Leeham News and Analysis
There's more to real news than a news release.
Odds and Ends: 787 ramp up, ISTAT, Airbus, the price of oil in 1968
787 Ramp-Up: UBS Securities issued a research note Monday in which it reports that the 787 rate ramp-up to 10 per month–a goal Boeing’s to be by the end of 2013–has slipped to the first quarter of 2014.
- More from UBS: Supply chain ahead of Boeing: We believe the supply chain is still ahead of Boeing given significant rework and a high level of component deliveries in 2009-10, although a pick up is expected soon. We understand Boeing now plans to ramp from current 3.5/mo to 5/mo in Q4 (had been Q1), 7/mo in Q2 2013 (had been Q4 2012) and 10/mo in Q1 2014 (had been Q2 2013).
ISTAT: We’re at the annual ISTAT AGM in Phoenix and we’ll be reporting throughout the event odds and ends (adding to this post initially, separate posts later on). So come back often.
From ISTAT:
- 40% of Airbus 2011 deliveries were via lessors: 115 through direct sale to lessors, 95 via lessor purchase-leaseback
- Lessor sees overlapping production of 737 NG with MAX, A320neo with CEO due to limited availability of production slots because of massive early neo/MAX commitments.
- Congressional targeting Ex-Im Bank financing is short-sighted; cutting funding will harm Boeing, GE, Pratt & Whitney.
- Airbus has delivered 10 A330-200Fs, four operators now.
- Undercurrent buzz about 737MAX. Watch for developments in the next weeks and months.
- Airbus about to start final assembly line for A350.
- Flight tests of Trent XWB going well.
- Airbus now advertising A350-1000 at 369 passengers, up from 350.
From Twitter, via Phil LeBeau of CNBC: @Boeing says it has NOT changed its goal of building 10 Dreamliners per month by end of 2013.
Back to ISTAT:
- A321neo gains 600nm, A320neo gains 500nm.
- Average oil price 1968 non-inflation adjusted was $3.18bbl (that’s per barrel, not per gallon!).
- Airbus sold 448 A320ceo since launch of neo.
- Airbus competes 99% of the time against Boeing, not new entrants, for sales. Barriers to entry for a new aircraft type very high rather than changing fleet type.
Side trip to Ex-Im:
Take a read of this column on the Ex-Im Bank financing controversy.
Back to ISTAT:
Boeing….
- Mike Bair: We are in a march to put Airbus out of business in the twin-aisle space: 777 vs A340, 787 vs A330, 747-8 vs A380.
- 787-10 will have 50% lower operating costs than A340-600, Boeing’s Bair claims.
- 747-8I has turned out to be the darling of billionaires who have too much money–Bair.
- New revenue opportunities for long, thin routes validate the 787 like San Diego to Japan. Opening new markets and opportunities for customers.
- Boeing uses 162 seats in 737-800/8 vs A320ceo/neo 150 seat comparisons; Airbus uses 157 seats for the Boeing.
- Every engine/airframe combination has a sweet spot, a bucket’s flat area with 3-4 inches of fan diameter. In MAX’s case, this means the 68.4 inch fan is the sweet spot.
- Our intent is to build the MAX until the market decides it doesn’t want it any more.
Predictably, Airbus and Boeing claim victory in WTO appeals case
The report is now public and to no surprise, Airbus and Boeing (and the surrogates, the EU and US Trade Representatives) each claim victory.
This excerpt from a Bloomberg report neatly paints the picture.
World Trade Organization appellate judges sided with the U.S. over illegal government subsidies to Boeing Co., the U.S. Trade Representative’s Office said. Airbus SAS called the ruling a “sweeping loss” for Boeing.
AirInsight published the press releases of Airbus and Boeing.
The news services on the Internet haven’t yet posted a full range of reports (as of 0910PDT Monday). We’re not going to bother posting the statements of the warring parties, reflecting our disdain of the entire process in the first place. Readers may search Google News, Yahoo News, et al. and comment–but a reminder to be mindful of our Comment Rules.
WTO appeals panel upholds Boeing subsidy findings
Word is leaking out in advance of Monday’s public release of the appeal of a WTO finding that Boeing benefited from illegal subsidies that the appeals panel upheld the findings.
Additional reports: Here and here.
Boeing has previously said on several occasions that if the WTO found it received illegal subsidies, it would write a check. We’ll see what spin occurs next week on this point.
The European Union claims Airbus has now conformed with the WTO findings against it, a claim rejected by the US Trade Representative and Boeing.
Spirit, Airbus and Boeing: take-aways from analyst day
Spirit Aerosystems held an aerospace analyst day March 7 and several reports have already been issued. Given Spirit’s close association with Boeing 7-Series programs, we thought the following is useful information. Spirit is also a major supplier to Airbus on the A35, building sections of the composite fuselage at its North Carolina facilities.
Filling the gap until re-engine
Reuters has this interesting story from Airbus and a focus on selling the A320ceo (Current Engine Option) to fill in production slots in 2015-17 (2013-14 slots are sold out) while waiting for the A320neo (New Engine Option) production to ramp up. The A320neo is slated to enter service in October 2015, followed in six month increments by the A319neo and A321neo.
Concern about selling the current generation A320 (and the Boeing 737NG) at prices that won’t depress residual values is rearing its head again, alluded to in the Reuters story. The impact of the re-engine programs on the current generation A320 and 737 was a major talking point in the months leading up to the RE decisions by Airbus and Boeing. These concerns were pooh-poohed by both companies. But if Airbus (and perhaps Boeing) have to deeply discount sales of current airplanes to fill production slots, then this will depress values of the installed base.
