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
Pontifications: Lessons of the Titans: Book review
By Scott Hamilton
Dec. 14, 2020, © Leeham News: If you want a good business book to read over the Christmas holidays, get Lessons from the Titans by three analysts at the independent Melius Research Co.
The subtitle, a mouthful, aptly describes the book: “What companies in the new economy can learn from the great industrial giants to Drive Sustainable Success.”
Yes, I know. The first reaction to a “business book” is, how boring. Not so, this one.
The analysts are Scott Davis, Carter Copeland and Rob Wertheimer. They provide first-hand and often insider accounts of their coverage of some of the USA’s most significant industrial companies.
Bjorn’s Corner: The challenges of hydrogen. Part 17. Hydrogen airliner program
By Bjorn Fehrm
December 11, 2020, ©. Leeham News: We use this Corner to define the time table for our hydrogen airliner program and for what areas we need to conduct risk-reducing research before we embark on an actual design.
As we said in last week’s Corner, we aim to develop a hydrogen airliner for the heart of the domestic market after the COVID-19 Pandemic. It’s a 160 to 180 seat single-aisle turbofan driven airliner, using liquid hydrogen as the fuel.
Figure 1. Airbus ZEROe hydrogen-fueled airliner concepts. Source: Airbus.
The 717 and A220, Part 2: Operational economics comparison
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By Bjorn Fehrm
Introduction
December 10, 2020, © Leeham News: Last week, we introduced the Boeing 717 and its closest replacement size-wise, the Airbus A220-100. Delta, a major 717 customer, is accelerating the replacement of the 717 with the A220-100 under the pressure of the COVID19 pandemic.
We use our performance model to understand why. What are the gains when going from the 717 to an A220-100?
Delta Airlines Boeing 717-2BD landing at LaGuardia. Source: Wikipedia.
Summary
- The 717 version of the DC-9 architecture produced a rugged and well-liked short-haul airliner. It’s five abreast cabin is preferred over the six-abreast Boeing 737 and Airbus A320.
- It’s size-wise in the same 115 seat bracket as the 15 years younger Airbus A220-100. It’s 40 years old airframe architecture holds up well compared to the modern A220.
- The engines of the two are also 15 years apart. But the Rolls-Royce BR715 of the 717 was originally designed to fly on fast business jets, necessitating a low by-pass ratio design. This is a handicap when used on lower speed airliners. It shows against the high bypass ratio Pratt & Whitney PW1500G of the A220.
Pontifications: Don’t lose sight of the future, says top Boeing exec
By Scott Hamilton
Dec. 7, 2020, © Leeham News: “It’s really important that we stay in tune with the market dynamics, making the adjustments we need to do and not lose sight of the future. Which is absolutely we are not doing.”
Greg Smith, the of Enterprise Operations and chief financial officer for The Boeing Co., added, “We haven’t lost sight of the importance of making investments that are critical to the future of the business. So, when we think about future product strategy, we’re continuing to reprioritize and streamline our R&D investments to CapEx.
“When we were in pursuit around the NMA, we asked the team to step back and reassess the commercial development strategy and determine what family of aircraft to be needed for the future. And that team continues to work and they’re building off the work that we did on NMA.”
Smith made the remarks at last Friday’s Credit Suisse annual conference.
Enhancing the Dreamliner, Part 8: Wrap Up
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By Bjorn Ferhm and Vincent Valery
Introduction
Nov. 26, 2020, © Leeham News: After analyzing the three members of the Dreamliner family on several routes out of San Francisco to Asian destinations, we conclude the series with a wrap- up of what we learned.
Summary
- A guinea pig for new technologies and processes;
- After a long slough against problems, a resounding commercial success;
- Size-wise, ideally-positioned for the post-COVID world;
- Future enhancements.
Updating Airbus and Boeing Orders At Risk
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By Vincent Valery
Introduction
Nov. 23, 2020, © Leeham News: It’s time to update the analysis on Airbus and Boeing orders at risk for delivery under the “weak customer” doctrine.
Under a US accounting rule known as ASC 606, Boeing must identify the number of orders that are unlikely to be delivered because the customer’s financial condition is weak. Airbus does not do this because there is no ASC 606 rule in Europe.
LNA wrote a few months ago an article that attempted to apply ASC 606 adjustments to Airbus’ order book.
Boeing publishes an estimation by the program of orders subjects to material cancellation risks, or ASC 606. The tally increased from 183 to 782 for the 737 between the end of 2019 and October 2020.
While Boeing has disclosed 1,020 net orders year-to-date canceled or subject to ASC 606 (393 canceled without accounting for ASC 606 adjustments), Airbus lists 308 net new orders. Airbus’ tally does not reflect a European equivalent to ASC 606 adjustments. The European OEM only publishes an overall outstanding value of its order book that accounts for customer risks in its annual report.
Despite last week’s news about progress on developing a COVID-19 vaccine, LNA’s Judson Rollins wrote that the timeline of a return to normalcy remains elusive. The lingering pandemic means that more airlines will run into financial difficulties, resulting in more orders that will be deemed risky.
