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 21. May 9, 2025
- Does an A220-500 need a new wing and engines? Part 2. May 8, 2025
- Embraer downplays tariff impact on 2025 results May 6, 2025
- JetZero readies effort for private equity fund raising May 5, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 20. May 2, 2025
Leahy dismisses Boeing economic claims on 737 MAX vs A320neo
We did the following story Nov. 30 for Flight Global’s new Flight Pro subscription service.
Airbus’ new A320neo family will have up to 11% better fuel burn than the Boeing 737 Max family, John Leahy, COO Customers for Airbus, asserted November 30 at the Credit Suisse Aerospace conference.
Leahy challenged Boeing’s claims that the 737-800 Max will have a 7% advantage on a seat-cost basis. Boeing computes its figures on a total cash operating cost basis, which Leahy rejects as being subject to manipulation.
“There are some very aggressive people in marketing and Seattle who are veracity challenged,” Leahy told the Credit Suisse audience.
“I think that best way to look at it when everything else is equal is fuel burn. If you look at something where you can really change the variables too much, [it’s flawed]. If they say ‘I think the Airbus airframe is more expensive to maintain than our airframe,’ I advertise that it is less expensive. I think most airlines would agree with me. The worst I’ve ever seen is that we are equal. Boeing says the Airbus engine is substantially more expensive to maintain. They say Airbus is heavier so they put in a little bit extra charges. By the time you’re done, you probably see all sorts of different things to throw money in. If you can convince the airlines that you are right, I wouldn’t have the dominant market share I have. They would.”
On this basis, Leahy said the neo will defeat the Max in each model. The A319neo will have 6% lower fuel burn vs the 737-7; the A320neo will have 6% lower fuel burn; and the A321neo will have 11% lower burn.
He also said Airbus’ analysis concludes the Max will only achieve a net fuel burn reduction of 8% vs the 10%-12%Boeing claims.
US disputes EU claim of WTO-Airbus compliance, threatens sanctions
As Yogi Berra once said, “it ain’t over till it’s over.”
The US Trade Representative rejected EU claims that it had complied with WTO rulings that Airbus received illegal subsidies and that these had been repaid.
Here is the USTR statement. USTR claims sanctions of $7bn-$10bn annually are in order.
The USTR also objected to new subsidies granted (though without specifying, this presumably relates to the A350, which was not part of the 2004 case). Airbus has claimed the WTO didn’t rule out subsidies per se, just the terms on which they had been granted and that new subsidies for the A350 would be drawn on commercial terms.
The financial statements of EADS, Airbus’ parent company, shows reimbursable launch aid (as EADS/Airbus calls it) increased by more than 1bn Euros in 2010 over 2009, but did not specify how much of this was associated with the A350. The A320neo program wasn’t launched until December 2010, so while this could have benefited from launch aid, the probability that the increase was mostly related to the A350 seems high.
Boeing issued a statement that names the A350.
Airbus rejected the USTR and Boeing claims.
We say: we’re tired of the whole thing. As we have noted many times, we don’t like subsidies, period. Of any kind. To Airbus or Boeing or anyone else.
Airbus repays launch aid on WTO complaint but has drawn aid for A350
Airbus has repaid nearly 2bn Euros in launch aid associated with the findings of the WTO complaint filed in 2004 by the US Trade Representative, an amount far less than the American agency alleged as US$25bn in illegal aid, but this isn’t likely to be the last word by any stretch.
Airbus parent EADS in 2010 has already drawn down “reimburseable launch aid,” according to the 2010 EADS annual report. The A350 funding was not part of the original US complaint, and is the only commercial model Airbus has produced not covered by the final report of the 2004 complaint. The USTR has threatened to launch a new complaint over the A350 launch aid. Airbus previously said launch aid for the A350 would comply with the findings of the 2004 complaint.
Airbus said after the WTO case was over that the WTO did not find reimburseable launch aid was illegal, only that the terms and conditions provided in the A-Series programs had been. This opened the door, Airbus said, for allowing launch aid for the A350 provided the terms and conditions complied with WTO findings. Commercially-based terms and conditions were at the heart of the illegalities.
The EADS financial statesments do not disclose the terms and conditions.
A spokesman for Airbus told us that the aid for the A350 complies with the terms and conditions findings of the WTO ruling, though most likely Boeing and the USTR will argue differently. The Airbus spokesman did not know the amount of the launch aid and the EADS 2010 annual financial statements (Page 63) does not disclose it: “European Governments refundable advances (incl. A350 XWB) net of reimbursements have increased in 2010.” The financial statements (select “Financial Statements 2010”) show the 2010 liability to be 5.968bn Euros vs 4.882bn Euros at Dec. 31, 2009. It is not disclosed how much of this is associated with the A350 or how much is associated with other programs, such as the A400M. However, military programs are not subject to WTO rules. The A320neo program was subject to research and development costs in 2010, which have been ruled illegal under WTO findings, but the program wasn’t launched until December 2010 and while it is theoretically possible some launch aid could have been drawn for neo, we think it more likely the spike in liabilities is largely associated with the A350.
