Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
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- Bjorn’s Corner: Air Transport’s route to 2050. Part 21. May 9, 2025
Dreamliner cash positive or not?
By Bjorn Fehrm
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Introduction
31 March, 2016, ©. Leeham Co: Boeing will present its first quarter 2016 results in about three weeks. One area which will be carefully scrutinized by the aerospace analysts will be the progress of the 787 program towards making money instead of consuming it.
Boeing gives the detailed information about the health of the 787 program in the comments by Boeing’s CFO, Greg Smith during the quarterly conference call. In the last call, he puzzled the analysts (and us) by saying that the 787 program was cash positive in 4Q2015 yet the program increased its deferred production and tooling costs by $191m. This means it still pushed about $5m per aircraft into the balance sheet as production loss.
At the time we assumed that the 787-9 was cash positive whereas the 787-8 was negative. This was most probably correct but not the whole picture. With some further poking around we think we are the elusive loss making cash positive on its tracks.
It has to do with the peculiarities of program accounting.
Summary:
- It’s important for the 787 program to start amortizing the $32b in deferred production and tooling costs that has been amassed.
- The 787 production should be cash positive yet Boeing does not expect the deferred costs to be going down before 3Q
- We explain how something can be cash positive yet still defer costs. The answer is to find in how program accounting defines what is the cost of goods sold.
Middle of the Market or Mirage of the Market: Boeing’s lose-lose situation
Enthusiast concept of Boeing Middle of the Market airplane. via Google images.
March 30, 2016, © Leeham Co.: Boeing is unlikely to develop a Middle of the Market airplane for a sector that could be a “mirage,” write two aerospace analysts.
Buckingham Research, in a note issued yesterday, did a “deep dive” into the MOM potential and concluded there isn’t a big enough market to support development of a new airplane. Buckingham recently upgraded Boeing stock to Neutral (Hold) from a Sell.
Bernstein Research, in a note published March 15, ventured that the MOM demand could be a “Mirage of the Market.” Bernstein is a Buy on the stock.
Goldman Sachs remains in the camp that Boeing may well proceed with development of a MOM airplane, at the cost of billions of dollars. Goldman concludes Boeing is in a lose-lose situation with the MOM. Goldman is a Sell.
Sales slowing for larger, Airbus, Boeing twin-aisle jets
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Introduction
Boeing 777. Photo via Google images.
March 28, 2016, © Leeham Co.: A downturn in the order cycle, low fuel prices and backlogs extending to 2020 and beyond combine to reduce the likelihood of much in the way of wide-body orders this year, say commercial aviation officials.
A preference for smaller twin-aisle jets could also hurt sales of larger twin-aisle airplanes, according to observers.
These factors spell challenges for Airbus and Boeing for the A350-1000, the 777-300ER and the 777X.
Summary
- “Nobody’s talking about the A350-1000 or the 777X,” says the president of a leading lessor.
- Preference indicated for the smaller Boeing 787-9 over the larger 777-300ER for new routes.
- Low fuel prices reduce the need for new technology jets.
Pontifications: Airbus USA321 a milestone for US aerospace
By Scott Hamilton
March 28, 2016, © Leeham Co.: The first US-built A320ceo family member took to the skies for its first flight last week. The A321ceo, destined for JetBlue, is the first assembled at the new Airbus A320 plant in Mobile (AL).
This is a milestone for Airbus, obviously. The Mobile plant was first proposed as the assembly site for the KC-330 MRTT (Multi-Role Tanker Transport) proposed for the US Air Force to replace the aging Boeing KC-135s. Northrop Grumman, which paired with Airbus parent EADS (as it was then known) to offer the KC-330, won the contract. The celebration was short-lived. The Government Accountability Office overturned the award. Northrop bowed out of the next round of competition, which Boeing won.
Airbus subsequently decided to create an A320 assembly site at the same Mobile location planned for the KC-330. (I visited the site for grand opening last September.)
This is the fourth A320 assembly site, after Toulouse, Hamburg and Tianjin. Airbus hopes the Mobile site will help spur sales in the US, where it still trails Boeing in market share.
Milestone for US Aerospace
While this plant is a milestone for Airbus, it’s a milestone on a much more macro level, too. This is the first commercial airplane assembly site by a second airplane manufacturer since Boeing closed the McDonnell Douglas MD-11 and MD-95 (aka Boeing 717) assembly lines in Long Beach (CA) in 2000 and 2006, respectively. The last legacy MDC assembly site, for the military C-17, closed early this year.
