Mitsubishi SpaceJet retreat is the best news for Embraer in months

Subscription Required

By Scott Hamilton

Analysis

May 25, 2020, © Leeham News: Mitsubishi Heavy Industries (MHI) surprising retreat from its SpaceJet regional airliner program is the best news in months for beleaguered Embraer.

This takes pressure off the Brazilian manufacturer and gives it time to regroup after Boeing jilted it at the alter by walking away from a proposed joint venture.

Going into storage: four Mitsubishi MRJ90s at Moses Lake (WA). Photo: Mitsubishi.

MHI’s actions leave Embraer with a monopoly in the 76-100 seat arena vs new airplanes. The M90 SpaceJet is not a viable competitor to the E175-E1 or the struggling E175-E2. Embraer’s competition will be its own used jets, plus used Bombardier CRJ-700/900s.

Summary

  • Closing US operations entirely. Closing the recently opened engineering center in Montreal
  • Continued operation of the CRJ product support center in Montreal or relocation to Nagoya uncertain.
  • Major cost-cutting drive.
  • MHI wants to certify M90, then consider whether to proceed with M100.
  • M100 has MOUs for 495 aircraft.
  • MRJ90 was not certifiable due to design deficiencies.
  • Redesigned M90 meets certification requirements.
  • M90 is economically uncompetitive with E-Jet.
  • COVID-19 upends entire airline industry, casting doubt in MHI’s commitment to SpaceJet future.

Read more

Pontifications: Aircraft values, lease rates plummet

By Scott Hamilton

May 25, 2020, © Leeham News: Aircraft lease rates continue to plummet as the virus crisis infects the airline industry.

In an update of its periodic look at rates, the UK advisory firm ISHKA last week looked at 5-year old aircraft. Monthly Rates plunged as much at 26%. Aircraft values dropped as much as 15% (22% for an ATR-72).

Since Jan. 1, the Boeing 777-200F lost only 2% of its value but lease rates dropped 11%, despite high demand for cargo airplanes now. The Airbus A350-900 lost 5% of its value but lease rates were off 17%.

A five year old Boeing 787-8, on which pricing was under pressure before COVID decimated the airline industry beginning in March, now can be leased for $575,000/mo, ISHKA says.

The Airbus A320/321ceo and Boeing 737-800 also show sharp value and lease rate declines.

Read more

Better to bring capacity back with a 777-9 or 787-10 if we fly 777-300ER today?

By Bjorn Fehrm

Subscription Required

Introduction

May 21, 2020, © Leeham News: We looked at the economics of extending the lease of a Boeing 777-300ER or taking an ordered 777-9 here.

If traffic post-COVID-19 on the routes we fly stays down for long, should we change the order to a 787-10? What are the trades between staying with the 777-300ER, taking the 777-9, or stepping down to a 787-10?

We use our airliner economic model to find out.

 

Summary:

  • The 787-10 is the safe choice if the fill level for our routes will stay below its passenger capacity for a longer period.
  • This choice is valid for a JFK to Heathrow route. The 787-10 has a shorter range than the 777-300ER and 777-9, so a 787-10 alternative is only possible for routes within its capacity.

Read more

Lessor exposure to Airbus, Boeing wide-bodies

Subscription Required

By Scott Hamilton

May 18, 2020, © Leeham News: As airlines park or retire thousands of aircraft, lessors with wide-body airplanes are most at risk.

Single-aisle airplanes are easier to re-lease and more in demand when traffic recovers. Reconfiguration and maintenance costs, if required, are reasonable by aviation standards. Cabin reconfiguration may run up to $1m. Airframe and engine MRO costs for Airbus A320s and Boeing 737s typically are in the low millions, depending on condition.

MRO and reconfigurations costs for wide-body airplanes, on the other hand, can cost more than a new A320 or 737. GE Aviation GE90s on Boeing 777-200LRs, -300s and -300ERs are notoriously expensive. MRO for Rolls-Royce wide-body engines is costly under RR’s contract packages.

Reconfiguration costs for A330s, 777s and A380s can run up to $30m, depending on the initial operator and who the second (or third) one will be. Therefore, HiFly did not reconfigure the ex-Singapore Airlines Airbus A380 it acquired after SQ retired the airplane.

LNA analyzed the number of wide-bodies owned by lessors. There are more than 670 Airbuses and more than 600 Boeings.

Read more

Pontifications: There is no good news

May 18, 2020, © Leeham News: There simply is no good news in commercial aviation right now.

By Scott Hamilton

Yes, airport traffic is upticking in the USA (and elsewhere) slightly. But in the USA, it’s still less than 10% of last year’s totals.

There remains a tremendous amount of uncertainty.

