next year and this is what we are also hearing from customers. We’re hearing from a variety of sources that there are still challenges in achieving the advertised 13% fuel burn improvement over today’s 737 NG. We believe Boeing and CFM will get there, but it remains tough. We would not be surprised to see the 69.4 inch fan diameter increase yet again.
WTO Compliance?
The Washington Post reports that the US has complied with the WTO ruling on Boeing illegal subsidies. Boeing didn’t announce whether it has repaid the illegal subsidies, as it pledged to do if it was found guilty of receiving them.
Odds and Ends: Boeing responds to SPEEA; Enders’ mystery injury revealed; AirAsia
Boeing v SPEEA, con’t: As ballots are mailed by SPEEA to its members to vote on the Boeing contract offer, Boeing issued this response to SPEEA executive claims about the offer.
Enders’ mystery injury: EADS CEO Tom Enders was supposed to accompany the German chancellor to China on a recent trip but had to cancel due to an undisclosed injury. This Bloomberg article reveals what happened in a profile of his efforts to get the French and German governments out of EADS.
AirAsia: Long-written about plans to buy 100 Airbus A320s are headed to the board for approval, according to this article.
Odds and Ends: FT on BAE-EADS; Boeing-SPEEA dispute getting ugly; Arik Air
BAE-EADS: The Financial Times of London has this analysis, from the British perspective, of the proposed merger between BAE Systems and EADS. Bloomberg News has this analytical piece. And when the merger was announced, Boeing CEO Jim McNerney didn’t have objections. Now he says the merger needs scrutiny. Seems to us he woke up to the long-term potential impact of a strengthened EADS in future competitions for US DOD contracts, including the next round of tankers–the KC-Y. Here is a report of McNerney’s original reaction.
Boeing-SPEEA: The contract dispute between Boeing and SPEEA is getting uglier by the day. SPEEA has outright accused Boeing of lying over terms and/or negotiating tactics. If you follow SPEEA on Twitter, you can see the vitriol increasing almost by the hour.
Boeing, for its part, spent the summer confining discussions to only one topic at a time, rejecting SPEEA contract offers, then dropped a full offer on SPEEA only a couple of weeks before a contract vote was to commence–then expressed bewilderment at SPEEA negotiators sending the contract for a vote with a “no” recommendation. We see some parallels in Boeing’s approach to those it followed with the disastrous 2008 IAM 751 negotiations. We think the contract will be rejected by a comfortable margin.
Nigeria’s Arik Air: The airline ceased domestic operations. The airline has eight Boeing 737s, two 747-8Is and seven 787s on order.
Air France A350 contract stalled; here’s the way forward
Bloomberg News has this report that the Air France-KLM talks for 25 Airbus A350s remain stalled over the long-running dispute between the company and Rolls-Royce over AF’s desire to overhaul the Trent XWB engines.
The Air France-KLM group offers its own maintenance, repair and overhaul services and wants the ability to provide MRO to others as well as perform the work itself.
Engine suppliers are loath to grant MRO rights to others. Engines are often sold at deep discounts, and in extreme cases, even given to airlines in exchange for the exclusive parts and MRO contracts. This is where the engine makers truly make their profits.
Rolls-Royce is known to be particularly hard-nosed in this regard.
So how will the log-jam be broken?
Rolls wants Air France to order the Trent 1000 for the 25 Boeing 787 orders announced last year. Given the long relationship between Air France and GE, the supplier on AF’s current fleet of a variety of aircraft, this will be a tough pill to swallow. But don’t count it out.
Odds and Ends: More on EADS-BAE; surviving crashes
EADS-BAE: NOW that a few days have passed since the announcement BAE and EADS want to combine, here’s some more worldwide press:
Reuters: Government demands could make or break deal.
Interactive Investor: Merger will advance EADS military goals.
Mobile Press Register: Merger will advance Gulf Coast aerospace cluster.
London Daily Post: Defence worried about UK security.