Bjorn’s Corner: Flight control, Part 3
By Bjorn Fehrm
25 March 2016, ©. Leeham Co: Last week we covered the natural stability of commercial aircraft and the most important movements the aircraft would go into if we had no pilot intervention.
Now we will cover how Fly-By-Wire (FBW) systems make enhanced flight control laws practical to implement. We will cover the principal build up of a FBW system with enhanced control laws and two of the most common approaches used in the market for such control laws: the Airbus and the Boeing implementations.
The discussion will focus on the essential and forgo many deeper discussions over redundancy and safety. Otherwise the subject expands into a book rather than an easy to read article and that is not what we want.
Airbus reveal “Airspace” interior for A330neo ahead of Interiors Show
The new Airspace interior to the Airbus A330neo. Click on image to enlarge. Source: Airbus.
March 24, 2016, © Leeham Co.: Airbus launched its Airspace brand for a new cabin design for the A330neo, two weeks ahead of the big, international Aircraft Interiors Expo April 5-7 in Hamburg. The news made a big splash in social media and ups the game in the passenger experience competition with rival Boeing.
A series of Airbus photos may be found here.
The interior redesign for the A330 is overdue. While the current offering is pleasant enough, and it’s functional, Boeing’s interior designed for the 787 and subsequently adapted to the 737 and 747-8, was stunning when first unveiled more than a decade ago.
Airbus exploring higher capacity A350
By Bjorn Fehrm
23 March 2016, ©. Leeham Co: Airbus is showing a select group of airlines a stretched version of the A350-1000. The idea is to get enough feedback from potential customers so that a decision to go ahead or not can be made during the summer. Airbus COO customers, John Leahy, told LNC at the ISTAT conference earlier this month that an announcement could be made at the Farnborough Air Show in July. Other sources say it might take longer.
We have covered the possibility to extend the A350-1000 to a longer 400 seater version in several articles over the years. The key question for Airbus is how large is the market for a dual aisle twin with 400 seats and has Boeing already covered a large part of that market with its 777-9?
What has changed now it that the A350-1000 is taking form on the Airbus Toulouse Final Assembly Lone (FAL) and Airbus can now see that the A350-1000 will hit its performance and weight numbers. Airbus also has a lot of learning from the A350-900 which makes it confident that an A350-1000 stretch can be made with rather small changes.
Pontifications: Why the 787-8 is no longer favored by Boeing
By Scott Hamilton
March 21, 2016, © Leeham Co: My Pontifications for the last two weeks examined how the Airbus and Boeing messaging continues to do battle for the product line ups. Boeing continues to denigrate the Airbus widebody line and Airbus fighting back, using Boeing’s own tactics alleging a product gap.
Boeing claims then A330neo is “dead on arrival” and the Airbus widebody strategy is “a mess.” Neither claim holds up under scrutiny. Certainly there is some weakness in the Airbus line: the A330-200 sales slowed to a trickle and the A330neo, especially the -800, has yet to truly advance. The A380 struggles and the A350-1000 is slow—but after the initial, unique splurge of the 777X, sales of this airplane have been anemic, too.
Airbus points out the sales of the 787-8 have dried up. So have sales of the 777-300ER, in sharp contrast to the unexpectedly strong sales for the A330ceo—enough so that Airbus is taking the production rate back up, to 7/mo, from the previously announced reduction to 6/mo.
Here’s why the 787-8 has become a dying sub-type.
Aircraft programme cost
By Bjorn Fehrm
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Introduction
March. 21, 2016, ©. Leeham Co: There is quite a lot of talk about what a new aircraft program like Boeing’s Middle of the Market (MOM) would cost the airframe OEM to develop. Typical quotes are “it would cost them at least $10bn.” When saying this, the person implies this is the program’s load on the company’s liquidity for that aircraft program.
This is not correct and we will now go through why. It might be true that the development of the aircraft cost $10bn. But the trouble is, this is not the only cost that will hit the OEM for this aircraft program.
Cost that one normally does not think about when talking about new aircraft programs can double the cash burden on the OEM. Here’s why.
Summary:
- What normally is labeled development cost is only to a part development.
- About half of the cost is used to develop and manufacture the aircraft’s production tooling.
- There is one major cost block that has been forgotten in a development cost discussion: initial production costs.
- The initial production costs not covered by customer payments can double the cash burden for a company.
Pontifications: Advancing EIS for 777X
Special Edition of Pontifications
Advancing EIS of the 777X
By Scott Hamilton
I’m somewhat bemused by all the fuss over the prospect of Boeing advancing the delivery of the 777X from early 2020 to late 2019. This has been the plan for more than a year. That’s what my sources have been telling me all this time.
It’s been the desire longer that that.