The nine month interim financial reports do not discuss launch aid.
Odds and Ends: A350 business case, Ryanair, Boeing and more
Airbus A350: Aspire Aviation in Hong Kong has a lengthy look at the Airbus A350 program.
Airbus launch aid: Airbus says it has complied with the findings of the World Trade Organization and cured those elements found to be illegal. It calls on Boeing to do the same. (The case against Boeing is under appeal.) Update: and the war of words continues. Here is Boeing’s response.
Boeing and IAM 751: Reaction to the agreement reached between Boeing and IAM to extend a new contract to 2016, settle the NLRB complaint and put the 737 MAX assembly in Seattle is winning accolades from everybody except some Republicans who was pissed they won’t have an election campaign issue to talk about next year. Never mind what’s good for Boeing.
Plane Talking, the entertaining if somewhat cranky blog from Down Under, has this piece about Ryanair’s Michael O’Leary opining on this and that.
Speaking of Ryanair: Heard in the hallway at the Credit Suisse conference: O’Leary is already circling over the American Airlines bankruptcy, looking to pick up 737-800s cheap if American doesn’t keep payments up and any are repossesed.
Thoughts on the Boeing-IAM deal
We couldn’t be more delighted.
The agreement announced Nov. 30 between the IAM 751 local and Boeing is an outstanding development.
Who wins? Basically, everybody.
The Company gets:
- Production stability through most of 2016 without the pain and agony of protracted negotiations and all the uncertainty associated with this process;
- No-strike through most of 2016;
- The NLRB case goes away., by all indications. How this specifically relates to Charleston and the Surge Line remains to be seen;
- A contented workforce; and
- Stability for ramping up production of all the 7-Series, most particularly the 737.
The union gets:
- The 737 MAX;
- More work on the KC-46A tanker if Boeing Wichita closes;
- An economic package with no apparent “take-aways;” and
- No stress over contract negotiations or a strike.
Customers get:
- No strike;
- No interruption of deliveries; and
- Certainty over deliveries.
Suppliers get:
- Pretty much the same thing as customers.
Washington State gets:
- The 737 MAX and all the jobs and supply chain benefits there from.
Losers:
- Everybody else who salivated over the prospect of winning the 737 MAX, but more or less you don’t miss what you don’t have; and
- Airbus: it can ‘t play on the uncertainty of a Boeing strike and delivery reliability.
We’re delighted management and labor set aside the antagonism of the decade-and-a-half and all the testosterone that went with it and realized that a partnership is more beneficial than being in their corners ready to fight.
A note of interest: Boeing Commercial Airplanes CEO Jim Albaugh was asked at the Credit Suisse conference Wednesday morning about the prospect of labor negotiations next year. (This during the 8am hour, EST.) Albaugh, in his characteristic understated way merely opined he was optimistic a successful negotiation could be achieved.
Six hours later, the deal was announced.
American bankruptcy may prompt US Airways bid
American Airlines’ bankruptcy filing may at long last prompt a bid by US Airways to make a bid for the carrier.
Doug Parker, CEO of US Airways, has a long history of bidding for Chapter 11 carriers. He was successful when, as America West Airlines, he bid for US Airways. He was unsuccessful as US Airways in bidding for United Airlines and Delta Air Lines. He is on record as saying a bid for American made no sense without a bankruptcy by the Ft. Worth (TX)-based carrier.
We won’t be surprised in the slightest if Parker makes a bid
China won’t be competitor for 20 years: Leahy
China’s emerging commercial aerospace industry won’t be a viable competitor to Airbus and Boeing for 20 years, predicts John Leahy, COO Customers of Airbus.
Speaking at the Credit Suisse Aerospace conference in New York, Leahy noted the challenges COMAC has with the ARJ21 regional jet; and the development of the C919 mainline aircraft, neither will commercially be an effective aircraft compared with today’s aircraft from Western companies.
Boeing’s Jim Albaugh, CEO of Commercial Airplanes, speaking separately at the same event, agreed. He also said Boeing has erected “high walls” around its technology, and will maintain its lead over China by building “tomorrow’s airplane” while China is building “today’s airplane.”
Albaugh acknowledged there is some technology transfer of today’s generation.
American, parent, subs file Chapter 11
It’s done: American is the last legacy carrier to file for bankruptcy. Press releases here, here and here.
Our discussion last week of what a bankruptcy would mean to orders is here.