Leeham News and Analysis
There's more to real news than a news release.
Risk Adjusted Business: Aircraft and leasing values
By William Loh, International Aviation Advisors and
Dr. David Yu, CFA, Senior ISTAT Appraiser, AAVA Group, NYU Shanghai and Stern
Special to Leeham News
Oct. 3, 2023, © Leeham News: Investing in aircraft has become increasingly popular over many decades now, and for good reason. The returns can be most attractive and well-chosen assets tend to hold their value well over the medium term. Some of them have the option to extend the useful life out to 40 years or more in a freighter conversion.
As with most investments though, owning aircraft involves risk and requires subject matter expertise to avoid surprises and pitfalls. Some of this will involve aircraft selection, understanding industry dynamics, and incorporating these into the modeling of future values/lease rates and equity returns, which have been a focus of ours for several years.
Rather than the traditional method of producing bi-annual static forecasts of future values, our approach has been to develop a simulation model of possible future outcomes. This results in a market-driven probability distribution of the future asset value, rather than a single point forecast (rarely achieved in practice). Most traditional forecasts are discrete points including the classic high/low/base versions. Our forecasts are updated whenever it is appropriate based on market changes.
Analysis: With Gentile out at Spirit, here’s what Shanahan’s hiring likely means
By Bryan Corliss
Subscription required
Oct. 2, 2023, © Leeham News – Tom Gentile is out as CEO of Spirit AeroSystems, the victim of a number of serious production missteps and a failure to lead the Tier 1 supplier into a stronger position following the Covid-19 pandemic and the grounding of Boeing’s 737 MAX.
Interim Spirit AeroSystems CEO Pat Shanahan.
The new interim CEO is Pat Shanahan, a long-time Boeing and Pentagon executive who has been serving on Spirit’s board since 2021.
Spirit said its board is conducting a search for a new chief executive.
- Markets respond to news
- Shanahan faces huge challenges as CEO
- Shanahan’s resume fits Spirit’s need
- Our takeaway: What this means for Spirit’s future
Related Article:
Mammoth quietly drops trade secrets theft lawsuit
By the Leeham News Team
Oct. 2, 2023, © Leeham News: Mammoth Conversions quietly dropped its long-running trade secrets lawsuit against Sequoia Conversions, a competitor, for alleged trade secrets theft.
Mammoth and Sequoia settled and dropped the lawsuit, with each side paying its own costs, on Sept. 8. The case was filed in the US District Court in Southern California. Sequoia’s David and Wayne Dotzenroth were also defendants. The action against them also was dropped. The case was scheduled to go to trial in January.
Mammoth previously dropped its lawsuit against the University of Wichita’s NIAR engineering center and Split Rock Aviation, a consulting firm working with Sequoia. Each side bore its costs in these dismissals.
Analysis: Boeing’s options for Spirit AeroSystem
Breaking News: Tom Gentile, the CEO of Spirit, is out. He’s been replaced by Pat Shanahan, a Spirit Board member, on an interim basis while the search for a permanent CEO is underway. Shanahan is a former Boeing executive and former deputy secretary of the US Department of Defense. This story will be updated.
Subscription Required
By the Leeham News Team
Oct. 2, 2023, © Leeham News: Boeing is in another bad spot with a major contractor and the depth of the problems is quickly becoming apparent. Spirit AeroSystems in Wichita has been seriously underperforming with inspection escape after inspection escape seriously hampering Boeing’s ramp-up of the 737 rate.
Spirit isn’t making money on Boeing 737s and 787s. Boeing is charging Spirit for rework, and a glance through Spirit’s second-quarter earnings report was full of items where they did not have a firm handle on their losses and future exposures attributable to operations with Boeing.
Spirit’s repeated quality and production problems led to speculation that Boeing might buy Spirit, to bring direct control over the Wichita (KS) plant back in-house. Spirit was once “Boeing Wichita.” It was sold on orders of then-Boeing CEO Harry Stonecipher. The resulting spin-off, Spirit, remained Boeing’s supplier for all the commercial airplanes then in production. Nose sections were supplied for all but the 737. Spirit produced the entire 737 fuselage and does to this day. Boeing has a workforce in place at Spirit to help sort out the problems.
