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 25. June 6, 2025
- New RISE powerplant benefits from decades of GE research and development June 5, 2025
- Engine makers emphasizing durability, reliability June 4, 2025
- Boeing CEO: Lessons learned are key to certification of 737-7/10 and 777X June 2, 2025
- Digital twin is a key to JetZero’s hopes for Blended Wing Body entry June 2, 2025
Airbus YE08 Conferences Tuesday, Thursday
EADS and its subsidiary Airbus will have their year-end 08 press conferences January 13 and 15 to discuss 2008 orders, events and the outlook for 2009.
This comes on the heals of a January 9 analyst report by Goldman Sachs (London) on EADS with a Sell recommendation entitled, “It’s worse than we thought.”
The gloomy report follows one in December, also a Sell rating, that Goldman today says wasn’t gloomy enough.
The Goldman analysts look at plunging worldwide airline traffic, the dismal state of affairs in China’s aviation sector and what is now at least a three year delay in the troubled A400M program, also worse than thought in the December report. (More after the jump.) Read more
New Air Force One; Boeing layoffs
Flight International reports that the Air Force issued a Request for Information (RFI) for a new Air Force One to replace the Boeing 747-200 that will be 27 years old when it’s replaced.
The USAF previously said that it is interested in a new Air Force One, and Airbus had provided information about its A380.
Boeing is determined to keep the exclusivity it’s had for the airplane since providing the very first jet AF One, a Boeing 707-120, to President Eisenhower. Later model 707s were provided up until the 747-200 entered service for President George HW Bush.
Boeing will likely offer the 747-8I, but according to Flight, the Boeing 777, the Airbus A330 and the A340 might qualify. We’d have to think that the Boeing 787 and Airbus A350 could also qualify, setting aside service entry dates, but the Secret Service is quite conservative and may not be ready to accept the new composite technology for the Commander-in-Chief. Even though the twin engine Boeing 767 had been in service for years, the Service wanted a four-engine 747 for safety when replacing the 707.
This has the potential to be another controverisal Airbus vs. Boeing competition. Although we’re only talking about two airplanes vs 179 in the KC-X tanker competition, and even though a European company won the contract to supply the next generation of White House Marine helicopters, the status symbol of flying the President of the United States around is beyond compare. Air Force One represents the United States.
Our view that the Northrop/Airbus KC-30 is better than Boeing’s KC-767 for the Air Force tanker is well known. Airbus and Boeing can debate all day long about which airplane is better, the A380 or the 747-8. Both airplanes are good, sound aircraft. In this case, as an American, we come down firmly on Boeing’s side: Airbus could pay the government to make the A380 Air Force One, but we think the president ought to fly an American aircraft and Air Force One ought to be Boeing. Airbus shouldn’t even waste its time on this one.
So there.
Layoffs at Boeing
Boeing confirmed layoffs hinted at some weeks ago in this press release. The company will lay off 4,500 of its nearly 75,000 workers.
The move is prudent, given the global economic conditions and deteriorating airline market. But SPEEA, still in contract negotiations for its Wichita (KS) unit, doesn’t think so; see SPEEA’s statement after the jump: Read more
2009: Recovery for Boeing, Challenges at Airbus
Update, January 10:
Bloomberg News reports EADS says it will be three years after the A400M’s first test flight–which remains unscheduled–before Airbus will ship the airplane to customers. This is hardly good news.
Original Post:
Commercial Aviation enters 2009 with a high level of uncertainty. Boeing’s headlining 787 program and the lower profile but increasingly costly 747-8 development face critical milestones this year. Airbus’ A350 does, too. The global financial market meltdown last year hopes for recovery this year but the global economy is questionable.
These are just a few of the issues facing Airbus and Boeing this year.
Boeing continues to dominate the headlines with its troubled 787 program, so we’ll look at the US aerospace company first.
Year for Recovery
This has the makings for being a year of recovery in new airplane programs. No new joint BCA-IDS program is without significant issues and two of BCA’s three new airplane projects have significant delays.
