Fuel prices going forward

By Bjorn Fehrm

Source: Google images.

January 16, 2017, ©. Leeham Co: Oil has now doubled in price since the lowest point a year ago, with a present level of $50-$60/barrel. What is the trend going forward?

We are at the Growth Frontiers 2017 conference in Dublin, where Paul Horsnell, Head of Commodities research at Standard Chartered and Mike Corley, Mercatus Energy Adviser, gave their view on the future of oil prices.

The air transport market has seen a worldwide passenger and profitability growth over the last 12 months. The driving factors are increased appetite for air travel, especially in Asia, and cheap fuel.

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Is Emirates in trouble?


Jan. 12, 2017, © Leeham Co.: There are a growing number of articles around the Emirates airline that points to recent weaknesses in the airline’s operating model. Here are just two:

We decided it was time for a deeper look at this locomotive from the Arab Emirates. Is Emirates in trouble? How solid is it?

We studied the economics for the last decade and took a deep look at the fleet needs, including, has  Emirates committed to too many aircraft being delivered over the next several years?

They have just deferred Airbus A380’s for the first time. Used to be they could not get them fast enough?

  • Emirates has been profitable since start 1985.
  • Its unprecedented growth in revenue and passengers has slowed down.
  • The low fuel price has kept profits up for now, but yield and load factors are down.
  • With a flexible fleet structure and a strong balance sheet Emirates has a strong position to weather any storm going forward.

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Deferrals grow as airlines fight to keep bottom line

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Jan. 09, 2017, © Leeham Co.: Airlines have deferred or are thinking about deferring more than 400 airplanes in the near term, a review of decisions and deliberations  that have been made during the last 12 months.

LNC tracked announcements last year of deferrals and statements by airlines that they are thinking about doing so.

We began identifying macro-level issues last week in our posts about emerging concerns for the 787 and LNC’s Outlook for 2017.

Reasons vary widely for the deferrals, these reports indicated. Low oil prices. Slowing economies. Declining financial results. Worries about two of the three top Middle Eastern carriers. A capital squeeze in China. Pressure on long-haul carriers from the emerging sector of low cost, long-haul airlines. Preserving capital expenditures to keep the bottom line in the black.

Today we detail the deferrals we tracked.

  • Deferrals of single aisle aircraft are less worrying than for wide-body aircraft
  • For wide-bodies, it depends on the program. For the Airbus A380, deferrals turns the program back into the red. For the A350, deferrals can help with delivery commitments.
  • For the Boeing 777, deferrals spells trouble, especially for the present generation.
  • The 787 is more resilient but the slow sales make the program sensitive longer term.

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2017, a tougher year for European airlines?

By Bjorn Fehrm

January 5, 2017, ©. Leeham Co: The last two years have seen increased profits for the airline industry. Lower priced fuel gave the industry time to breath and to finally earn a reasonable Return on Invested Capital (ROIC).

Earnings as a percent of revenue for the industry has been increasing from 5% on a worldwide basis in 2014 to around 10% for 2016, Figure 1.

Figure 1. Airline industry profits. Source; IATA presentation October 2016.

The US and European airlines have been topping the earnings with 18% on revenue for the third quarter of 2016. There are many signs this will not continue in 2017, especially for European airlines. Read more

Analyzing the Top Customers for Airbus and Boeing

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Jan. 4, 2017, © Leeham Co.: The top 25 Airbus customers that are identified account for 63% for the current backlog, an analysis of the company’s order list shows.

For Boeing, its Top 25 customers account for 69% of its identified backlog.

Both companies have hundreds of Unidentified orders for which no customer is disclosed.

  • “China Inc.” is Boeing’s #1 identified customer and #3 for Airbus.
  • Two low cost carriers are the first and second top customer for Airbus.
  • Three low cost carriers follow “China Inc.” as Boeing’s Top Customers.
  • Boeing’s Top 3 wide-body customers are in the Middle East, where financial and traffic results are beginning to soften.
  • Three of Airbus’ Top 5 customers are also from the Middle East. The other two are from Asia.
  • Boeing has 54% of the market share among the Top wide-body customers. Airbus has a 54% market share in the narrow-body sector.

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Market, other factors emerging, creating Boeing 787 concern

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Jan. 4, 2017, © Leeham Co.: Despite a rosy picture painted by Boeing about the future of the 787 and the ability to recover more than $29bn in deferred production

Boeing photo.

and tooling costs, there are signs that cause concerns over the next 3-5 years.

  • Near-term production outlook solid, weakness begins in 2020, big gap in 2021.
  • Boeing doesn’t see wide-body sales recovery until next decade.
  • Company foregoes increasing 787 accounting block; sales won’t support it.
  • Market talks about deferring 787s.

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Airbus, Boeing Top Customers mix of stable, risk and reward

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Dec. 22, 2016, © Leeham Co.: When it comes to comparing backlogs of Airbus and Boeing, the latter likes to point to what it calls a better quality of customers.

The fact is, both companies have large orders with airlines that may be characterized as less than top quality, or which appear to have over-ordered.


  • Airbus is more risk-reward oriented than Boeing.
  • Airbus appears more aggressive in emerging markets.
  • Airbus and Boeing share risky and quality customers.
  • Many of the shared top customers are roughly balanced between Airbus and Boeing.

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Pontifications: More job cuts coming at Airbus, Boeing

By Scott Hamilton

Dec. 12, 2016, © Leeham Co.: Airbus and Boeing continue to cut costs with internal reorganizations.

These are needed efforts. And they trickle down to the supply chain.

The new CEO at Boeing Commercial Airplanes, Kevin McAllister, is expected to ratchet up the cost-cutting at BCA, in part because he comes from the cost-cutting environment of GE Aviation.

He’s got a lot of work to do.

It takes Airbus Commercial about 85 employees to produce one airplane. It takes Boeing about 107.

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Iran, Boeing reach agreement on big aircraft order; Trump casts cloud

No 747s are included in the final deal between Boeing and Iran. The original announcement included four 747-8s to replace aging 747s. Photo via Google images.

Dec. 11, 2016: Iran and Boeing reached an agreement on the 80-airplane order that includes 50 737 MAX 8s, 15 777-300ERs and 15 777-9s.

The final contract still has unspecified contingencies before it can be booked as firm orders, Boeing said. One of those contingencies is clearly President-Elect Donald Trump, who criticized the larger Iran-US-allies deal of which the Boeing order is a part.

Airbus has 116 orders pending that could also be upended if Trump, upon taking office, vitiates the deal.

Boeing’s mix of aircraft changed slightly from the original news in June. The original mix included 40 737 MAXes and six 737NGs. Also included then were four 747-8s.

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Comparing A350s, 787s and A380s

Editor’s note: We don’t typically do “trip reports;” this isn’t the scope of LNC. But occasionally one crosses our desk that we find of interest. One of our readers, William Bain, provided the following to us and we thought it interesting to share.

By William Bain

Singapore Airlines Airbus A350 business class. Photo by William Bain.

I flew Singapore Airlines’ Airbus A350 service from Singapore to Amsterdam.  The outbound flight was operated by 9V SMD and the inbound flight by 9V SME.  I was seated in the premium economy cabin.

By way of starting, I think people spend too much time say this or that model is better, as such, than that model.  There’s been a fair bit of that in relation to the A350 and Boeing 787.  But in my view much, if not most, of the comfort factor is down to the configuration used by specific airlines.  For example, I was underwhelmed by the Qatar Airways 787 but very much liked the ANA 787.

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