Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Bjorn’s Corner: Air Transport’s route to 2050. Part 19. April 25, 2025
- 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
Boeing earnings: margins up, cash, deferred costs disappoint some
Boeing announced its third quarter earnings today. Here is the press release. The initial analyst take:
Bernstein Research (Buy)
Boeing reported Q3:2014 core EPS of $2.14, well above our estimate of $1.89 and consensus of $1.98. Revenues of $23.8bn were above consensus of $23.0bnand our estimate of $22.9bn, and Commercial Airplanes margins remained strong at 11.2%.
Fully-reported Q2:2014EPS was$1.86, compared to our estimate of $1.78and consensus of $1.77.
The company raised2014guidanceforcore EPS to $8.10-$8.30from$7.90-$8.10, i.e., by
$0.20/share, and reiterated revenue guidance of$87.5-90.5 bn. Guidance for operating cash flow was raised to greater than$6.25 bn from ~$6.25 bn previously. Margin guidance at BCA is raised to ~10.5% from>10%, while BDS margin guidance remains steady at ~9.5%.
787 deferred production level of $25.2 billion is consistent with our model, but slightly high compared to Boeing’s target of a peak at roughly $25 billion in Q4. Deferred production costs for the 787 increased by $0.95bn in the quarter, compared to $1.1 bn in Q2. We estimate that continued progress at this rate should lead to deferred production peaking at $25.5-26.0billion. While this is slightly above Boeing’s original estimate of ~$25bn, we see it as consistent with our expectations and consensus. 787 cost reduction is central to the longer term cash flow story for Boeing.
Boeing’s 777X wing factory; earnings today
Boeing’s 777X wing factory: We had to bow out at the last minute attending the groundbreaking of the 777X wing factory in Everett (WA), so we’re linking coverage.
Boeing press release, with statistics
Seattle Times, with links to animation and photos
Puget Sound Business Journal, another take vis-a-vis The Times.
This is a major event for Boeing, its Everett workers and the Washington State. Siting the factory here was the culmination of an extraordinarily bitter contract vote in November and a revote in January by IAM 751 members, the union that provides touch labor for Boeing in Puget Sound, including the 777. Boeing conditioned the site selection in Everett on give-backs by 751 in its previously approved contract, and an extension to 2024. After rejecting the contract the first time, 51% of the vote, in a smaller turnout, approved a slight modified offer.
Washington State gave $8.7bn in tax breaks, a US record.
Earnings today: Boeing announces its 3Q2014 earnings today. The link to the webcast is here, beginning at 10:30am EDT. Here’s what to look for in the earnings announcement and teleconference.
E-Jet, the project that shaped Embraer
By Bjorn Fehrm
Introduction
In a recent visit to Embraer in Brazil we got a thorough brief on the background and decision making around the E-Jet and E-Jet E2 programs. We have written about these programs before but we will now cover how they came about, what was the program objective when the decision was taken and how it panned out. Both programs have had and will have a profound influence not only on Embraer but the whole civil aviation segment between 70-150 seats. It is worth looking into how Embraer, once an also-ran in the regional market, rose to the top three spot in civil aviation after Airbus and Boeing and how EMB intends to stay there.
Summary
- American Airlines was part of changing history in regional jets, long before in single aisle.
- E-jet started as a product program and soon put Embraer on a steep learning curve how to support an E-jet in the market above 50 seat regional jets.
- Embraer today rates their support second only to Boeing and Airbus.
- The requirements for the mid-life update of their E-jet, the E2, is all about delivering a mature product. This has shaped all aspects of the program, from cooperation with suppliers to how testing and qualification is done.
Figure 1. KLM Cityhopper E-jet taking off. Source: KLM
A380neo becoming a reality
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Introduction
We last looked at the Airbus A380 economics in February, when the airframer was promoting the giant airplane as a 525 seater. Since then, Airbus recast the airplane as a 555 seater. This changes the economics somewhat. Further, Airbus is floating an 11-abreast coach configuration vs the out-of-the-box 10 abreast.
Tim Clark, president of Emirates Airlines, continues to press for a re-engined A380. In our companion Assessment of the Very Large Aircraft market, consultant Michel Merluzeau believes Airbus will re-engine the airplane.
So do we.
It has been pretty clear to us that Airbus will do an A380neo. The question is when. Emirates’ Clark last month predicted the decision would be taken within six month. Our latest Market Intelligence says he will be right; we understand that Airbus is right now preparing for an A380neo project.
Summary
We thereby see the time ripe for looking into the A380neo again. When we last covered the subject (Updating the A380: the prospect of a neo version and what’s involved, Feb. 3, 2014) we concluded:
• The present configurations for the A380 of 525 seats fills the A380 to a much lower density than is the norm today.
• A cabin configuration of 555 seats would be a realistic three-class configuration with the economy section on the lower deck still in a spacious 10 abreast with seat width at 19 in.
• The efficiency of the A380 filled to that low density was on par with the best per seat benchmarks in the industry, the Boeing 777-300ER with the economy section in a tight 10- abreast, 17- inch configuration.
• The best in market benchmark would move considerably when the Boeing 777-9X enters service 2020. The per fuel seat cost would then we almost 20% lower than today’s A380.
Today our article shows:
• A re-engined A380neo, with other improvements typical in such an endeavor, reclaims the per-seat advantage for the A380.
When re-running the data in our proprietary model, we have more and better data around the likely engine variant, the Rolls Royce Advance, which was announced by Rolls Royce in March. It will be available for an A380neo rolling off the production line 2020. We have also put in more work into our standardized cabins, adjusting the relationship between premium and economy seating to a ratio closer to the one airlines use today. Airbus has also been active on the A380 cabin side. It has had several studies how to better utilize the cabin space in the A380. The results are now presented to the market.