International Business Times: US access key to merger.
Surviving crashes: A crash test of a Boeing 727 in Mexico drew snickers from some quarters, but the test concluded it’s safer to sit in the rear of the airplane than in the front. No kidding, and this is not new; this has been known in aviation for decades. But we actually like the response of Ted Baker, the founder and long-time CEO of National Airlines in the US (he sold out around 1961). When asked by a reporter where the safest place to sit in a plane in the event of a crash, the blunt Baker replied, “flat on your ass.” And you didn’t need a crash test to figure this one out.
Shrinking UAV market: Once thought to be one of the bright spots in a shrinking defense budget, Boeing now says the drone market will decline despite moves to increase civilian use.
BAE Systems is growth opportunity for EADS
Update, Sept. 13: Here are some stories from today:
Bloomberg: EADS move seen by Boeing as growth; Revives decade-old plan; and this update about the rankings:
BAE is the ninth biggest vendor to the U.S. government, with $7.3 billion in direct, or prime, contracts in the year that ended Sept. 30, according to a Bloomberg Government study ranking the top 200 contractors. EADS ranks No. 100, with $684 million in awards.
Reuters: US approval seen likely.
AOL: Big deal in Europe, not so much US.
Mobile (AL) Press-Register: EADS-BAE in merger talks, with a spin on local impact.
Original Post:
The prospective combination of BAE Systems and EADS is a growth opportunity for EADS, particularly in the US, where it has been striving for years to expand its defense footprint.
BAE Systems in 2009 was the Defense Department’s #5 of the Top 10 defense contractors. At that time 50% of BAE’s business was in the US. We have checked more recent figures. EADS North America, during the KC-X tanker competition, did about $1bn worth of business with the US government, in defense, Homeland Security and other contracts. We don’t believe this has appreciably changed in the 18 months since the tanker contract was awarded to Boeing.
Although the immediate reaction among observers and media is that the combination will make a strong competitor to Boeing, in fact BAE Systems services defense segments that are more closely aligned with Lockheed Martin and Northrop Grumman than with Boeing. There is also little if any overlap between BAE and EADS, whether here or in Europe and the UK, where BAE is headquartered.
BAE has about 40,000 employees in the US.
The combination, which has to be approved by the boards of both companies as well as a host of governments on both sides of the Atlantic, will certainly strengthen EADS and its argument that it is a substantial contributor to the US economy and US employment. Airbus, a wholly owned subsidiary that accounts for around 80% of EADS revenues, purchases $12bn in goods and services in the US and says it employs or supports 100,000 jobs directly or indirectly.
BAE, which owned 20% of Airbus until EADS bought these shares in 2006, isn’t a current supplier to Airbus. Although defense cuts in Europe and the US are limiting growth at this time, these come in cycles and BAE would strategically position EADS to grow its defense business and reduce reliance on Airbus revenues and financial performance.
The new company will be 40% owned by BAE shareholders and 60% owned by EADS shareholders. The current shareholdings in EADS of the German and French governments, presently 15% each, would almost certainly be diluted. (The German EADS shareholdings are currently indirect but may become direct. The French shareholdings are direct.)
The new company would be listed on several European exchanges, including BAE’s listing on the UK stock market.
Odds and Ends: Airbus takes a look at the future; Air India gets 787 Saturday; John Leahy
Looking at the future: Airbus takes a look at the future in this company-issued document. Airbus discusses the environment, Air Traffic Management and more. This link has more information about how Airbus looks at the future.
Air India: We’ll still believe it when we see it but Air India is supposed to take delivery of its first 787 Saturday. (This is skepticism about the airline, not Boeing, for clarity….) Here is a microsite from Boeing. The best part is the construction of the airplane.
John Leahy: The COO-Customers at Airbus got a promotion of sorts. See this Bloomberg article. It’s well deserved.
Boeing and SPEEA: Things aren’t going at all well in the contract negotiations between Boeing and SPEEA.