Leeham News and Analysis
There's more to real news than a news release.
Analyst puts Sell on Boeing stock in unusally bearish report
Feb. 13, 2017, © Leeham Co.: In an extraordinarily bearish research note, boutique Buckingham Research Group (BRG) downgraded Boeing stock to Underperform (Sell) from Neutral (Hold) today.
BRG, which agrees with other aerospace analysts that Boeing stock is priced on free cash flow, sees FCF falling beginning next year. Buckingham predicts 737 production rates—which Boeing wants to boost to 57/mo to support FCF—will be short-lived.
Buckingham sees 777 Classic delivery rates dropping from Boeing’s target of 3.5/mo to “bottom out” at 2/mo.
Weak orders for the 787 means Boeing won’t increase production rates for the 787 from 12/mo to 14/mo. BRG predicts that in 2019 Boeing will announce a rate reduction from the current 12.mo to 7/mo on one production line, and this line will be only in Charleston (SC).
Boeing VP-Marketing Randy Tinseth speaks tomorrow at the annual Pacific Northwest Aerospace Alliance conference in Lynnwood (WA). Tinseth is always the eternal optimist in his presentations. We’ll see if he addresses anything in BRG’s bearish report.
Pontifications: Alaska’s A321neo test drive
By Scott Hamilton
Feb. 13, 2017, © Leeham Co.: It was subtle, but it was there: Alaska Airlines will take the Airbus A321neo for a test drive.
This will happen via its new sibling, Virgin America, which has 10 A321neos on order. VA is an exclusive A320 operator. Alaska flies only Boeing
737s. The acquisition of VA by Alaska immediately raised questions whether Alaska will retain the Airbus fleet and orders or phase them out in favor of the 737.
Of more interest to partisans than to me, the question over the future of the Virgin America brand also became a top question.
Deferrals at historic low, say Boeing CEO
Dennis Muilenburg, Boeing CEO.
Feb. 9, 2017: Requests for order deferrals are at an historic low but there are still challenges in bridging the production gap between the 777 Classic and 777X, Boeing CEO Dennis Muilenburg said during a Cowen & Co. presentation today.
Deferral requests are at only 2% of the backlog of nearly 6,000 airplanes, compared with an historic rate of about 6%, Muilenburg said.
“There are no particular regional trends,” he said during a phone-in appearance; weather prevented Muilenburg from flying in for the event. “Deferrals remain very low. We have skyline flexibility to move things around.”
At the same time, Muilenburg acknowledged Boeing still faces a challenge of filling the bridge between the 777 Classic and 777X, even at the reduced production rates in place. The rate is now 7/mo, down from 8.3/mo. It goes to 5/mo in August. Actual delivery rate beginning next year through 2019 is 3.5/mo as production of the 777X is feathered in.
Muilenburg identified filling the bridge as a “risk.”
“We still have work to do to fill out the bridge,” he said. The line is virtually sold out this year, but only 90% sold out at the reduce rate next year and in 2019.
Look for more KC-46A tanker orders soon
Feb. 8, 2017, © Leeham Co.: Boeing last month received a $2.1bn order for 15 more KC-46A tankers from the US Air Force, bringing the total so far to 34.
Look for more orders in the coming months.
Boeing has Letters of Intent for 152 more with delivery dates beginning in 2018, according to the Ascend data base.
Extending the line
The aerial refueling tankers are based on the 767-200ER, which is no longer offered by Boeing in a passenger version.
Boeing expects 400 sales of the tanker over the life of the program. Using the current LOIs as a base, the USAF commitment extends to 2028. At the current production schedule planned, the 767 line could be active until 2042.
But the USAF isn’t the only customer for the 767.
Trans-Atlantic for $75, does it work?
By Bjorn Fehrm
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Introduction
February 9, 2017, © Leeham Co.: Norwegian will start trans-Atlantic flying between Edinburgh and New England for $75 one-way in late spring when it gets its Boeing 737 MAX 8.
The introductory price will be $69. CEO Bjorn Kjos says the operating costs of the 737 MAX 8, “which is very low,” will make this level of ticket pricing possible.
We were the first to point out (November 2014 in this article) the re-engined MAX 8 would be a trans-Atlantic enabler at a new cost level. We didn’t put the passenger ticket at $75 at the time. Time to check if it’s possible to make money with such fare prices.
Summary:
- We use our aircraft performance model to generate the operating costs between Scotland and New England/upstate New York.
- We then compare the total costs for the trip versus revenue. What is the average ticket price to break even?
