Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Bjorn’s Corner: New engine development. Part 4. Propulsive efficiency April 19, 2024
- Boeing unlikely to meet FAA’s 90-day deadline for new safety program April 18, 2024
- Focus on quality not slowing innovation, says GKN April 18, 2024
- Boeing defends 787, 777 against whistleblower charges April 17, 2024
- Dissecting Boeing CEO’s statement next new airplane will cost $50bn April 15, 2024
Spirit Focused on Delivering On Time and At Quality
By Dan Catchpole
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Nov. 6, 2023, © Leeham News: Spirit Aerosystems’ new CEO Pat Shanahan’s focus right now is “to restore confidence in the company” with its biggest customers—Airbus and Boeing.
During a Nov. 1st conference call discussing the company’s third quarter earnings, Shanahan said, “I recognize we have disappointed our stakeholders.”
Shanahan just came on as chief executive in October to help turn around Spirit, which has been flailing, along with much of the aerospace supply chain. Boeing and Airbus will be watching Shanahan’s progress. He gained a reputation as Mr. Fix-It during his time at Boeing.
Summary
- Market responds favorably to latest earnings report and management’s promises.
- Shanahan says Spirit is on track to deliver more than 50 737 MAX airframes in 2025.
- Goal is zero-quality issues.
Howmet Aerospace Exhibits Strong Revenue Growth Driven By Commercial Aerospace, Girds For OE Rate Increases
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By Chris Sloan
Nov. 1, 2023, © Leeham News : Howmet Aerospace reported third-quarter revenues of $1.66bn, up 16% year over year, primarily driven by growth in commercial aerospace of 23%. Overall, the company achieved an improved margin of 23% EBITDA, propelled by surging demand from OEs across all three aerospace segments: Engine Products, Fastening Systems, and Engineered Structures.
“Commercial Aerospace has grown for 10 consecutive quarters and stands at 49% of total revenue. Its growth continues to be robust, supported by demand for new, more fuel-efficient aircraft as well as increased spares demand,” proclaimed John C. Plant, Howmet’s Executive Chairman and Chief Executive Officer
A chorus of analysts agreed Howmet beat consensus “This was another quarter where Howmet’s results stand out relative to its commercial aero peers, especially compared to other OE [Original Equipment] suppliers. In 3Q, Howmet delivered beats on sales, margins, EPS, and raised its guidance for all three metrics,” said Melius Research in a note. “What is arguably more impressive is that Howmet did this in a quarter where the operating environment was far from smooth.”
Further developments of the A321, Part 4
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By Bjorn Fehrm
October 26, 2023, © Leeham News: We do an article series about what can be the next development for Airbus’ most popular aircraft, the A321neo. We looked at a minimal makeover in Part 3; now, we make a larger change.
We use our Airliner Performance and Cost Model (APCM) to examine what a new wing and revised engines can bring regarding larger passenger capacity, range, and lower seat-mile costs.
Summary:
- To increase the capacity significantly of the A321, a new wing is needed.
- We design a new wing combined with uprated engines and look at the result.
Q3 Earnings: Hexcel’s Composites Rides The OEM Production Rate Ramp Up Wave, But Margins Pressures Persist
By Chris Sloan
Oct. 25, 2023, © Leeham News – Hexcel Corporation, a tier four carbon fiber supplier best known for its significant contributions to all-composite Boeing 787 and Airbus A350s, reported substantial overall Q3 revenues despite inflationary and production efficiency pressures. While active in other industrial programs like space and defense, industrial applications, and carbon fiber auto wheels; commercial airspace accounts for the bulk of Hexcel’s total sales. Overall, third-quarter revenue increased by 19.2% to $251.9m year-over-year.
“Hexcel continues to benefit from the post-pandemic travel recovery and from the growing pull for newer, more fuel-efficient lightweight aircraft to meet that demand and to replace aging fleets,” commented Hexcel Chief Executive Officer and President Nick Stanage during the Q3 earnings call. The company perceives itself as well positioned to supply the combined Airbus and Boeing backlog currently tallying at a record 13,775 aircraft.
The company maintains that over the next three years, build rates for narrowbody aircraft are expected to increase by nearly 50%, and build rates for widebody aircraft are expected to almost double. Stanage insists the OEMs won’t be waiting on Hexcel, like they are at others at all supply chain tiers. “This is both a challenge and a great opportunity, and Hexcel is determined to be ready to ensure our products are produced efficiently and delivered on time to our customers,” maintains Stanage. The CEO further bullishly adds, “This is truly a great time to be in the business of manufacturing lightweight composite materials.”
Lockheed bows out, Airbus plows ahead in USAF tanker procurement; Boeing favored
By Scott Hamilton
Oct. 24, 2023, © Leeham News: Lockheed Martin Co. (LMCO) threw in the towel on Oct. 23, announcing it will not submit information to the US Air Force for the KC-Y aerial refueling tanker procurement.
Lockheed Martin drops out of the KC-Y US Air Force tanker procurement for an aerial refueling tanker. Airbus, its partner, will proceed alone. Credit: Lockheed Martin.
But its partner, Airbus, quickly said it will respond to the USAF’s Request for Information (RFI).
