Leeham News and Analysis
There's more to real news than a news release.
What costs dominate an airliner’s operation? Part 2
By Bjorn Fehrm
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Introduction
September 13, 2018, © Leeham News.: Last week we began an article series looking at the cost equation for an airliner. We discussed the different costs and how these would be affected by airline type and operating area.
Now we calculated the different costs for a Legacy airline operating either in the US, West Europe or Asia.
Summary:
- The Narrowbody operated by a legacy carrier has high Aiport costs as it frequently take-offs and lands on major airports.
- For the Widebody operation, the fuel and capital costs are higher than Navigation and Airport fees. The differences in how the US, Europe and Asia handle en route navigation fees creates a large Navigation cost difference between the geographies.
Trade secret theft lawsuits impact on aircraft financing uncertain
Update, Sept. 14: Marsh plans to continue AFIC despite the lawsuit.
“Since its launch, AFIC has given clients greater choice by contributing significantly to the development and diversification of aircraft finance globally. We stand fully behind it and will defend this case vigorously,” the company wrote in an email to LNC. Boeing declined comment, deferring to Marsh.
Sept. 12, 2018, © Leeham News: The trade secret theft lawsuits filed yesterday by Xavian Insurance and Xavian Holdings against The Boeing Co., Boeing Capital
Corp., Marsh & McLennan and Marsh USA strike at the very heart of business plan intended to replace the virtually closed US ExIm Bank financing that Boeing used to rely upon.
It also potentially does so at a similar business plan Marsh created to support Airbus sales.
It’s impossible to assess the validity of the claims, but the lawsuits certainly paint a bleak picture of events—as plaintiffs do when they file one.
The Xavian-Boeing lawsuit may be found here: Xavian_Boeing_Complaint.
The Xavian-Marsh lawsuit may be found here: Xavian v Marsh – Complaint. Read more
Boeing,insurance firm stole trade secrets, launched ExIm Bank funding replacement, lawsuits charge
Sept. 11, 2018, © Leeham News: The Boeing Co., Boeing Capital Corp, Marsh & McLennan and its subsidiary, Marsh, a major insurance firm, have been sued for trade secret theft in lawsuits filed in Chicago and New York.
The dispute centers around the roles of Boeing, BCC and the insurers in creating Aviation Finance Insurance Consortium (AFIC). AFIC was created following years of the US Congress’ refusal to reauthorize the US ExIm Bank.
Thatcher Stone
Robert Morin
Kostya Zolotusky
Xavian Holdings and Xavian Insurance Co. allege in the lawsuits that The Boeing Co., through its Boeing Capital Corp unit, and Marsh signed trade secret and confidentiality agreements that precluded the companies from acting on the concept for an ExIm replacement financing guarantee vehicle.
“Boeing and BCC waited until their need for those trade secrets became critical – and then
misappropriated them,” the Boeing lawsuit charges.
Xavian was founded by several Wall Street professionals in aircraft finance and some bankers from ExIm, led by attorney Thatcher A. Stone. Stone now lectures on aviation law at the University of Virginia School of Law. Xavian was backed by venture financiers and had received a significant financing commitment from Lightyear Capital, led by Don Marron, former chairman of Paine Webber and UBS.
AFIC was launched in June 2017. In its first seven months, it provided financial guarantees for 16 Boeing aircraft to four airlines and a lessor. The aircraft had a value of $1.5bn in financing guarantees.
One person told LNC that Boeing’s profits from the sale could be around $800m. The lawsuits don’t specify a damage claim, which is normal in federal courts.
Despite the trade secret and confidentiality agreements, Xavian charges in the lawsuit that BCC’s Kostya Zolotusky, Tim Myers, now president of BCC but a VP at the time, and Robert Morin, then still employed by ExIm but a part of Xavier’s effort, were privy to then Xavian plans. Also privy was BCC officer Scott Scherer, now retired, the lawsuit says.
Morin now works for Marsh, the insurance manager for AFIC.
Disagreements on NMA market footprint
Appraisers differ on market size but Boeing’s new aircraft type could launch as early as 2026.
Sept. 11, 2018, (c) Airfinance Journal: No announcement was made at the Farnborough Air Show about the proposed New Midsize Airplane (NMA). With Airbus’ A321neo model selling well, the ball is in Boeing’s court.
The A321neo is Airbus’s weapon to challenge that market and the European manufacturer is trying to move fast into the middle of the market segment with more A321neo improvements in an effort to challenge further Boeing on its business case. The aircraft’s current maximum range is 4,000 nautical miles (nm), but Airbus is understood to be working on an improved version that would be capable of 4,500nm or more. This would enable airlines to operate the aircraft on transatlantic services to destinations further south on the US east coast and further east.