The 787 program needs little review here; its issues are well known. The question is when the first flight and flight testing will begin.
Boeing says the first flight will be in the second quarter; Air Transport World first reported that April 20 is now the schedule for first flight and Flightblogger followed with its own reporting on a timeline leading to this date. Our own checks suggest that a new development and testing timeline for the critical software systems is aimed for a sooner-than-later second quarter first flight (the old timeline suggested a June-August timeline for first flight). Our checks also report, however, that April 20 is thought to be aggressive and our sources are unsure this date can be met.
What is important to emphasize here is that this date is an internal timeline and Boeing is only saying first flight will be in the second quarter. This means it could take place on June 30 and still meet the publicly stated goal.
At long last, we expect that the first flight and the flight testing will get underway this year. These are obviously critical milestones in the recovery of the 787 program and Boeing’s operations.
Delta Air Lines may cancel the 787 ordered by Northwest Airlines now that NWA is a subsidiary of Delta. NWA ordered 18, but Delta’s CEO Richard Anderson is unhappy with the delays and performance issues (the 787 is overweight and has a shorter range than originally advertised, though the extent of the latter is in dispute). Anderson likes the 777LR and it’s possible there could be a deal for more 777LRs to replace the 787-8s ordered by NWA.
A cancellation will be nothing but a minor embarrassment for Boeing—with 900 orders, losing 18 won’t matter much and it’s possible others will come forward to grab these in any event. Read more
Overwrought concerns
As the world economy and the airline industry seemingly implodes, there is an increasing amount of concern emerging among some aerospace analysts and Internet bloggers over what this means for Airbus and Boeing.
The consensus is that Airbus and Boeing will begin seeing serious declines in aircraft deliveries as early as next year.
These concerns have been exacerbated by the announcement from China’s central government that it wants the airlines to defer deliveries next year. As we pointed out some weeks ago, this is highly unusual: China historically has been a stalwart through bad times for Airbus and Boeing, growing and ordering airplanes when other regions in the world were going through major downturns.
This has led some to particularly point to the new Airbus assembly facility in China as a risk factor for Airbus.
There certainly is sound reason for concern, but so far this is overwrought.
We participated in a conference last week that included Airbus and Boeing officials. During our private conversations with them, we came away more comfortable that for 2009 at least, the two companies are not going to see major declines in deliveries, based on current market conditions.
This is a different distinction than deferrals, and a this is an important distinction.
Papers play catch up on 787 delays
The Wall Street Journal, The Seattle P-I and other papers are only now playing catch-up to aerospace analysts who last week forecast the first deliveries of the Boeing 787 won’t be until summer of 2010.
We also forecast this on Tuesday.
Airbus critique of 787
Jon Ostrower of FlightBlogger has a stunning coup: a 48 page critique of Boeing’s 787 by Airbus. His blog link is here. He has a link to the full report.
Profiles of Airbus Financial, Boeing Capital
With the capital market crunch, Airbus and Boeing each said it is prepared to step up and help with customer financing. Below are two stories we did for Commercial Aviation Online, a subscription-only service, about Airbus and Boeing financial arms. Each is reprinted here with permission. The stories appeared on CAO’s website November 3.
Profile: Boeing Capital Corp.
Industry officials and observers fret that the capital market crunch will make it difficult for airlines to finance airplanes through the rest of this year and well into next. Accordingly, analysts predict that OEMs will have to step up next year with $5bn in financing support.
The Boeing Co. said its Boeing Capital Corp. (BCC) finance arm stands ready to provide $1bn in financing next year. Airbus, engine makers and regional airliner producers can be expected to pick up the rest of the OEM, based on history.
BCC’s federal 10Q filing with the US Securities and Exchange Commission shows that BCC has $1.9bn in financing commitments for 2009 out of $9.5bn in total on its books (see Table).
Boeing officials are clear that they want BCC to be the lender of last resort for its customers, and BCC officials are pounding the pavement looking for financing for its customers so BCC doesn’t have to step up.
