Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- How good is the C929? Part 2. April 24, 2025
- Boeing First Quarter Results Update: China is 10% of the backlog, with 500 in “Unidentified” April 24, 2025
- Boeing First Quarter Results: Tariffs, Return flights, $10.55bn asset sale April 23, 2025
- RTX Q1 2025 Earnings: GTF Talk Takes A Back Seat To Tariffs April 22, 2025
- Tariffs Tumult Takes Over GE Aerospace Q1 2025 Earnings Call April 22, 2025
Six year turnover in sale/leasebacks put supply-demand balance at risk
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Introduction
August 24, 2015, © Leeham Co. When airlines like Indigo of India, Air Asia, Norwegian Air Shuttle (NAS) and Lion Air have outstanding orders for Airbus A320s and
Boeing 737s that number in the hundreds, far more than operations and growth appears ready to support, the deals raises the natural question: What are they thinking?
As LNC’s Bjorn Fehrm explained Friday, one aspect of these big orders is to “flip” the aircraft every six or seven years, a time that roughly coincides with the maintenance holiday/warranty period. Sale/leasebacks are used to finance these huge purchases.
The practice is hardly new. The USA’s JetBlue Airlines, Ryanair and others practiced this flip for years.
Carriers like the new LCCs mentioned above not only plan to do so to avoid major maintenance costs, but also to fuel their growth. In the case of Lion Air and NAS, these companies also plan to lease out aircraft to other airlines.
But there remain risks involved for the companies and for the industry.
Summary
- The growing practice of flipping aircraft every six or seven years presents risks to lessors.
- Indigo Airlines has 96 aircraft in service, 430 on order.
- Select LCCs in Asia, Europe, India have 1,000 A320s, 737s on order.
Pontifications: FAA shouldn’t be surprised at composite fire duration
By Scott Hamilton
August 24, 2015, (c) Leeham Co. News that the US Federal Aviation Administration was surprised at the duration of the composite fire with the Ethiopian Airlines Boeing 787 in 2013 came as a surprise to the agency, but it shouldn’t have.
When fire tests were undertaken during the development of the 787, the FAA received comment that the fire testing standards weren’t what they should be from engineers. The FAA largely dismissed these concerns at the time.
More to the point: the take-off crash of a Northrop Grumman B-2 bomber, on which Boeing was a sub-contractor, burned for 24 hours. This should have been a clue to the FAA.
Leeham News and Comment published a long piece March 10, 2009, about composite and aluminum airplane fires after a Boeing 787 on final approach in Laredo (TX) caught fire. The plane landed safely, but the testing was set back months.
I’m reprinting that report in its entirety here.
Bjorn’s Corner: Sale/Leasebacks
By Bjorn Fehrm
21 August 2015, ©. Leeham Co: IndiGo Airlines firmed up Airbus’ largest aircraft sale by unit numbers in the week. The order is for 250 A320neos. This means the airline goes from 180 A320neos on order to 430. The airline is just finishing off its first order with Airbus for 100 A320ceos, the final eight being delivered over the next months.
How can an airline that did not exist 10 years ago order 430 A320neos?
There are a couple of things that makes this possible, one of them being the Sale/Leaseback. Before we go to Sale/Leaseback and how this enables this magnitude of business, let’s take a quick look at IndiGo. It has certain similarities to other airlines that also close large aircraft deals.
PW chief credited MRJ with ripple effect leading to CSeries, A320neo, 737 MAX and E-Jet E2
David Hess, former president of Pratt & Whitney, credits Mitsubishi with the ripple effect that led to new developments at Bombardier, Airbus, Boeing and Embraer. Photo via Google images.
Aug. 20, 2015, © Leeham Co.: Conventional wisdom credits Bombardier’s CSeries with being the disruptor that prompted Airbus to launch the A320neo, which in turn caused Boeing to launch the 737 MAX and Embraer to launch its E-Jet E2.
But an academic paper by John Slattery, chief commercial officer for Embraer, reveals that David Hess, the former president of Pratt & Whitney, credits Mitsubishi rather than Bombardier as the catalyst for the dramatic changes that followed.
