Leeham News and Analysis
There's more to real news than a news release.
Pontifications: From the sidelines of the ISTAT conference, Notes #2
March 13, 2015: More Notes from the sidelines at the ISTAT conference this week in Phoenix.
By Scott Hamilton
Boeing 777 production rates and advancing schedule
Randy Tinseth, Boeing VP-Marketing, predictably stuck to Boeing messaging Monday at the ISTAT conference when I asked him about the change in tone I described in my post Monday morning about the 777 Classic production rate to the entry-into-service of the 777X.
Waving a copy of my post in the Q&A session of Tinseth’s market update and saying I had transcripts of every Boeing earnings call and investors presentation in which the “bridge” question was posed since the 777X program was launched, I cited Boeing CFO Greg Smith’s response to orders in the March 5 JP Morgan investors’ day and asked Tinseth about it.
Washington State: tie jobs-for-tax breaks like other states do
By Scott Hamilton, Managing Director of consultancy Leeham Co. and Editor of Leeham News and Comment.
March 12, 2015: Legislators in Washington State are coming down to the wire on a proposed bill promoted by two key Boeing labor unions to tie job levels to tax breaks. Irrespective of party lines, this is a bill that should advance from committees to the full Legislature and win approval. Gov. Jay Inslee should sign this bill if it reaches his desk.
Here’s why.
In 2003, the Washington Legislature, approved $3.2bn in tax breaks provided in a hastily prepared bill in order to win the assembly site for what was then known as the Boeing 7E7. These tax breaks were for 20 years and assured what was renamed the 787 would be assembled here. But there were no jobs-for-tax breaks guarantees. Six years later, in October 2009, Boeing chose North Charleston (SC) to be the assembly site for 787 Line 2. I called former Gov. Gary Locke, who was in office when the 2003 tax breaks were approved, and asked, How could this be? Locke said there was nothing in the tax breaks legislation to prevent Boeing from siting Line 2 outside Washington–nor was there anything to prevent Boeing from moving Line 1 out of Washington, should officials choose–the tax breaks would go away. Read more
Boeing showing 737-8ERX concept in response to A321LR
By Scott Hamilton and Bjorn Fehrm
March 12, 2015: Boeing is showing some airlines a concept it calls the 737-8ERX, a long range version of the 737-8 MAX, in response to the Airbus A321LR, Leeham News and Comment has learned. Sources within Boeing confirmed the concept but Boeing Corporate Communications did not make someone available for an interview. A spokesman said in an email, “Boeing studies many advanced concepts, innovations and technology. However, just because Boeing studies a particular concept or technology does not necessarily mean that we will be introducing that airplane or concept in the near future. Boeing makes decisions based on market and customer demand.”
Figure 1. The Boeing 737-8ERX concept. Boeing photo, modified by Leeham Co., based on information from Market Intelligence. Click on image to enlarge.
In our article series around A321LR we concluded that Boeings 737 MAX 9 was not a good base from which to launch a long range 737, it could not be stretched in take off weight due to rotation limitations. Better would be to upgrade the take-off weight of MAX 8 for longer range, it can carry the extra fuel tanks needed and is not rotation limited in the same way.
As happened with the A321neoLR (we pointed to the possibility of the concept and Airbus was indeed working on it) Boeing now shows selected airlines a higher gross weight 737 MAX 8, Figure 1. In contrast to Airbus, which beefed up the A321neo to form the A321LR, Boeing is apparently using a concept they developed for the Navy 737 derivative, P8 Poseidon. They grab in their LEGO box of 737 components to form the 737-8ERX with minimal additional development.
Redefining the 757 replacement: Requirement for the 225/5000 Sector, Part 5.
By Bjorn Fehrm
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Introduction
11 March 2015, c. Leeham Co: After having analyzed the different alternatives which would be available to Boeing for its Middle Of the Market, MOM, studies and having singled out the most competitive configurations, we will now add revenue to the equation. In the work to establish Cash and Direct Operating Costs for the aircraft, we saw which variant had the best cost for a certain capacity and utilization. We could not see which aircraft would be the most profitable however; this requires that we bring in the revenue side.
