Leeham News and Analysis
There's more to real news than a news release.
Icelandic becomes first regular airline to serve Antarctica
Icelandic Boeing 757 at Union Glacier Blue Runway, Antarctica. Source: Special to Leeham News and Comment.
Nov. 27, 2015: Loftleider Icelandic Airlines is the first regular airline to serve the world’s seventh continent, Antarctica.
Icelandic, a sister company to Icelandair and crewed by Icelandair, operated a Boeing 757-200 into the Union Glacier station last week, Nov. 17, on a proving run. The first passenger flight was yesterday. The 757 was configured for 52J/10Y seats; there were 50 passengers. The flight originated in Puntas Arenas, Chile.
Used B777-200ER or A340-300?
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By Bjorn Fehrm
Introduction
Nov. 26 2015, ©. Leeham Co: In recent articles we have latched on to the debate around the prices for used Boeing 777-200 aircraft. Contrary to the market appraising companies’ ideas about second hand values, our surveys show that not only the Airbus A340-300 is cheap in the market but the Boeing 777-200ER is also available at interesting prices.
This, coupled with sustained low fuel prices, makes for interesting opportunities. Charter destinations can be reached which were not possible with less competent aircraft and it is possible to lease or purchase these long range aircraft to backfill an expanding route network while awaiting or even postponing delivery of the latest technology aircraft.
We decided it was time to take a look at which of the two would be the better choice as a long hauler of 300 passengers to destinations of up to 5,000nm. We use our proprietary model to find out which one is the most suitable given different conditions, such as cabin makeover or not. We will also introduce aircraft deterioration to the calculations to map the reality of an older aircraft.
In this first article, we will establish the base values for the aircraft and find their cash operating costs. In a subsequent article, we will add capital costs where we will look at different purchase scenarios and refurbishing options and how these affect the overall direct operating costs.
Summary
- The 777-200ER and A340-300 are very close in most dimensions.
- The 777-200ER is the slightly larger and heavier aircraft. Thanks to more effective engines, it can compete on fuel costs.
- When the other costs are added to make up cash operating costs, the higher weight and more expensive engines start to eat up any fuel cost advantages the 777-200ER has.
State investment in Bombardier further mockery of WTO
Nov. 24, 2015, (c) Leeham Co. With the $1bn investment by the Province of Quebec in the Bombardier 
CSeries program, another example of government funding emerges in commercial aviation development.
Setting aside whether the investment might be challenged before the World Trade Organization—and whether this makes good business sense for Quebec—the move makes a mockery of the entire concept of avoiding government support.
Pontifications: “I’m glad you’re not going far.”
By Scott Hamilton
Nov. 23, 2015, (c) Leeham Co. An Airbus A321 is blown out of the sky over Egypt.
Two Air France jumbo jets are diverted due to bomb threats.
ISIS stages multiple, simultaneous attacks in Paris. Additional attacks are thwarted. Police raids in Belgium take place.
ISIS is declared a clear and present danger in Europe and the US.
The worries on a global basis are obvious. Being far more parochial, given the focus of LNC, what is the impact and potential impact on commercial aviation?
Bjorn’s Corner: Production rates
By Bjorn Fehrm
20 November 2015, ©. Leeham Co: Emirates Airline CEO, Tim Clark, is quoted as having said “it takes them forever to get this thing up.” He was talking about the Airbus A350 production rate and his reasons for delaying Emirates’ decision on what to buy for the airlines medium range needs. Clark said Emirates wants more aircraft in operational use before they can evaluate the operational characteristics of the A350.
Emirates want to see at least 20 aircraft in operation and right now it is about seven to nine that fly every day. Actual deliveries stand at 10 with one month to go before the first anniversary when deliveries started (the first A350-900 was delivered to Qatar Airways on the 22 December 2014).
Looking at how many aircraft that are actually flying, one can agree with him. It seems actual production rate is more like one per month rather than the three to four a month that Airbus talked about at the first delivery ceremony.
So why is this? Is the production of A350 therefore in serious trouble? What is taking them so long? Has Emirates pointed to a weak part of the A350 program?
Europe’s airlines: LCC, the winning formula
By Bjorn Fehrm
Nov. 18 2015, ©. Leeham Co: Easyjet revealed record numbers yesterday with pretax profits now at 14.6% of a year turnover of £4,686m. The load-factors for their aircraft are at a record 91.5% on a 12 month basis, with an increase of 1.5% for the period. The return on employed capital has increased to a high 22.2% from 20.5%.
The LCC now transports 69m passenger per year and continues to increase its capacity and efficiency. Airbus yesterday announced that easyJet has signed a firm order for a further 36 A320 Family aircraft, taking its cumulative order for the type to 451. The agreement for six A320ceos and 30 A320neos makes easyJet one of the world’s biggest airline customers for the A320ceo Family with 321 ordered and also for the A320neo, with 130 on order.
Earlier in November Ryanair had announced their record results, further manifesting their investment grade rating. At the same time Europe’s largest airlines, Lufthansa and Air France-KLM, are engaged in difficult negotiations to reduce their personnel costs, a mission riddled with strikes and confrontation. The once reliable Lufthansa is no longer.
What is the reason for this divergence in the market? Read more
Delta CEO is right about 777-200ER values, says market
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Introduction
Richard Anderson, CEO, Delta Air Lines. Photo via Google images.
Delta Air Lines CEO Richard Anderson is right.
Actual market values for 10-year old Boeing 777-200ERs are around $10m, not the $50m-ish suggested by Boeing and professional appraisal firms.
This is the conclusion of our Market Intelligence of real-world demand for these airplanes, not some theoretical book appraisal.
Furthermore, used 777-300ERs are in little demand.
The costs involved in reconfiguration and maintenance, repair and overhaul (MRO) simply upend traditional expectations.
Summary
- Used 777-200ERs can’t be “given away,” reducing values to scrap regardless of book values carried by owners or appraisers.
- Rolls-Royce-powered -200ERs, caught up in RR maintenance programs, make traditional engine valuations irrelevant.
- A sudden glut of late-model 77-300ERs upend these values.
- Ten year old -300ER lease renewal rates demanded by airlines drop to $325,000 in negotiations.
Pontifications: Boeing to focus on “long-term liabilities” in 2016’s SPEEA contract negotiations
By Scott Hamilton
Nov. 16, 2015, © Leeham Co. Boeing will target “long term liabilities” in its contract negotiations with SPEEA, the engineers union, its president quoted CEO Dennis Muilenburg as telling him in September.
Ryan Rule, president of the local SPEEA union, met for an hour with Muilenburg when he was here for a visit by China’s president Xi Jinping. Rule termed the meeting cordial. He told Leeham News last week that Muilenburg wasn’t specific about the “asks” Boeing will seek in contract negotiations next year, citing only “long term liabilities,” which Rule took to mean health care and pension benefits.