The pressure on BCC is building, however. BCC received “a number of requests from both domestic and foreign airlines to reduce lease or rental payments or otherwise restructure obligations,” the company said in its 10Q filing. BCC did not provide any details, other than agreement to restructure the terms on 16 717s leased to Midwest Airlines. Midwest is hanging on by its flaps, returning these 16 airplanes to BCC and downsizing by contracting with regional airlines to operate the Embraer 170 jets. All 717s are to be returned by the end of this year.
787 update due shortly
In this week’s column:
- 787 Update Due Shortly
- Other program issues at Boeing
- The decline and fall of the Chinese aviation sector
- The impact of the Global economies on Airbus and Boeing
787 Update Due Shortly
Boeing plans an update of the 787 program by mid-December, with expectations that a new timeline for first flight and first delivery will be forthcoming. Aerospace analysts diverge on these predictions right now.
JP Morgan forecasts first flight in the first quarter while Goldman Sachs predicts 2Q09 or 3Q09. Based on conversations we’ve had with Boeing insiders, the unions and others, we believe the first flight is likely in the June-August 2009 period.
When, then, will be the first delivery? Cowen & Co. predicts 2Q10; JP Morgan and Goldman predict delivery will be a year after the first flight. Boeing has consistently maintained that it can complete flight testing within 6-9 months after first flight, but given the track record of its predictions so far, we’re inclined to side with JP Morgan and Goldman and go with one year after first flight.
Hazy has deal to buy ILFC
Bloomberg News has a story quoting the head of mega-lessor saying he has a deal to buy International Lease Finance Corp. from insurance giant AIG.
ILFC is the largest customer of Airbus and Boeing. It owns and manages a fleet of slight more than 1,000 planes with a value of $55 billion.
This is a highly positive development for the airline industry. But as is often the case, the devil is in the details. The deal has to close (next year) and it remains to be seen how it is structured and what flexibility the company has in the future.
Boeing and the Southern strategy?
Steve Wilhelm of the Puget Sound Business Journal (Seattle) has a long story about Southern states “eyeing” Boeing in the wake of the IAM strike. Speculation has been rampant (in peaks and valleys) that Boeing might be fed up with its unions in heavily unionized Washington State and be looking South when it comes time to build its next airplane (or two).
One quote from the story that is filled with irony is:
“If I was a Boeing executive, I’d look at the state of Alabama and see there’s a qualified work force … I’d take a look at the assets we have,” said Stephen Nodine, president of the Mobile County Commission, whose offices are in Mobile, Ala.
Alabama, of course, is the proposed site for the Northrop Grumman/Airbus KC-30 tanker proposed in competition with Boeing’s KC-767, which will be assembled in the Seattle area if Boeing ultimately wins the contract. But what is more ironic is that Boeing’s Integrated Defense Systems denigrated the skills of the Alabama workers during the tanker competition, suggesting they might have trouble building a tricycle if Northrop got the tanker contract. (It apparently mattered not that IDS has a large facility in Huntsville, AL.) Boeing’s Commercial unit cringed at the IDS statement because the Northrop/Airbus production model isn’t that different from BCA’s assembly model, including the high-profile 787 program (in which case IDS may have a point) but to a lesser degree with the 767 itself.
And speaking of tankers, Northrop didn’t even wait for the new Congress and the new president to take office before resuming the tanker wars with an advertisement that got the Pentagon’s chief purchaser up in arms (so to speak). Read about this one here and here.
We criticized Northrop for being slow off the PR and advertising mark in 2007, letting Boeing’s well-oiled machine set the agenda and frame the debate. (Once Northrop got running, it did make up for lost ground and scored some great PR/advertising hits.) But this advertisement, and more so it’s timing, strikes us as very premature. Nobody knows who the decision-makers in the Pentagon will be (and in any event, they shouldn’t be influenced by ads) and we doubt Members of Congress are paying much attention to the tanker debate right now anyway. With four million people expected for the inauguration of Barak Obama and the organization of the power structure in Congress, we suspect the Members of Congress might just be focused on something else right now.