LNA provides an updated tally of the orders at risk for both Airbus and Boeing, with minor changes to the methodology.
Summary
- Identifying customers at risk;
- Explaining differences with Boeing’s ASC 606;
- Applying adjustments to Airbus’ order book;
- Estimation of adjusted market shares;
- A digression to tariff exposures.
Pontifications: EU tariffs on Boeing airplanes in effect; ~60 at risk
Nov. 16, 2020, © Leeham News: The European Union implemented tariffs Nov. 9 on Boeing and other US products in retaliation for the Trump Administration tariffs on Airbus and EU products.
By Scott Hamilton
This is the latest in the 16-year trade battle between the US and Europe over subsidies and tax breaks found to be illegal under World Trade Organization rules.
The US was authorized last year to impose tariffs on Airbus and other EU products. The Trump Administration initially imposed a 10% tariff on imported Airbus aircraft. A320/321s assembled at Airbus’ Mobile (AL) plant were exempt, even though major components were imported.
Trump increased the tariffs to 15% in March, just as the COVID-19 pandemic erupted worldwide. As a result, few Airbus airplanes were delivered into the US since then.
HOTR: Don’t get over-optimistic on COVID-19 vaccine news
By the Leeham News team
Nov. 10, 2020, © Leeham News: Pfizer yesterday announced it’s on track to produce a COVID-19 vaccine that appears to be 90% effective in trials. The company is one of the world’s leading drug makers.
This is good news.
But before jumping to the old cliché about a light at the end of the tunnel, LNA’s Judson Rollins cautions, do the math.
“Read the fine print at the end of the press release,” Rollins says.
“Based on current projections, we expect to produce globally up to 50m vaccine doses in 2020 and up to 1.3b doses in 2021,” the press release says.
“It’s a two-dose vaccine, so divide by two to figure the number of people who could be immunized,” Rollins says. “Even if a second candidate is approved and can be produced in the same quantity next year, that means just 17% of the world’s population will be vaccinated. And that assumes everything goes according to plan.”
Rollins did an extensive analysis of how quickly global air traffic would return to normal. In his July 13 post, Rollins projected that traffic won’t fully recover until 2024 at the earliest or 2028 at the latest. It all depends on how quickly a vaccine was developed, how quickly it could be distributed globally and how quickly people had confidence in it.
“We’re in only the second or maybe third inning of a very long ball game,” Rollins says. “Vaccines kill off a virus by denying it bodies in which to reproduce. If you don’t innoculate enough of the population while immunity lasts, you’re back to square one.”
Boeing needs 737 replacement launch by 2026 if not sooner
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By Scott Hamilton
Introduction
Nov. 9, 2020, © Leeham News: Boeing needs hundreds of new orders for the 737 MAX and/or a new replacement program launch by 2026, if not sooner.
An analysis shows that 737 deliveries tank by 2028.
This isn’t just about the 737-10 and 737-9, which don’t fare well against the Airbus A321neo. The shrinking backlog is the problem.
Ryanair’s CEO, Michael O’Leary, said last week Boeing will delay delivery/entry into service of the 737-10 MAX by up to two years.
This largely stated the obvious.
The first 10 MAX rolled out of the factory Nov. 22 last year. It could not enter flight testing because the MAX family was grounded March 13. The MAX remains grounded. Recertification may come this month, but it appears more likely next month.
Boeing 737-10. Source: Boeing.
This delays the start of flight testing until probably January. This is a 14-month delay.
Flight testing will take a year to 15 months, or to January to March 2022—about two years after the planned EIS. Boeing’s production ramp up will further impact delivery of the 10 MAX.
Although some recent new focus was on the 10 MAX, the larger issue is the entire 737 family.
Summary
- Production ramp up will be slow.
- Inventory will take two years to clear.
- Airline demand is poor the next 2-3 years.
- Boeing’s breadwinner sees major delivery drop from 2026.
- A further drop by 2028 demonstrates need for a 737 replacement—not just an A321 competitor.
Pontifications: Aircraft prices, rents plunge
By Scott Hamilton
Nov. 9, 2020, © Leeham News: Aircraft prices and lease rates are plunging as the COVID-19 pandemic continues to devastate the airline and manufacturing industries.
The Australian newspaper reports that Rex Airlines will pay A$60k/mo for its ex-Virgin Australia Boeing 737-800s, rising to A$100k after 12 months. This is US$43,600 to US$72,700.
Rex is a small regional airline that is leaping to a jet operator. It committed to take 10 737s.
The article says the airplanes are more than 10 years old.
Compare the rates to the rents listed Nov. 2 by Ishka, the UK-based appraisal and consultancy firm: US$115k/mo for a 15-year-old model.
Virgin’s airplanes date from 2003 to 2018. The oldest leased airplanes date to 2004.
It’s not especially surprising that swamped with excess airplanes that lessors will place airplanes for whatever they can get. Lessors are under great pressure to service their own debt.
Even Ishka’s estimates for 20-year old airplanes are higher than the Rex rates.
But the real story is what new airplanes are going for. And the prices are eye-popping low.