  • Airbus plans to lay off some 10,000 employees, according to press reports. Another production rate cut seems inevitable.
  • Boeing’s CEO revised the forecast for air traffic recovery from 2-3 years to 3-5 years. Production recovery will take another 2-3 years after that, he said.
  • Embraer’s biggest customer for the E195-E2, Azul Airlines, deferred deliveries from 2020-2023 to 2024. There haven’t been announcements about deferrals by US carriers for E175-E1s, but there is no reason to believe these won’t be deferred.
  • Delta Air Lines says 7,000 of its 14,000 pilots will be surplus to its needs this fall.
  • Spirit Aerosystems laid off about 1,700 employees due to Boeing’s production planning.
  • Qatar Airways will retire 50 airplanes, defer new orders from Airbus and Boeing and cut the workforce by 20%.

The list goes on and on and on.

Read more

Better to bring capacity back with a 787-10 or 777-300ER

Subscription Required

By Vincent Valery

Introduction  

May 14, 2020, © Leeham News: Last week, we compared the economics of the Boeing 777-300ER and 777-9 on the world’s busiest intercontinental route. The older aircraft proved a viable alternative, thanks to low fuel prices and low capital costs. We will now turn our attention to the step-down case mentioned in the article.

We will look at the market developments in the twin-aisle market and compare the economics of the 777-300ER with the 787-10 on the JFK to London Heathrow route to find out how attractive such an option is.

Summary
  • 777X hot when launched;
  • A materially different market for customers seven years on;
  • Leads airlines to consider large twin order conversions.

Read more

Analysis: Mitsubishi suspends development of M100, continues M90 due to COVID

By Scott Hamilton

Analysis

May 12, 2020, © Leeham News: Mitsubishi Heavy Industries (MHI) yesterday said it cut development money for the M100 SpaceJet. M100 R&D is suspended indefinitely while it continues for the M90 on half rations.

MHI will continue certification of the M90.

MHI also said it will reevaluate demand for the M100 because of COVID-19 impacts.

This immediately raised questions whether MHI may kill the M100 program.

To do so will squander MHI’s once-in-a-lifetime chance to become a real global power in commercial aviation. If this happens, “Japan Inc.” also loses a chance to be part of this.

Read more

Bringing back long-haul capacity with narrowbody aircraft

Subscription Required

By Vincent Valery

Introduction  

May 11, 2020, © Leeham News: The timeline for a passenger traffic recovery is highly uncertain. Major OEMs and some airlines expect a return to 2019 passenger traffic levels in two years at the earliest.

Southwest Airlines doesn’t see traffic returning to 2019 for five years. IAG, parent of British Airways and several other airlines, predicts a three year recovery.

Leeham Co. predicts that it will take four to eight years before traffic returns to pre-COVID-19 levels.

 

Airbus A321XLR. Source: Airbus.

However, the recovery sequence for the various markets is becoming clearer. Governments will progressively lift travel restrictions on domestic markets, followed by regional international. Long-haul international will probably be the last to return to normal.

Airlines in China started ramping up domestic capacity, though the government mandates some of this. The governments of Australia and New Zealand disclosed discussions to lift trans-Tasman travel restrictions. French President Emmanuel Macron made it clear that travel would be first allowed within the European Union before outside the old continent.

People who need to travel for business reasons will be allowed first, including for long-haul travel. That means airlines that wish to restore long-haul capacity will have to do so with a much-reduced demand. With this in mind, it might make sense to restore long-haul flights with latest generation narrowbody aircraft such as the Airbus A321(X)LR and Boeing 737 MAX.

LNA analyzes pre-COVID-19 long-haul route patterns to determine what fraction narrowbody aircraft can cover as passenger traffic recovers.

Summary
  • Long-haul markets split in two;
  • Missed New Mid-Range Aircraft launch opportunity;
  • A large addressable market for the A321XLR;
  • A321LR and 737MAX long-haul route coverage.

Read more

Pontifications: Boeing focuses on design, production vs airplane development–for now

By Scott Hamilton

By Scott Hamilton

May 11, 2020, © Leeham News: Boeing killed development of its alphabet soup of airplane concepts for now.

“For now” is a relative term. When Boeing will be ready to show concepts to customers as a prelude to a program launch depends on how quickly the industry recovers from the COVID crisis.

But research and development of a streamlined production system, once key to new airplane projects, continues.

CEO David Calhoun said on the 1Q2020 earnings call that the New Midmarket Airplane (NMA) is essentially dead. He said in the following media call that the “differentiators” for the next new airplane from Boeing or Airbus will be manufacturing and engineering.

Read more

Bjorn’s Corner: Can I get COVID-19 in airline cabins? Part 1.

May 8, 2020, ©. Leeham News: In our Corner series, we now dig into this important subject: Is my probability of getting infected with the COVID-19 virus higher in an airliner cabin than in other places?

We look at simulations of how the virus travels when we breathe/cough and how the virus load propagates in an airliner cabin. Then we talk about infection probabilities compared with other environments.

Figure 1.

Read more