In a paper entitled Resources & Rivalry, A Case Study of The Single-Aisle Commercial Jet Manufacturing Industry, Slattery interview present and former executives of the Big Four airframe manufactures, the former CEO of ILFC and officials of P&W.
The paper provides a chronicle of thinking leading to decisions to move ahead with new airplane projects, including re-engining the A320 and 737 rather than proceeding with new, clean-sheet designs.
The interviews debunk some of the conventional wisdom surrounding the variety of programs. We’ll periodically report the findings of Slattery’s paper, starting with PW and Mitsubishi.
Airbus’ and Boeing’s Payload/Range for VLAs
- Bloomberg reported this week that Airbus is now offering the A350-900LR to Singapore Airlines to reopen ultra-long haul US direct routes. We predicted July 14 that Airbus would offer the LR. We offered some high-level analysis about how Airbus could achieve a long range version of the A350-900; the Bloomberg piece confirms our analysis.
By Bjorn Fehrm
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Introduction
Aug. 19 2015, ©. Leeham Co: We will now finish our series over Boeing’s changes to its configuration rule sets by looking at how this affects the Very Large Aircraft (VLA) segment.
Airbus and Boeing used to describe the VLAs in their line-ups using three class cabins, albeit with different standards. Now Boeing has changed its standard to a modern three class seating while Airbus has changed to a four class cabin, including premium economy.
We have enough information of the A380 equipped with a three class cabin to be able to make a comparison using three class rule sets. We will therefore apply a three class cabin to the A380 and 747-8 that will have modern seating standards and pair that with Boeing’s tougher payload weights and enroute reserves.
Summary:
- Boeing’s new Standard rules three class cabin and our normalized three class cabin for A380 and 747-8i are close in their configurations.
- We use our knowledge of these standards to create a level playing field on the cabin side.
- We also apply the new tougher passenger and bags rules + the tougher reserves policy that Boeing’s new Standard rule set prescribes.
- It used to be that A380 had a range advantage at max passenger payload. We check if this remains under the new rules.
Boeing sees “healthy” future for 767
Aug. 19. 2015, © Leeham Co. Boeing sees a “healthy” future for the 767 commercial line, but won’t comment whether this includes an effort to rekindle interest for
Boeing sees a “healthy” future for the 767. Photo via Google images.
passenger airlines, or if the future is strictly for cargo carriers.
It was almost a throw-away question and answer at last week’s Jefferies Co. Global Industrial Conference at which Greg Smith, the CFO of The Boeing Co., appeared. Howard Rubel, the aerospace analyst for Jefferies, asked, “All of a sudden we’ve seen orders for 767s. It’s a 4,000 mile aircraft that is easy to operate and easy to fit into the fleet.” Could there be more orders? he asked. The question was obviously prompted by the July order by FedEx for 50 firm and 50 optioned 767-300ERFs. The 767-300ER’s capacity and range fits in the general description of the so-called Middle of the Market aircraft being explored by Boeing.
“There are opportunities,” Smith replied. “I think we will continue to see a healthy product line. At the same time we are still looking for opportunities to make the airplane more efficient in the operating cost perspective.”
That was it.
This raised more questions than the one that was answered:
Air Force shouldn’t proceed with production rate decision, GAO said
- A chemical mislabeled and fueled into the first KC-46A means a delay of one month of its first flight, the USAF said yesterday.
Aug. 18, 2015, (c) Leeham Co. The US Air Force should not proceed with a decision giving Boeing the go-ahead for low-rate production on the KC-46A tanker “before it has adequate knowledge that
Click on image to enlarge.
the KC-46A can perform its aerial refueling mission,” the Government Accountability Office said in an April report.
This was before the latest delays, the impact of which remains undetermined, resulting from Boeing inserting the wrong chemical through a test KC-46A’s fueling system. The Seattle Times reported a vendor mislabeled the chemical. Boeing had already eaten up development margin in the timeline. When the GAO issued its April report, one of its periodic reviews of the program, the flight testing schedule had already been compressed to a mere three months before the low-rate production decision is due in October.
