Leeham News and Analysis
There's more to real news than a news release.
Embraer ramps up smaller airplane messaging
Figure 1. Click on image to enlarge.
May 28, 2015, c. Leeham Co. Embraer is ramping up is messaging that the E-Jet family provides a better Return on Capital Employed in many circumstance than the larger Airbus and Boeing single-aisle family.
In a new push to be unveiled at the Paris Air Show in a little over two weeks, Embraer will describe its “New Metrics for Success” to an international audience in an open forum.
EMB has been showing airlines and lessors the concept for some time, and we received a briefing on the essential elements when we visited EMB last October at is home base in San Jose, Brazil.
New Metrics for Success takes airlines away from the traditional metric of economics, the Cost per Available Seat mile, and focuses trip costs and the higher quality revenue obtained by limiting the number of low-yield seats on a flight that must be offered to fill larger airplanes. Read more
Pontifications: Fare and market share wars
By Scott Hamilton
May 25, 2015, c. Leeham Co. Airline stocks took a dive last week when it appeared fare wars and eroding capacity discipline is beginning among US carriers.
Southwest Airlines said it will be adding capacity at the rate of 6%-7% compared with recent increases of 2%-3% and American Airlines said it will begin matching the prices of Low Cost and Ultra Low Cost Carriers rather than see its market share erode.
And the markets went into a tizzy.
I’m old enough to remember when American aggressively matched the low fares of the emerging new entrant airlines after deregulation in the 1980s. The matching spread and the 1980s became a bloodbath. Read more
ISTAT Asia day two: home for the elderly
Introduction
May 12, 2015, c. Leeham Co: As you would have guessed we are talking Asian civil airliners, where planning in the region for the fast growing older generations is inadequate. This was the subject of several sessions during day two of the ISTAT Asia (International Society of Transport Aircraft Trading) conference in Singapore.
The problem is new, as up to now a newly established airline fleet in Asia has not had any numbers of older aircraft. But the expansion over the last 20 years is now producing the first transition waves of aircraft and the planning around the problems this generates is inadequate.
The result will be surprising write-downs of airline assets as aircraft being replaced cannot be transitioned out at booked residual values. The scale of the problem was highlighted by a survey of the 500 gathered ISTAT industry experts. The question posed to them was “There are 4700 aircraft coming up for replacement until 2033, has Asian airlines planned adequately for this?”:
- 49% of the delegates responded a few airlines have.
- 45% answered there are only some that do it.
- 5% of the delegates answered most airlines does it.
- 2% thought all Asian airlines have done it.
Jet Airways, Kenya Airways dumping Boeing 777s
Jet Airways is disposing of all 10 Boeing 777-300ERs (five of which are already leased out) and Kenya Airways is disposing of three 777-300ERs, according to published reports from the regions.
The Jet aircraft are 2007 and newer; the Kenya aircraft are 2013-2014 aircraft.
Jet Airways, partially owned by Etihad Airways, wants to rid itself of the five 777s already leased to other parties. Kenya Airways can’t fill the -300ERs, according to a person familiar with the situation.
A Boeing spokesman said these late model aircraft coming to market won’t affect the company’s effort to sell new 777s as it works to fill the production gap between the Classic and the 777X.
On a recent earnings call, CEO Jim McNerney said the slots are essentially sold out in 2016, half sold out in 2017 and some 2018 slots have been sold. Through May 5, Boeing sold 25 777s this year, including 10 to United Airlines in a swap freeing up 10 Boeing 787-9s.
Pontifications: Qatar Air adds US service, US airlines ramp up whining
By Scott Hamilton
May 11, 2015: Qatar Airways is going to add service to three more US cities and the US airlines don’t like it. That’s too bad. We’ve heard this story before.
First, it was the proposed deregulation of the US airline industry. By the late 1970s, there hadn’t been a new scheduled airline certificated by the Civil Aeronautics Board since the end of World War II other than local service carriers. Non-scheduled airlines (non-skeds for short) and charter carriers received licenses for their lines of work, but every effort to obtain a scheduled certificate was defeated by those airlines already holding one. They didn’t want the competition.
When the move toward deregulation occurred in the 1970s, only United Airlines and the original Frontier Airlines supported it. United, then the nation’s largest carrier, had been rejected by the CAB for every major route expansion while UA’s competitors received new route awards. UA thought deregulation was the only way to expand. Frontier, a local service carrier that had become a “regional” airline by then (as designations evolved), also saw expansion opportunities. Read more
Boeing 777 production gap remains challenging
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Introduction
May 5, 2015: c. Leeham Co. The order for 10 Boeing 777-300ERs last month by United Airlines was a welcome addition to the backlog for the Classic line, but it remains a struggle for Boeing to obtain enough orders, or convert options and LOIs, to bridge the production gap to the entry-into-service for the 777-9, currently planned for 1H2020.
Boeing would like to advance the EIS to late 2019, but this may be challenging.
Boeing currently has a backlog of 271 Classic 777s (including the UA order). Through the end of 2019, Boeing needs to deliver 466 Classics if it is to maintain the current production rate of 100 per year. Boeing is sold out this year, largely sold out next year, half sold out in 2017 and some delivery slots are taken up in 2018, according to CEO Jim McNerney.
But the need for more Classic sales doesn’t end on 12/31/19 because of the normal production cut-over and ramp-up of a new airplane type.
Summary
- Through 2019 Boeing needs to sell and/or convert options for 195 777 Classics, or an average of 43 per year from May 1.
- “Feathering” in production from the Classic to the 777X increases the challenge.
- Production rate cut remains inevitable, in our estimation.
Bjorn’s Corner: China’s civil aviation, from nothing to world’s largest in 2030
Introduction
By Bjorn Fehrm
14 May 2015, C. Leeham Co: In my ISTAT Asia reports, I wrote about how China will overtake USA as largest civil aviation market in 2030. Airbus China Group chairman, Laurence Barron, and I had a chat after his ISTAT presentation where he described China’s evolution as a civil aviation market and how Airbus gradually worked itself from a late and hesitant start to today’s split of the market with Boeing.
Barron provided his slides, some of which we will use to review how China grew from virtually no civil aviation after the Chinese revolution in 1949 to the world’s largest market by 2030. We will also look at what aircraft have made up this growth and finally describe how Airbus progressed from a latecomer in 1985 to sharing the market with Boeing today.
Read more
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Posted on May 14, 2015 by Bjorn Fehrm
Airbus, Airlines, Bjorn's Corner, Boeing, China, Douglas Aircraft Co, Leeham News and Comment, McDonnell Douglas
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