- We use an aggressive cabin, the same as for the European traffic.
- Is it OK to travel at that comfort level for the seven hours over the Atlantic?
- For $75, you bet it is.
Norwegian, from regional to mainline competitor
By Bjorn Fehrm
Introduction
February 8, 2017, ©. Leeham Co: When SAS (Scandinavian Airlines Systems) canceled Norwegian Air Shuttle’s (NAS) contract to feed its Norwegian network 2002, it had no idea the former feeder would almost run it out of business 10 years later.
The cancellation forced NAS to change tack. Subcontracting as a feeder to a mainline was no longer possible; SAS was the only mainline in Norway after buying Braathens (NAS’ original contractor). NAS decided to become a Low Cost Carrier (LCC).
Ten years later, Norwegian (as we call NAS from now) had taken over a large part of SAS’ European business. SAS was fighting for its life. Another five years and Norwegian’s expansion on LCC long-haul is forcing IAG (BA, IBERIA, Air Lingus, Vueling), Air France-KLM and Lufthansa to react.
How strong a threat to other LCCs and the majors’ long haul operation is Norwegian? We will answer the questions in a series of future articles. We start with Norwegian’s roots and its development til now. Read more
Assessing the future of COMAC programs
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Introduction
Feb. 6, 2017, © Leeham Co.: China’s effort to become a viable commercial aerospace alternative was filled with rocky fits and starts for its two signature airliner programs, the AVIC ARJ-21 and the COMAC C919.
COMAC, a spin off from AVIC and yet another government-controlled entity, is already casting eyes on a 250-seat, twin-aisle design, the C929—ostensibly in a joint venture with Russia’s United Aircraft Corp.
The ARJ-21 regional jet finally entered service after delays of eight years. The C919 target EIS is now 2019, six years after the original date. The first flight hasn’t even taken place.
Chinese officials set a target EIS for the C929 of 2026.
A rough road remains ahead for each program.
Summary
- Exceedingly slow delivery ramp up for the ARJ-21.
- First flight of the C919 planned this year.
- Wide-body C929 will challenge the Airbus A330 and Boeing 787.
Pontifications: Boeing’s risk if Trump goes wild
By Scott Hamilton
Feb. 6, 2017, © Leeham Co.: Boeing officials must be downing antacids by the bushel about now.
President Donald Trump has the Mexican president pissed off. Trump’s spokesman says the immigration ban (or pause, or suspense, depending on the day it’s described) may be expanded to other “terrorist” nations.
Trump threatens a 45% tariff on Chinese imports and a 25% tariff on Mexican imports.
Why do Boeing officials probably have upset stomachs and flaming heartburn?
Because Boeing has more than 1,200 orders from countries that are in Trump’s crosshairs.
Nearly 770 of them are 737s. More than 300 are 777s. Nearly 170 of them are 787s.
And these are just the identified customers. There’s no telling how many of the 1,101 737s, 16 777s and 76 787s (at Dec. 31) were ordered by Trump’s target and potential target countries.
United: the road back
By Bjorn Fehrm
Introduction
February 1, 2017, ©. Leeham Co: A headline from one year ago read: “UNITED’S QUEST TO BE LESS AWFUL: A bungled merger. A corruption scandal. Three CEOs in a year. But hey, at least the snacks are free again.” (Bloomberg 14 January 2016).
“Things have changed, but not everything is fixed yet,” said Gary Laderman, United’s SVP Finance, Procurement and Treasurer, at the Airline Economics Growth Frontiers conference in Dublin last week.
Figure 1. United’s new Boeing 777-300ER. Source: Chris Edwards/Woodys Aeroimages.
Laderman then candidly went through the history, the fixes and why there is more to come. Read more
Assessing the MC-21 future
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Introduction
Feb. 9, 2017, © Leeham Co.: Russia’s Irkut designed a mainline jet to compete with the Airbus A320 and Boeing 737 families that, from a passenger experience
Irkut MC-21 at roll-out. Photo via Google images.
viewpoint, is the best in class.
The MC-21 has a wider fuselage than the A320 (which is wider than the 737). Seats and the aisle are the widest in the class. The overhead bin space is plentiful.
But the airplane is hampered by its environment: Russia itself.
Summary
Read more
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Posted on February 13, 2017 by Scott Hamilton
Airbus, Boeing, China, Comac, Irkut, Leeham News and Comment, Pratt & Whitney, Premium, United Aircraft
737, A320, Airbus, ARJ-21, Boeing, C919, C929, Irkut, MC-21