Furthermore, UBS Securities just visited Boeing with more dismal news to values. UBS writes that Boeing acknowledged lease rates and values of second hand aircraft will likely weaken as production rates ramp up. Airbus and Boeing both have announced rates of 42/mo (Airbus by the end of this year and Boeing by 2014) for their single-aisle airplanes. Airbus is studying going to 44 and even 60 and Boeing has openly signaled its intent to go to 60 for the 737. This will put more pressure on lease rates and values.
Republicans in Congress out to lunch on Ex-Im Bank funding
The politically-focused publication The Hill has an article that describes a Republican Party that is completely out of touch with reality on the Ex-Im Bank funding of exports.
Ex-Im supports a broad spectrum of industries, but is especially important to Boeing–so much so that Ex-Im is sometimes derisively called Boeing’s Bank due to the dominance of Boeing airplanes funded by Ex-Im.
Ex-Im reaches its $100bn cap this month, according to The Hill, much earlier than the previously anticipated May. Boeing and GE–which supplies engines for 92% of Boeing’s airplanes–are lobbying Congress to increase the cap to $140bn. This might sound like lunacy in the budget crisis, but according to Boeing, Ex-Im actually contributed more than $1bn through fees to the US Treasury in recent times. And fees are going up as a result of international changes last year to Ex-Im and Europe’s similar credit agencies.
According to The Hill, some Republicans characterized Ex-Im as providing subsidies to US corporations. As readers of this column know, we dislike corporate subsidies of any kind (see also below), but Ex-Im is not subsidies (and neither are the European Credit Agencies’ support for Airbus airplanes). This are funding mechanisms to support exports. In Boeing’s case, the company is the USA’s largest exporter that helps the balance of trade.
So let’s see: Ex-Im is a net contributor to the US Treasury. It helps exports. It helps the USA’s largest exporter, which helps the balance of trade. What’s not to like about this program?
About the only thing not to like with respect to Boeing is Ex-Im lends to airlines that compete with US international carriers. But this complaint largely revolves around cheaper financing, and last year’s agreement took care of this. The other complaint is that Ex-Im also supports financially troubled carriers like Air India. But the airline complaining the loudest on this is a product of two bankruptcies (Delta Air Lines and its merger partner Northwest Airlines), and there now isn’t a US legacy carrier that hasn’t been “supported” through the bankruptcy process. We could write a whole new post about how the legacies, including the “old” Delta, complained that bankruptcy unfairly supported weak carriers.
The Republicans opposing Ex-Im funding are out to lunch, and this time with the business community they profess to support. No wonder the Republican brand is in so much trouble.
Odds and Ends: Airworthiness Directives and sloppy headline writing
Airworthiness Directives: The New York Times has a good piece about ADs that should put many general assignment reporters to shame. The rhubarb over the ADs applied to the Airbus A380 spurred Nicola Clark’s reporting. This is a must-read not only for the general public to actually understand what’s going on in the world of aviation, it’s a must-read for the hysterical headline-writers who seem more interested in page hits than in facts.
787 Surge Line starts in June: Boeing’s 787 Surge Line begins operation in June. This is the line in Everett that is being created as risk mitigation for the new line in Charleston as the workforce there comes up on the learning curve. The two lines are intended to have a capacity of three per month, while Line 1 in Everett has a capacity of seven per month.
The Surge Line is supposed to terminate in May 2014, according to internal Boeing documents obtained by the IAM 751 in the now-defunct NLRB case. But we hope, and believe, the Surge Line could become a long-term line as Boeing considers ways to go beyond the 10/mo production rate goal by the end of 2013. We believe Boeing has to significantly go beyond this rate to catch up from delays that are hitting four years for some customers, as well as to open up slots for demand.
Rolls-Royce and the Trent XWB: Flight Global has a long article about RR’s engine development for the Airbus A350.
Dark Clouds over Asia: Aspire Aviation has a long piece about Asian airlines that are struggling. Asia has been a bright spot for Boeing and Airbus orders. Perhaps the bubble is about to burst.
WTO Appeal of EU v Boeing issued, in secrecy
The dual appeal of the WTO Panel Findings in the European Union’s complaint against illegal subsidies provided Boeing for its commercial airplanes program has been issued, but it remains under wraps until March 12 to allow the parties to review it and request commercial sensitive information be deleted from the public version.
The WTO Panel found Boeing received more than $5bn in illegal subsidies. The key ones are grants from NASA and the Department of Defense, but tax breaks provided by the State of Washington–amounting to $3.2bn over 20 years–also were found to be illegal.
The EU and the US Trade Representative each appealed the Panel findings. The EU wanted to start the clock on the countdown to Boeing compliance as well as seeking reconsideration of complaints rejected by the Panel. The US appealed some of the findings of the Panel that found Boeing received illegal subsidies.
Leaks from both sides are expected in advance of the March 12 public release.
We expect the core of the Panel’s findings–that grants to Boeing are illegal–to be upheld. We also expect that the tax breaks granted by Washington State (as well as Kansas) will also continue to be held as illegal.
Stories by AFP and Reuters were first off the mark.
Boeing had contended throughout the process that Airbus had received more than $200bn in illegal aid, a figure Boeing claimed includes interest expenses. The WTO found only $18bn in aid was provided Airbus. The original WTO panel found $5bn in illegal aid to Boeing. The Appeals panel could lower or raise the Boeing figure. The Reuters article has some detail on the disputed amounts in the Boeing appeal.