Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- 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
- Boeing reports mixed results of latest employee survey, but middle management and officers remain key obstacles April 22, 2025
Can PIPs bring the A380 what Emirates Airlines wants?
By Bjorn Fehrm
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Introduction
26 April 2015, C. Leeham Co: With Emirates Airlines deciding for Rolls-Royce Trent 900 engines for its 50 new A380s and admitting that it would accept that this could be for all of them if Airbus does not proceed with an A380neo, the time has come to look at how much incremental improvements can be brought on the present A380.
Our proprietary aircraft model is particularly suited for such studies as we can change any parameter and read the result off the efficiency scale. We can also play with the aircraft’s configuration and see what effect it will have. Based on Emirates’ new configuration of A380s equipped with the Trent 900 engine, we have checked what incremental improvements are doable and what would they bring.
Summary
- Our deep analysis of 18 Dec. 2014 showed that the present A380 is the most economical aircraft one can operate if one can fill it to normal load factors.
- Emirates COO Tim Clark complements this fact with the statement, “It is Emirates’ most profitable aircraft” in the press conference in London last week when announcing the Trent 900 deal with Rolls-Royce.
- Clark’s statement also covers the fact the passengers prefer A380 over other aircraft if they have a choice, it operates with higher load-factors then Emirates other aircraft.
- The A380 is a rather special design and its characteristics make Product Improvement Packages, PIPs, possible in a number of areas. We discuss which they would be and model their effect on overall performance.
- While the sought-after 10%-13% improvement would not be in there, incremental changes can cover up to half of that with more or less plausible business cases. Airbus is right now deciding which of these they see as worthwhile and introducing them.
United Airlines revises fleet plan
April 23, 2015: United Airlines announced its 1Q2015 earnings today (which will eventually be posted with commentary on SkyWriterAviation.aero). What caught our eye in the press release was the following. United will:
- Complete the removal of more than 130 50-seat aircraft from its schedule by the end of 2015. UAL will remove additional 50-seat aircraft in 2016 and beyond as aircraft come off lease.
- Exchange 10 787 orders with Boeing for 10 777-300ERs for delivery beginning in 2016. The new 777-300ER aircraft will provide attractive upgauge and range opportunities to the company at competitive economics.
- Extend the life of 11 additional 767-300ER aircraft. The company now plans to extend the life of all 21 767-300ER through investments in winglets, reliability improvements and interior modifications, which will improve financial performance and make the aircraft more customer pleasing.
- Reconfigure and transition 10 777-200 aircraft currently used in international markets into the domestic network, and position a number of its trans-Atlantic 757-200 fleet into the domestic and Latin markets, with the extension of the 767-300ER aircraft.
- Acquire additional used narrowbody aircraft. The company is in final negotiations regarding the lease of 10 to 20 used narrowbody aircraft for delivery over the next few years. In addition, the company plans to continue to seek other opportunities to acquire used aircraft to meet its needs as market conditions allow.
Analysts hone in on Boeing Free Cash Flow
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Introduction
April 22, 2015: c. Leeham Co. Boeing may have reported solid earnings for the first quarter, but aerospace analysts focused on free cash flow (FCF) and gave the company a raspberry.
Analysts have been increasingly pinpointing and asking questions about FCF since the third quarter call, when Boeing stock got pummeled over the issue. Boeing surprised Wall Street with the fourth quarter numbers in which FCF was sharply higher and greater than expected.
Last week, we reported UBS’ analysis of FCF and how it was driven up by more advanced (pre-delivery payments, or PDPs) than usual.
On the 1Q earnings call, Ron Epstein, the aerospace analyst doe Bank of America Merrill Lynch, honed in on the issue.
Summary
- Our Market Intelligence since January has identified hundreds of millions of dollars in accelerated advances from customers to bolster cash flow.
- Money needed to meet promises of shareholder buybacks, say sources on and off Wall Street.
- Accelerated cash advances required throughout this year and into next, say sources.
- Boeing declines further comment.
Boeing 1Q15 earnings: EPS beats consensus but cash flow concerns dominate analyst reaction
April 22, 2015: Boeing reported its first quarter earnings today, with earnings per share well ahead of analyst expectations. Of the analyst reports we see, only Bernstein was pleased with the cash flow, with others concluding free cash flow was below expectations. Increasingly analysts believe Boeing has been accelerating aircraft deposits (advances) to improve cash flow and to meet share buyback promises.
A summary of the earnings call follows the initial analyst reaction.
Analyst reaction:
Pontifications: Remaking the Armed Services
By Scott Hamilton
April 20, 2015, c. Leeham Co. A news item last week caught my eye about the Defense Department, defense spending and recapitalizing the US Armed Forces.