At the Paris Air Show, Boeing shot down the speculation, saying purchasing Spirit wasn’t going to happen. Since then, more quality control and production issues emerged on the 737. Two-thirds of the 737s in inventory and an unknown of aircraft in service or new production models are affected.
Speculation over the possibility of Boeing purchasing Spirit continued. Doing so would not be simple, even if Boeing was so inclined.
LNA takes a deep dive into the issues.
Bjorn’s Corner: New aircraft technologies. Part 32. Design for production
By Bjorn Fehrm
September 29, 2023, ©. Leeham News: We are discussing the Detailed design phase of an airliner development program. We have talked about program management methods, development techniques, and tools for Detailed design.
But there is one area that is more important than even the aircraft aerodynamic, structural, and systems design for a new Heart-Of-The-Market aircraft: how to produce it in higher volumes and at lower cost than before.
Figure 1. The production of an A350 composite airliner. Source: Airbus.
Pontifications: “We’re sick and tired of new technologies:” Avolon CEO
By Scott Hamilton
Editor’s Note: As Airbus and Boeing consider new airplanes, their current generation aircraft are plagued with technical issues. The engines on the A320neo and 737 MAX families continue to have problems years after entry into service. The Boeing 787, which had ground-breaking technology when it was designed, has production issues. Flight testing early on revealed technical problems with the engine on the 777X, prompting the president of Emirates Airline to publicly suggest he won’t accept delivery until the engines are fully “mature.”
Aviation Week’s Check 6 podcast last week examined Boeing’s path toward a new airplane. Boeing CEO David Calhoun insists on waiting for new technology. But “new technology,” while in theory is a great idea, the phrase also scares people. LNA reported on this in March 2020. We’re reposting this article from then.
Related Stories
Now Open to All Readers
Subscription Required
Introduction
By Scott Hamilton
March 16, 2020, © Leeham News: “I can tell you from our perspective, we’re kind of sick and tired of new, new technology. It’s not proven to be the home run.”
This blunt assessment comes from the chief executive officer of the big aircraft lessor, Avolon.
Domhnal Slattery
Domhnal Slattery, the CEO, was giving his critique of whether Boeing should launch a new airplane once the 737 MAX crisis is over. (Update: Since this interview, Slattery retired from Avolon.)
Boeing was on a path to decide whether to launch the New Midmarket Airplane when the MAX was grounded one year ago this month.
Airbus was waiting for Boeing to move before deciding how to respond.
Summary
- Airbus and Boeing should “stick to their knitting.”
- Focus on incremental improvements for now.
- 2030s to 2050s will be the next big advance in technologies.
Pontifications: IAM 751 gearing up for Boeing contract talks in 2024
By Scott Hamilton
Sept. 19, 2023, © Leeham News: It’s September 2023, one year ahead of the expirations of the current labor contracts between Boeing and its touch labor union, IAM 751. (The contract with the engineers union, SPEEA, expires in 2026.)
The IAM district, whose members assemble all Boeing airplanes in Washington State, fired a warning shot across Boeing’s bow last week. It wasn’t the first.
751 urged its members to begin saving money in anticipation of a strike in September 2024. That was three years ago.
The strike fund information appeared in the 751’s March 2020 newsletter, Aero Mechanic. The same issue had commentary about the new pandemic. At that point, nobody thought the pandemic would last two years.
Boeing was already in trouble then. The 737 MAX had been grounded since March 2019. There was no end in sight when the grounding would end. Suspension of the 787 deliveries, for what became 20 months, was still another half-year away.
Pontifications: Moonshot for engines for Next Boeing Airplane may have to wait
By Scott Hamilton
Sept. 12, 2023, © Leeham News: The Next Boeing Airplane (NBA) may be a moonshot for CEO David Calhoun, but airlines will probably be reluctant to take a moonshot on the next new engine.
Service issues with the CFM LEAP and Pratt & Whitney GTF engines are driving airlines batty. The failures of the Rolls-Royce Trent 1000 years after entry-into-service (EIS) cost RR hundreds and millions of dollars and a confidence crisis that hurt future sales. LEAP engines are coming off wing well before initial forecasts. Every aircraft model using the GTF faced groundings as engine failures piled up.
Boeing sorely needs a successor to the 737, now in its 55th year and fourth iteration. Ron Epstein, the aerospace analyst for Bank of America, was biting in a Sept. 7 research note.
