Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- FAA’s data of accident, incidents, often not shared May 19, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 22. May 16, 2025
- Services are driving revenues and profits in difficult times, Part I May 15, 2025
- The BWB has a long way to go before flying passengers, freight May 12, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 21. May 9, 2025
Pontifications: The Bottom Line isn’t always about The Bottom Line
By Scott Hamilton
June 6, 2016, © Leeham Co.: Sweetheart deals to win strategic aircraft orders are nothing new in commercial aviation.
John Leahy, COO-Customers for Airbus, last week poked Bombardier for its order from Delta Air Lines. Citing a reported airplane sales price of $22m, which Leahy estimated cost BBD $7m per airplane, Airbus’ chief salesman—known for his barbs and quips—said if BBD sold more C Series faster, the company would go out of business quicker.
Set aside for the moment the numbers he cited as unknown quantities. LNC has different figures we’ve reported and in two posts on my column at Forbes, here and here, there are other aspects to the Delta deal that affect economics.
It’s undisputed that BBD took a US$500m charge against the Delta, Air Canada and AirBaltic deals. The second Forbes post explains why. It’s all about the learning curve. Airbus and Boeing know about this: the first A350s are being chalked up to big losses and the 787 has $29bn in production costs. But it’s not to their benefit to acknowledge this when criticizing the C Series deals.
All this is neither here nor there, however. Airbus, Boeing and McDonnell Douglas all have (had) done deals that don’t seem to make commercial sense when key, strategic transactions were necessary.
Airbus stepping up innovation
By Bjorn Fehrm
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Introduction
June 6, 2016, ©. Leeham Co: In January last year I had a discussion with Airbus CEO Fabrice Bregier regarding the innovation level at Airbus. The background to the discussion was that Airbus was trailing its direct competitor, Boeing Commercial Airplanes, in innovations since the early 2000s.
Airbus started life as a more innovative company than Boeing. It was using new technology in an aggressive way to gain product advantages on the incumbent Boeing. Examples are the universal use of Fly-By-Wire (FBW) and the standardization on a common cockpit layout for all its aircraft, whether single or dual aisle, Figure 1.
Figure 1, Airbus A320 cockpit laying the ground for a common cockpit standard. Source: Wikipedia.
The FBW and common cockpit enabled customer pilots to cover a wider range of aircraft with minimal training. Airbus also led the aerodynamic development with high aspect ratio wings for its A320 and A330/340 series aircraft.
Somewhere during the problems with the A380, the creative and innovative spirit got caught in the aim to unify the group, to make sure that the “I make it my way” initiatives stopped in the different national industries that made up Airbus.
Boeing: no new technical issues with KC-46A
Dennis Muilenburg, CEO of The Boeing Co. Boeing photo.
June 2, 2016: Boeing is not discovering more technical issues with the KC-46A, but recent issues relating to the refueling boom and wing pods are being worked through while concurrent production progresses.
“As we discover things in flight tests, we have to roll them into the airplanes. This will be a wide-body program for decades,” he said, forecasting sales of 400 tankers, said Dennis Muilenburg, CEO of The Boeing Co., speaking at the Bernstein Thirty-Second Annual Strategic Decisions Conference 2016.
Airbus aircraft programs in review
By Bjorn Fehrm in Hamburg
Introduction
May 31, 2016, ©. Leeham Co: Airbus went through a complete review of all their aircraft programs as part of their yearly briefing for media in Hamburg today. A lot was said regarding the status for the different programs by Airbus CEO Farbice Bregier, its COO customers John Leahy and Executive VP Strategy and Marketing Kiran Rao.
Figure 1. Most recent A350 delivery was to Cathay Pacific. source: Airbus.
The briefing was given against a backdrop of weak orders and deliveries for the first five months of the year. Both Bregier and Leahy said, “This is to be expected, it’s not sustainable that we have Book-to-Bill ratios (orders vs. deliveries) of over 1.5 or even close to two for many consecutive years. We have a backlog of 6,700 aircraft that customers expect us to deliver and they have little appetite to order new aircraft when they can earliest get them by 2021 at the earliest.
“We are now in a period of focus on deliveries and we can expect and be happy with a book to bill ratio of around one for the coming years. The extraordinary backlog also justifies our decision to increase production to 60 units per month for our A320 single aisle program.”
Here follows what was said for each of the programs.
New KC-46A delay means more charges probable
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Introduction
May 30, 2016, © Leeham Co.: It’s the classic maneuver to bury bad news: Boeing
Boeing KC-46A. Source: National Defense Magazine via Google images.
announced on Friday, the start of the three-day Memorial Day weekend that its KC-46A tanker will be delayed yet again. Only 16 days earlier, Boeing CEO Dennis Muilenburg said the tanker was on time under a schedule that had been revised previously.