I don’t normally follow defense items at Leeham News and Comment. LNC is pretty much all-commercial, all the time. I’ve stepped outside this to follow commercially-derived air force tankers (Boeing 767, Airbus A330) and the P-8 Poseidon (the Boeing 737). I took rides on Trident nuclear ballistic missile subs and reported thusly. But this news article, which came about two weeks after my visit to Wall Street where some defense programs were discussed, prompts me to ask: Since we can’t afford the monies required to recapitalize the Armed Forces, what do we do?
I’m going to throw some ideas out and see where they land. I have no doubt some will be blasphemy. But here goes. Read more
IAM vote delay at Boeing SC shows weakness
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Introduction
April 19, 2015, c. Leeham Co. The withdrawal by the International Association of Machinists of the planned April 22 unionization vote at the Boeing 787 plant in Charleston (SC) appears to answer a question that was lingering ever since the January 2014 IAM 751 vote at Boeing’s Puget Sound operations:
Was there a quid-pro-quo between IAM International headquarters and Boeing for Boeing to stand by and allow unionization of BSC is exchange for the International to “sell out” for a Boeing contract package at Puget Sound?
It seems the answer is “no.”
The vote withdrawal also seems to answer another question: Has the IAM become increasingly impotent?
The answer to this seems to be “yes.”
Summary
- Obviously the IAM didn’t have enough votes to pass unionization.
- Vote delay shows weakness and continued SC predilection against unions.
- McNerney’s legacy includes largely busting the IAM.
Rolls-Royce displaces Engine Alliance for Emirates A380 order
Rolls-Royce, in a major upset, won the Emirates Airlines order to power 50 Airbus A380s ordered in November 2013. The win displaces Engine Alliance, which to now has been the sole-source provider for EK’s A380s.
Two sources confirmed the RR win. RR and Airbus did not comment on the win. EK and RR have not made any announcement. EA also did not comment.
According to one source, EK determined the RR Trent 900 was determined to be up to 4% more efficient than EA. But it’s unclear if there were other factors involved. Read more
Aviation Partners Boeing: next step–scimitar for 757, 767
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Introduction
April 14, 2015: Several airlines operate the Boeing 757 across the Atlantic on “thin” routes but sometimes have to do refueling tech stops when high westerly winds
Aviation Partners Boeing plans the Split Scimitar Winglet (SSW) for the Boeing 757 and 767. Officials plan to seek board approval on the 757 SSW this year, the 767 next year. Source: Aviation Partners Boeing. Click on image to enlarge.
occur.
The 757s are aging, with engine maintenance, repair and overhaul costs increasing under the tightly-controlled contract with Rolls-Royce and Pratt & Whitney.
Some airlines want a “757 replacement.” Boeing and Airbus don’t see a market for “just” a 757 replacement and argue the 737-900ER/9 and A321neo/LR are the replacements. Even these fall somewhat short.
Industry observers and pontificators nonetheless are obsessed with a “757 replacement” (except us—we’ve redefined the replacement as one needed for the 225/5000 Sector [225-250 seats, 5,000 miles] and concluded an airplane very similar to the 767-200 is needed).
Patrick La Moria, EVP and chief commercial officer, Aviation Partners Boeing.
While all this debate is going on, Aviation Partners Boeing (APB) is close to seeking board approval to offer a scimitar option for the 757 that will improve efficiency by about another 1.5%. A scimitar for the Boeing 767 may not be far behind.
Summary
- Scimitars and the increased range will eliminate some “tech” stop for fuel.
- Field performance will be better.
- Low fuel prices and prospect of scimitars (as well as lack of availability of new airplanes) may lead to longer retention of 757s and 767s.
Boeing 4Q cash flow increase stemmed from huge accelerated customer advances: UBS
April 13, 2015: Boeing surprised aerospace analysts at the year end earnings call with far higher cash flow than had been expected.
Analysts beat up Boeing pretty badly on the 3Q2014 earnings call and were taken aback by the dramatic upswing in the fourth quarter.
We began to hear as early as January that Boeing achieved the marked improvement by getting accelerated advances from customers who had placed commercial airplane orders, resulting in the dramatic upswing. The reason was to respond to the beating Boeing took on the third quarter earnings call, several Wall Street analysts told us.
In advance of the first quarter earnings call April 22, UBS aerospace analyst David Strauss issued a detailed report about Boeing’s Free Cash Flow (FCF) that outlines just how dramatically Boeing pulled forward customer advances.
Below are selected excerpts from the April 13 note. Read more