With a month to elections, Embraer bolsters backlog
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Introduction
Sept. 10, 2018, © Leeham News: With the Brazilian elections less than a month away, the outcome of the presidential race will determine whether the proposed joint venture between Embraer and Boeing will be approved.
Embraer is Brazil’s most visible and prestigious international company. The government has a “golden share,” giving it veto power over certain transactions, including the Boeing deal. Boeing will own 80% of the new JV that will be for EMB’s commercial business only. Embraer will own 20%.
The incumbent government says it will approve the joint venture; the opposition party says it will veto the deal.
Summary
Including orders, options and LOIs:
- Production slots are oversold through 2023.
- The skyline quality has some challenges.
- Only three dozen firm orders were announced at Farnborough; the balance has to be firmed up.
Pontifications: Supply chain melt down to get worse, says manufacturer
By Scott Hamilton
Sept. 3, 2018, © Leeham News: There is more evidence the aerospace supply chain is in meltdown—and it’s going to get worse, a manufacturer tells LNC.
The OEM requested anonymity to speak frankly.
As aerospace analysts gather this week in Seattle for their annual investors day at Boeing, based on the research notes I see, there’s little indication they recognize the magnitude of the evolving problems with the supply chain.
Although the focus recently has been on Boeing and analysts will visit Boeing Wednesday, the issues affect all the OEMs.
I wrote about this 30 days ago. Since then, another Boeing supplier last month acknowledged late deliveries of key parts, reports the Puget Sound Business Journal.
This was followed by a Bloomberg report that Lufthansa Airlines continues to have shortages from Pratt & Whitney for the GTF engines powering the A320neo.
Since then, I’ve had my own additional conversations with the supply chain. The production ramp ups that already have been announced and those being contemplated are in peril and all manufacturers are being affected.
The Muddle of the Market aircraft (No, this isn’t a typo)
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Introduction
Aug. 30, 2018, © Leeham News: As time goes by, the Middle of the Market airplane appears to have 
become the Muddle of the Market.
Boeing can’t seem to close the business case on its Middle of the Market airplane, the New Midmarket Aircraft, or NMA.
And Airbus continues to stir the pot with talk of an A321XLR and the ever-present A321neo Plus.
Summary
- Boeing’s been talking about the MOM for six years—an extraordinarily long time.
- The aircraft evolved from a 757 replacement to a 767 replacement—something the 787 was billed to be.
- The business case remains unclear.
- The Airplane definition is still a matter of debate.
- The MOM was defined by Boeing as above the 737-9 and below the 787-8—but now there’s the 737-10 at the small end, for capacity, and renewed interest in the 787-8 at the upper end.
- Airbus is pushing the A321LR and nearing a decision whether to proceed with the A321XLR.
- Engine makers remain cool to the NMA.
- The supply chain is unenthused about the NMA because Boeing wants to capture the aftermarket and hold the intellectual property rights.
- The supply chain is in melt-down.
Other than this, everything is fine.
Pontifications: Boeing aid to Jet Airways uncommon but not unusual
By Scott Hamilton
Aug. 27, 2018, © Leeham News: Boeing is giving financial help to India’s Jet Airways, according to a news report.
This doesn’t come as a surprise.
Jet Airways has 225 737 MAXes on order (50 direct, the rest listed via lessors). It’s also in what appears to be dire financial straits.
Media reports indicated the airline was possibly going to be out of business in 60 days and it deferred releasing its financial results “indefinitely.” The government is going to probe the airline, according to a press report.
The Boeing aid is not common but it’s not unknown, either.
Can an Airbus A321XLR kill NMA’s business case? Part 2
By Bjorn Fehrm
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Introduction
August 23, 2018, © Leeham News.: Last week we examined the areas which limit the capabilities of the Airbus A321LR from addressing a larger part of what is called the Middle of the Market or the NMA segment.
We now discuss the changes Airbus can do which would make an A321XLR cover more of an NMA space.
Summary:
- The A321LR needs more fuel tankage to fly longer.
- Installing Additional Center Tanks, (ACTs) takes away critical luggage space and increases the aircraft’s empty weight.
- We explore other ways around the problem and what these bring.
Pontifications: Workforce shortage hurts entire supply chain
By Scott Hamilton
Aug. 20, 2018, © Leeham News: A growing shortage of workers is exacerbating pressure on suppliers as they struggle to meet current aircraft production rates, even as Airbus and Boeing want to raise them even more.
Add to this the thousands of retirements facing the OEMs in the next 5-10 years, and you can see the strain facing Airbus, Boeing, the engine makers and the suppliers feeding into them.
It also partly explains the shifting trend toward automation. Setting aside the obvious benefits of automation—quality control, accuracy, boring repetitive work, etc—the supply chain in simply facing a growing shortage of workers for which there is no easy answer.