That wasn’t all, according to the announcement. Even when the tankers are delivered, the wing pod refueling systems won’t be operational. (The Boeing statement is below the jump.)
If all this has a familiar ring, it should.
The previous version of the KC-46A, the KC-767 International Tanker, was delayed four years in part because of flutter issues with the pod refueling systems.
Only eight of these tankers were built: four for the Italians and four for the Japanese. Boeing took huge write-offs for these tankers.
Summary
- Will the latest delay be the last?
- Boeing is building tankers despite the need for rework and some internal design changes.
- Are we facing the prospect of a new set of “Terrible Teens”?
- Another write-off is probable-and it may not be the last.
- Will the full USAF tanker procurement yield a profit on the sale?
Pontifications: The crystal ball
By Scott Hamilton
May 30, 2016, © Leeham Co.: We at Leeham Co. and Leeham News and Comment take some risk when we make analyses, forecasts, projections and predictions. These often put us out on a limb, open us to criticism and even ridicule and as often as not really pisses off those companies that are the target of such predictions.
Some recent events and news stories caught my eye that validated something I predicted eleven years ago.
First, the set up.
Dissecting Wide-Body deliveries through 2030
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Introduction
May 26, 2016, © Leeham Co.: A softening of trans-Atlantic air traffic, with declining yields and passenger demand, raises anew concerns that there is an oversupply and over-ordering of twin-aisle aircraft.
Air Lease Corp. addressed this concern at its May 19 investors day, arguing that growth plus retirements over the next 25 years more than supports the orders.
ALC, which is headed by Steve Udvar-Hazy and John Plueger, considered two of the leaders of the lessor industry, note that there is an average of about 150 wide-bodies approaching 25 years in age each year for the next 20 years. Coupled with long-haul traffic growth, ALC—which has a modest number of wide-body orders—is comfortable with the future supply-demand.
We’ve dissected the known delivery dates of wide-bodies at Airbus and Boeing, using the Ascend data base as of January. Wide-body orders have been announced subsequently, but not all have been firmed up and the total number won’t materially affect the trend lines.
Figure 1. Source: Air Lease Corp. Click on image to enlarge.
Summary
- We look at announced production rates by 2020 of Airbus and Boeing. We don’t include our own forecasts.
- We look at the defined delivery dates of the A330, A350, A380, 747-8, 777 and 787. These are all models, including ceo/neo and Classic/X.
- We look at factors that indicate a softening of wide-body demand across the Atlantic.
How good is a MAX 7X and why would it replace the original? Part 4
By Bjorn Fehrm
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Introduction
May 23, 2016, ©. Leeham Co:In Part 1 to Part 3 of this article series,we looked into the reasons behind that Boeing is considering changing the 737-7 MAX into a slightly larger 737-7X.
Figure 1. Boeing’s 737 MAX 7. Source: Boeing.
When an aircraft gets larger, its operating costs increase, everything else being equal. At the same time, it can take more passengers. This will increase the aircraft’s revenue generating capability, assuming the network can generate the traffic level needed.
To understand the difference in revenue capability for the 7 and 7X we will now develop their Direct Operating Cost (DOC) and compare these with the revenue generation capability of the aircraft. This gives the margin capability and one can establish where the cross over point would be between 737-7 and 7X with respect to margin for the airline.
Summary
- We develop the Direct Operating Costs (DOC) for the 737-7 and -7X.
- We also develop the revenue streams of the aircraft over typical missions.
- When compared, the margin of the aircraft will result and it will be possible to define the extra passenger count needed for the 7X to deliver the same margin as the presently defined 7 MAX.
- We then can establish the revenue upside potential for a 737-7X over the 7.
How good is a MAX 7X and why would it replace the original? Part 3
By Bjorn Fehrm
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Introduction
May 16, 2016, ©. Leeham Co: In Part 1 and Part 2 of the article series we have described the rational for Boeing to change the definition of the 737-7 MAX into something that has the working name of 737-7X. This is a 737-7 variant that is based on a shortened 737-8.
Figure 1. Boeing’s 737 MAX 7. Source: Boeing
In the previous articles we defined a probable size for such a cut down 737-8. The size is determined by economical criteria where the second most dominant cost in an airlines operation, the crewing cost, is the sizing criteria. These costs have a step increase if the aircraft’s seating go beyond 150 seats.
We sized the 737-7X cabin size (and therefore fuselage length) to avoid such cost increases. In this article, we will compare the resulting main data for a 7X to the original 7 and compare their fuel efficiencies.
Summary
- A 737-7X will be a larger and heavier aircraft than the original MAX 7.
- As such it will consume more fuel per mission; its aircraft fuel mile costs will be higher.
- The key comparison for an airline is the fuel consumption per seat mile for its missions. It would be vital that this is lower for a 7X than the presently defined 7.
- We check if this is the case with our proprietary performance model.