Revenue management analysis of different aircraft types on an airlines network is a science in it selves. Sophisticated fare class strategies with connected marketing activities makes such studies elaborate and beyond the scope of our analysis. Our primary goal is to understand the difference in operational efficiency of a single versus dual aisle aircraft with the same seating capacity. For this, a simpler average margin concept will work that shows us the effects of single versus dual aisle for aircraft margins in the MOM segment.
Summary
- We select based on Cash and Direct Operating Costs the best aircraft for the different market segments.
- To understand the revenue earning capability of the different alternatives we introduce a revenue model which takes into account aircraft utilization.
- With the costs and the revenue side represented we can develop a good understanding for the cross over between single and dual aisle for MOM.
- We will use this knowledge as we subsequently look into Airbus response to what Boeing would bring to the market.
ISTAT: Industry stability as good as this CEO has ever seen it
Despite the constant fears of an impending order bubble, the CEO of one of the world’s largest leasing companies says the airline industry’s stability is as good as he’s ever seen it in his career.
Jeff Knittel, president of CIT Transportation, to which CIT Aerospace reports, told a press briefing Tuesday at the ISTAT conference that US network carriers are stronger than they have ever been, low cost carriers (LCCs) are maturing and ultra low cost carriers (ULCCs) are changing the dynamics of business. Read more
ISTAT: Randy Tinseth: pax traffic going from 3bn today to 7bn by 2033
Randy Tinseth, VP Marketing of Boeing, presented today to the ISTAT conference. Here is a synopsized summary of his comments.
Redefining the 757 replacement: Requirement for the 225/5000 Sector, Part 4.
By Bjorn Fehrm
Subscription required
Introduction
08 March 2015, c. Leeham Co: In the third part of the article series around the need for a more capable solution for 180-240 seats and 5,000 nautical miles, we compared different clean sheet single and dual aisle aircraft to the Airbus A321LR and Boeing’s 787-8, the two aircraft that form the border to the segment.
We could see that a single aisle aircraft started to have trouble with weight at around 220 passengers using our normalized seating rule set. This would with normal OEM seating rules be around 230-240 passengers. At the same time the dual aisle aircraft becomes stronger the more seats one assumes. The reason is their thicker fuselage, Figure 1, lends itself better to aircraft which passes 50 meters/160 feet in length.
Figure 1. Cross sections for our studied clean sheet designs; NSA6 (New Single Aisle 6 abreast), NLT6 (New Light Twin 6 ab.) and NLT7. Source: Leeham Co.
Their advantages in boarding and deplaning then starts to outweigh their disadvantages in weight and drag. This trend is explored further in this part where we add Cash Operating Cost, COC and Direct Operating Cost, DOC, to the analysis.
Summary
- The trends seen for NAS6, NLT6 and NLT7, our Middle Of the Market, MOM, models in the segment 180 to 240 passengers gets further reinforced when we go to COC and DOC.
- A factor supporting this is the broader spread of fixed and semi-fixed costs over larger aircraft seat numbers.
- Another is that the shorter ground turn-around time for dual aisles increases the utilization for the aircraft, once again forming a broader base for fixed and semi-fixed costs.
- Introducing CFRP for the fuselage brings clear gains in weight and therefore operating costs. Key for its inclusion in the MOM designs will be the manufacturing advances that will have been made by 2025.
Pontifications: Boeing cracks open door to 777 production rate cuts (or not)
By Scott Hamilton
March 8, 2015: Boeing cracked open the door March 5 to a production rate reduction on the 777 Classic, the first time since launching the 777X in 2013 that officials have publicly deviated from their insistence the current rate of 8.3/mo can be maintained to entry-into-service of the 777X.
At least that’s how I see it. Boeing sees it differently. Boeing says nothing has changed in its messaging.
In an appearance at the JP Morgan Transportation Conference, Greg Smith, EVP of Business Development and Strategy and Chief Financial Officer of The Boeing Co., Smith appeared to back away from the Boeing messaging to-date that has been all (to paraphrase) “We’re confident we’ll bridge the gap,” “We have three years of backlog and six years to bridge the gap”, “We’re confident we’ll maintain production at the current level,” etc, etc.
At least that’s how an aerospace analyst for a New York firm expressed it when he called me. After listening to the event, I agree with the analyst.
In the recorded playback of the JP Morgan event, here’s the report of Smith’s comments starting at 9:36 into the presentation.