The flight testing is already running eight months behind schedule.
“Boeing is at risk of not meeting the entrance criteria needed to support the projected October 2015 low-rate production decision,” the GAO wrote in April, “and will have less knowledge about the reliability of the aircraft than originally planned. The small schedule margin that was built into the program has eroded….”
Pontifications: Storm warnings ahead
By Scott Hamilton
Aug. 17, 2015 (c) Leeham Co: Sometimes I never know what’s going to exercise readers. Sometimes it’s obvious. Last week it wasn’t.
Our post last week about the formidable challenges still facing Bombardier for the CSeries brought some surprising reaction, particularly on Twitter. And I didn’t see it coming.
The story was behind the paywall, but Canada’s National Post saw the public portion and called to get more information. The Post published some comments from an interview and with permission recreated a chart that was behind the paywall.
We’ve been doing risk assessments of “skyline” quality for a couple of years now, including Bombardier, which is why the reaction to last week’s post came as a surprise.
Our risk assessment has taken a couple of forms. For Bombardier, it’s a Green-Yellow-Red assessment, the meaning of which really doesn’t mean any explanation for anyone who drives a car or, in the aerospace industry, has ever seen Boeing’s Green-Yellow-Red assessment of access to aircraft financing it does every year.
The other symbolic method we use is nautical: Storm Warning Flags, looking at the top 10 narrow- and wide-body customers of Airbus and Boeing and raising a Storm Warning Flag about how solid the order is. We do this annually and the most recent time for Airbus and Boeing customers is here, also behind our paywall.
Airbus’ and Boeing’s Payload/Range for Dual Aisle.
By Bjorn Fehrm
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Introduction
Aug. 17 2015, ©. Leeham Co: In our series over Boeing’s changes to its configuration rule sets, we will now continue with the dual aisle aircraft. Here the differences between Airbus and Boeing are larger. Boeing used to be specifying a three class cabin and Airbus two class. Now Boeing has changed to two class and Airbus is just changing to three class.
There is a bit of difference in the Airbus change to three class and the three class that Boeing had until now. Airbus changes from modern two class to a modern three class with Business, Premium Economy and Economy. Boeing’s change was from an outdated three class with old style First, Business and Economy to a modern two class with lie flat business section.
The new Boeing two class and historical Airbus two class are close in configuration. These end up within a seat or two of each other and also within our normalized two class cabins. As these cabin rules are similar, we use our normalized cabin data to compare the payload range of the aircraft when all apply the new, tougher passenger+bags weight rules and an equalized reserves policy.
Summary:
- Airbus’ two class rules and Boeing’s new two class Standard rules are close in their configurations.
- They are also close to our Normalized rule set. We use our normalized rule set to level the playing field on the cabin side.
- We can then apply the new tougher passenger and bags rules that Boeing’s Standard rule set prescribes for the twin aisle aircraft and see how they compare.
- We also use the same reserves policy for the comparison. Read more
Bjorn’s Corner: Holiday times
By Bjorn Fehrm
14 August 2015, ©. Leeham Co: It is holiday time in Europe and a lot of the European industry is shut down for summer break. This includes the Airbus Final Assembly Line (FAL) in Toulouse. Industrial holiday shut down or not depends a lot on the country’s industrial history.
Traditionally industry has closed shop for the month of July in the north of Europe and August in the south. For production-heavy industries with a lot of personnel in assembly work this is still the case. Examples are manufacturing industries like the auto industry, electromechanical goods industries and also the European aircraft industry.
For raw material industries, it depends if the manufacturing process can be interrupted for the three to four weeks a summer holiday would span. For many process chains, this is not possible. I earned my school summer break money on such an industry, replacing the worker that took his three or four weeks off.
Other parts of the world do not have summer breaks where the industry closes the doors and things go quiet. An example is the US, where, for example, Boeing produces aircraft 12 months of the year. Available vacation days are less than in Europe, typically two to three weeks against the typical four or five weeks in Europe. US vacations are usually taken spread over the year and the company normally doesn’t shut down production during the summer period. Read more