“Airbus remains committed to providing the U.S. Air Force and our warfighters with the most modern and capable tanker on the market and will formally respond to the United States Air Force KC-135 recapitalization RFI. The A330 U.S.-MRTT is a reliable choice for the U.S. Air Force: one that will deliver affordability, proven performance, and unmatched capabilities.”
Order risk for Airbus: Warning flags
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By the Leeham News Team
Oct. 16, 2023, © Leeham News: Airbus and Boeing have airplane order backlogs exceeding 10,000 aircraft. Most of the respective production lines are sold out to 2026 and even beyond 2030. Airlines and lessors must place orders soon to get into the queue. If early delivery positions are sought, the customers must hope Airbus and Boeing can find a few slots—but there won’t be many.
Like airlines selling their seats, Airbus and Boeing overbook production slots. The OEMs bet on boosting production rates, customers willing to defer deliveries (for whatever reason), cancellations to open earlier slots, or to meet delivery commitments. These bets sometimes pay off—and sometimes they don’t.
Today, LNA looks at the Top Customers of each product line and assesses the risk factors of whether these carriers will likely take delivery of their orders. We’ll do the same for Boeing.
Further developments of the A321, Part 3
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By Bjorn Fehrm
October 12, 2023, © Leeham News: We do an article series about what can be the next development for Airbus’ most popular aircraft, the A321neo. We started with the base data last week to understand the present aircraft and its limitations.
Now, we use our Airliner Performance and Cost Model (APCM) to look at possible changes that can increase the capacity and efficiency of the aircraft and what can be achieved at a reasonable cost.
Summary:
- The capacity of the A321neo can be increased within a rather limited project.
- The more challenging part is not to lose range and field performance from the capacity increase.
Earnings season about to begin. Here’s what to watch for.
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By Scott Hamilton
Oct. 9, 2023, © Leeham News: Earnings season reporting is about to start and there are some key things to look for. The first companies, including Boeing, begin reporting the week of Oct. 23.
A few companies already raised red flags. Boeing said it will report a loss in the third quarter, which ended Sept. 30, because of problems at Spirit AeroSystem. Spirit Aero builds the entire fuselage for the Boeing 737 and the nose sections for the Boeing 787, 777, and 767/KC-46A. Spirit Aero has been plagued with quality control issues, delaying deliveries and requiring rework of planes already produced or in final assembly at Boeing.
When Spirit Aero sneezes, Boeing can catch the cold.
The aforementioned problems continue to push Spirit Aero into financial disarray. LNA has reported extensively on its financial condition and trends.
Another Spirit, the US-based ultra-low-cost airline, is also headed in the wrong direction. LNA doesn’t normally cover airline earnings—there are plenty of outlets that do—but in this case, Spirit Airlines has a major outstanding order from Airbus. Spirit Airlines is also the subject of a merger application with JetBlue, another major Airbus customer.
Spirit Airlines recently adjusted its third quarter guidance significantly downward. It now forecasts a 3Q loss margin of 14.5% to 15.5%, nearly triple the same period last year. A year ago, LNA expressed concerns over the proposed merger between JetBlue and Spirit (JetBlue was the bidding company). Our concerns have deepened. JetBlue may be well advised to exercise a clause that is presumed to be in the merger agreement: Material Adverse Change. Withdrawing from the merger may well be the best course for JetBlue. Acquiring Spirit Airlines may well be a financial black hole for JetBlue.
The supply chain remains stressed. As in the case of Spirit Aero and Boeing, if any key supplier falls down on the job, the Original Equipment Manufacturer (OEM) catches cold.
Here’s a rundown of companies to watch.
Further developments of the A321, Part 2
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By Bjorn Fehrm
October 5, 2023, © Leeham News: We look at what can be the next development for Airbus’ most popular aircraft, the A321neo. We looked at the history of the A320/A321 last week and how the aircraft progressively were updated to take more passengers and fly longer sectors.
The series represents more than 50% of the revenue and margin for Airbus. With the latest development, the A321XLR, soon finished, what is next? We use our Airliner Performance and Cost Model (APCM) to look at base data and what changes are necessary to increase capacity and efficiency further.
A321XLR during cold weather testing in Canada. Source: Airbus.
Summary:
- The A321 is reaching its weight and capacity limits.
- There are ways to lift these limits, but the changes must not break its Airport gate classification.
Risk Adjusted Business: Aircraft and leasing values
By William Loh, International Aviation Advisors and
Dr. David Yu, CFA, Senior ISTAT Appraiser, AAVA Group, NYU Shanghai and Stern
Special to Leeham News
Oct. 3, 2023, © Leeham News: Investing in aircraft has become increasingly popular over many decades now, and for good reason. The returns can be most attractive and well-chosen assets tend to hold their value well over the medium term. Some of them have the option to extend the useful life out to 40 years or more in a freighter conversion.
As with most investments though, owning aircraft involves risk and requires subject matter expertise to avoid surprises and pitfalls. Some of this will involve aircraft selection, understanding industry dynamics, and incorporating these into the modeling of future values/lease rates and equity returns, which have been a focus of ours for several years.
Rather than the traditional method of producing bi-annual static forecasts of future values, our approach has been to develop a simulation model of possible future outcomes. This results in a market-driven probability distribution of the future asset value, rather than a single point forecast (rarely achieved in practice). Most traditional forecasts are discrete points including the classic high/low/base versions. Our forecasts are updated whenever it is appropriate based on market changes.