In a recent A380 update, Airbus showed an 11-abreast main economy cabin with 18 in seats, now without raising the cabin floor to fit the seats. By adjusting how the seats interfaces the cabin’s sloping walls, Airbus avoids changing the floor height in part of the cabin.
We will now use this latest data to check where an A380neo would stand in terms of efficiency against the Boeing 777-9X, its most difficult competitor when it comes to the cost of transporting passenger from A to B. In later articles we will look at a more complete cost picture and also look at the A380’s strong side, the revenue and yield when one can fill the aircraft. Read more
Assessing the VLA market
Free content.
Introduction
The business model for the Airbus A380 and its future has long been subjects of sharp debate.
Airbus launched the giant airplane in 2000, with a maximum capacity of 850 passengers and a typical airline configuration of 500-555 (though some carriers have fewer than 500). The airplane would compete with the Boeing 747, then holding a monopoly in the Very Large Aircraft (VLA) category. Airbus concluded there was a 20-year market demand of about 1,300 VLAs, of which it expected to sell 650. Boeing already was beginning to move away from the VLA sector with a hub-bypass strategy evolving from the Boeing 777 and Boeing 767 medium-twins.
While many analysts, consultants and Boeing criticized and even ridiculed the decision by Airbus to proceed with the A380, officials have stubbornly clung to the forecast of a demand requiring 1,200-1,300 VLA passenger aircraft each year for the next 20 years. Sales have remained disappointing every year, with net orders of just 318 14 years after program launch. There should have been sales of 910 VLAs by this point to meet the 20 year demand suggested by Airbus in 2000.
Summary
- Residual values and secondary market worry some.
- Emirates Airlines, the largest A380 customer, isn’t worried about RVs and resales, plans to store and scrap its aircraft when time comes.
- Re-engining and/or operating the A380 at much higher capacity is necessary to lower CASM.
- Boeing 777X threatens A380 despite its own limited market demand.
- One consultant sees A380 coming into its own in five years.
Airbus, Boeing production gaps for the A330, 777
Airbus last week announced it will reduce production on the A330ceo from 10 per month to nine per month, beginning in 4Q2015. We predicted in 1Q2014 that the rate would have to come down, due to the sharp decline in the backlog beginning in 2016.
Buckingham Research Group included this chart in its note Friday about the Airbus A330 production rate cut announcement from 10/mo to 9/mo in 4Q2015. BRG predicts a 777 cut from 8.3/mo to 4.3/mo in 2017. We think the rate will step down, first to seven and then to five, before production of the 777X begins. Click image to enlarge.
We also predicted then that Boeing will have to reduce the production rate on the 777 Classic due to its sharp decline beginning in 2017.
Boeing so far continues to claim that it can maintain its production rate at 8.3/mo right through the introduction of the 777X into service in 2020. We don’t believe it can. We’ve illustrated why we believe a rate cut is inevitable. Buckingham Research Group, in a note issued Friday following the Airbus announcement, neatly encapsulates the data in a single chart.
Odds and Ends: Airbus to lower A330 rate; Mitsubishi MRJ rollout Saturday; Delta retiring 747s; Enders slams German government; MC-21
MC-21 will claim 10% of world market: So Irkut claims. Here’s a 10 minute video.
Update, 7am PDT Oct. 17: Airbus announced it will lower production rates on the A330ceo from 10 to nine a month in 4Q2015. We believe this is a first-step. The backlog drops sharply in 2016. The first A330neo isn’t planned for delivery until December 2017 and we believe rates will come down once more in advance. At the Farnborough Air Show, John Leahy, COO Customers, said he believes rates for the neo will settle in around 7-8 a month/ we think ceo rates will come down to reflect this.
Mitsubishi rolls out MRJ Saturday: You can watch it live, at 2pm Japan time.
The MRJ 90 is Japan’s first home-grown commercial airliner since the YS-11 turbo-prop, which entered service in 1961. As we noted Wednesday, the MRJ has collected a good number of orders, but the customer base in small.
The MRJ is 3 1/2 years late.
Aviation Week has this feature.
Here is a link to a brochure.
Delta retiring 747s: Delta Air Lines said during its earnings call Thursday that it will retire its Boeing 747-400s in 2017. These airplanes were acquired in the merger of Northwest Airlines, which was the launch customer of the 747-400. Delta is replacing the 747s with twin-aisle, medium-sized airplanes.
Enders slams German government: Tom Enders, CEO of Airbus Group, slammed the German government over its position on defense exports.
Enders, a German, has long been critical of German government policies, and has been moving operations into France as a result.
We find Enders’ candor to be refreshingly frank. Most CEOs tend to hedge their opinions.
Exclusive: Airbus launches “A321neoLR” long range to replace 757-200W
Airbus has started marketing a long-range, higher gross weight version of the A321neo that it says will have 100nm more range than the Boeing 757-200W used on long range, trans-Atlantic routes, Leeham News and Comment has confirmed.
We learned three weeks ago Airbus was working on what we will call the A321neoLR (Long Range); Airbus doesn’t yet have a name for it, but began showing the details to airlines a week ago. The airplane is a higher gross weight aircraft, at 97 tonnes, and will have three auxiliary fuel tanks. With most long-range 757 configurations around 169 seats (United Airlines), the A321neoLR will have 164 seats, a slight loss, with 20 lie-flat business seats and the remainder in coach configuration.
Read more
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Posted on October 21, 2014 by Scott Hamilton
Airbus, Boeing, Leeham News and Comment
757-200W, A321neo Long Range, A321neoLR, Airbus, Boeing, Kiran Rao, Leeham News and Comment