Flying a Boeing 737 is like driving a ‘68 Chevy Impala with a semi-modern dash.
“We note that Boeing continues to ride on the coattails of its past glory. The original Boeing 737 prototype first flew in April 1967, entering service less than a year later in February 1968 with Lufthansa. Fifty-five years later, the 737 airframe remains in service through a multitude of derivative models, including the most recent 737 MAX,” he wrote.
“However, we note that the model was never intended to be such a blockbuster long-term solution. Instead, the 737 was expected to be a band-aid for the Boeing portfolio to compete with the market share-winning DC-9. The Boeing fleet lacked a smaller narrowbody model to complement the company’s larger jets, like the 707. In the spirit of the General Motors model, the 737 was intended to be the ‘cheap Chevy’ of the portfolio. Fledgling carriers would operate the cheaper model before upgrading to Boeing’s large, higher-end products like the 707 and, later, the 747, which one could see as the ‘Cadillacs’ of the portfolio.
“In our view, while the longevity of the 737 is impressive, the aircraft is now a bit of an anachronism. Operating the aircraft is like driving around in a 1968 Chevy Impala with a semi-modern dashboard. It is important to note that the 737 is the only currently manufactured commercial aircraft without fly-by-wire controls, which are a staple in modern aircraft control system design.”
Epstein worked for Boeing from 1995 to 1999 as an Applied Research Scientist. He’s a technical advisor to United Airlines for the alternative energy sector.
Analysis: Jefferies presentations show industry hasn’t stabilized post-Covid
Subscription Required
By Bryan Corliss
Sept. 11, 2023, © Leeham News: Negative cash flow in the quarters ahead. Ongoing issues with the supply chain. OEMs struggling to meet high airline demand as Tier 1s wrestle with quality issues. New technology wearing out faster than the old systems it replaced.
The No. 1 takeaway from last week’s Jefferies Financial Group Industrials Conference presentations is that the aerospace industry is still a few years away from being in a stable state capable of meeting the demands of customers and shareholders alike.
“We know our customers really do want to make more,” said Howmet CEO John Plant, whose company casts fasteners and engine components for Tier 1s and OEMs. “The question becomes when can we achieve these improved rates?”
Plant went on to say that he believes both Airbus and Boeing will hit their goals for increased widebody production; Airbus at 9/mo on the A350, Boeing at 10/mo for the 787.
The question, he said, is whether the OEMs will hit those rates in 2025 or 2026.
Executives from Boeing, Spirit AeroSystems and Howmet all presented at the conference, and all agreed that there’s reason to be optimistic, given the strong demand from airlines for more planes.
The issue, as Plant put it, is the industry’s ability to meet that demand. “We haven’t seen the real benefits of increased aerospace production.”
- Companies discuss latest 737 quality issue
- Spirit tries to get on track as refinance deadline looms
- Gentile: Supply chain needs new contract terms
- Boeing CFO projects losses for next quarter
- Howmet talks about engine challenges
- Takeaway: Fundamental demand is strong, but…
Calhoun’s moonshot for the Next Boeing Airplane
Subscription Required
Now open for all readers.
By Scott Hamilton
David Calhoun
Sept. 4, 2023, © Leeham News: As people try to figure out when Boeing is going to launch a new airplane, confusion continues over semantics and doubts continue over willingness.
The semantics revolves around the words “launch” and “introduce.”
Brian West, the CFO of The Boeing Co., appears at an investors conference Sept. 7 hosted by Jefferies, an investment bank. The event will be webcast; a link is available on the Boeing website. Perhaps West can clarify the timeline, but here is what’s happened recently.
David Calhoun, the CEO of The Boeing Co., said during Boeing’s investors’ day event on Nov. 2 last year that Boeing will “introduce” a new airplane by the middle of the next decade. LNA at that time asked corporate communications if by “introduce” Calhoun meant entry-into-service or a program launch. Corp Com replied that Calhoun meant EIS.
Last month, at another investors conference, a lower level Boeing official said Boeing would “launch” its next airplane by the middle of the next decade. If this is what the official meant, “launching” the next airplane by mid-next decade would represent a major shift. LNA figured the official was mixing words and asked Corp Com for clarity. A spokesman replied, go with Calhoun’s November statement. So, for the moment, let’s take this at face value.
Then there are the skeptics.