Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Parent agency, FAA often at odds as politics outweighs safety June 26, 2025
- Electric Flight and the Ugly Duckling June 25, 2025
- Engine makers tout “Plan A” but have “Plan B” backups in R&D June 23, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 27. June 20, 2025
- Pontifications: A Personal Note June 19, 2025
Boeing’s “exodus” from Washington State a tad overblown–so far
Boeing has been eliminating thousands of jobs–union jobs–in Washington State and moving them to other states–non-union states.
Boeing won’t say where it will assemble the 777X. Nor will it say where it will assemble the 787-10.
So, predictably, new hand-wringing has begun among local officials and state politicians that Boeing is leaving the state. An “exodus,” in the headline over an OpEd piece in The Seattle Times by State Sen. Mike Hewitt, a Republican.
There is much in Hewitt’s piece with which we agree. Just yesterday we commented that Washington leaves a lot to be desired in its competitive stance against the Southern States. In May we offered specific ideas of what needs to be done.
The State’s new Aerospace Strategy, unveiled in May, reads more like a history than a forward-looking document. And as a state aerospace strategy, it’s woefully lacking in innovation or looking beyond Boeing to the rest of the aerospace industry. Washington’s supply chain is the No. 2 supplier by company count to Airbus and No. 6 by dollar volume. Yet the Aerospace Strategy doesn’t detail how to increase this business with Airbus, nor does it address the rest of the global business opportunities except in the most general way.
Hewitt is right that there is little to really point to in Washington’s strategy. But Hewitt omits the biggest sin of his own party: the Republican budget proposal eliminates funding for the Governor’s Office on Aerospace, which was created less than a year before.
That was a dumb move, and it hardly supports Hewitt’s decrying the shortcomings of the Democratic governors he is so keen to criticize (with justification, we repeat).
Washington’s Legislature, like Congress, is divided, and we’re at a budget impasse. The Office of Aerospace funding is in the Democratic budget, and the contrasts haven’t been resolved. Hewitt needs to buck his party and put this funding back. (Maybe he’s done so, but he certainly didn’t mention it in his OpEd piece.)
But there’s more in the flaw of Washington’s aerospace strategy.
Paris Air Show, Day 3: A320, 737 production rates of 50+ seen
Highlights from the show, as we see it:
- Boeing said the entry-in-service for the 737 MAX will be accelerated from the fourth quarter 2017 to the third quarter. Southwest Airlines of the USA is the first operator. Bloomberg reported this is a six month acceleration, but we believe this is no more than three months at the outside. We had EIS for October 2017. Ascend data base shows the first delivery now for September 2017 and a total of four in 2017, the latter unchanged from when we wrote a story for Flight Global about the order from Southwest.
- Update on the above item: Boeing has clarified that citing “six” months was a mis-speak; the EIS moves from Q4 to Q3 [along the lines we’ve written–editor].
- The long-awaited order for Airbus A350s from Air France finally happened.
- Ryanair firmed up its order for 175 737-800s.
- Airbus says it’s alerted suppliers about the prospect of boosting A320 production to 50/mo by 2020. Boeing didn’t reveal at the air show (as far as we can tell from news reports) but our Market Intelligence tells us that Boeing has alerted suppliers about the prospect of boosting 737 production to 52/mo by 2019.
- For all the hoopla of the Embraer E-Jet E2 launch, most of the orders and commitments were for the smallest E-175 E2.
Paris Air Show, Day 2
To us the biggest news coming out of Day 2 was not the launch of the Boeing 787-10–this was widely expected–but the suggestion by Boeing CEO Jim McNerney that he might seek a waiver to the mandatory age 65 retirement to hang around a bit more.
We comment on this in another post.
Otherwise, today was pretty anti-climactic: Airbus won easyJet–this had been reported as likely. Boeing launched the 787-10 with the expected launch customers. Boeing added five sales to the largely dormant 747-8I program. The Wall Street Journal has a somewhat cheeky view of Airbus’ sales targets, with Boeing’s Randy Tinseth predictably churlish.
And it rained and rained and rained. We’re glad we’re in Seattle.
McNerney may seek retirement waiver: our view
Boeing’s Jim McNerney may seek a waiver to the mandatory retirement age of 65–he’s 64 this year–to continue as chairman and CEO.
As soon as the news was out, we got a call from one Wall Street analyst who opened the call by saying, “Short the stock.” We initially thought this was some solicitation call.
We’re not that pessimistic but we do have these observations:
- McNerney staying beyond 65 is good news for Charleston, where Boeing is increasing its presence at a rapid rate. McNerney has a clear affinity for South Carolina: its local, county and state governments seem to have an open check book for Boeing. And it’s non-union and has lower wages. As long as McNerney is CEO, Charleston will continue to grow rapidly.
- It’s bad news for the unions. He just doesn’t like them. We don’t really need to pontificate on this point. Boeing is cutting back on union jobs here and transferring the work to non-union locations.
- It’s generally bad news for Washington State. It’s pretty clear that McNerney isn’t a fan of this state, given it’s costly to do business here, wages are higher, environmental rules are stricter and the State hasn’t exactly been innovative when it comes to thinking up stuff with which to incentivize Boeing. Gov. Christine Gregoire, like Gary Locke before her, pretty much took Boeing for granted until the company used the proverbial 2×4 upside the head to get their attention. Gov. Jay Inslee, Gregoire’s successor, so far has offered up more of the same to “win” the 777X assembly: more workforce training, better infrastructure and faster permitting–all-in-all, not at all innovative or outside-the-box thinking.
- More blackmail for Washington: Boeing has always been good at prying concessions out of states and local jurisdictions. McNerney has elevated this to an art. Assemble the 737 MAX derivative in Renton? Of course, said Jim Albaugh, CEO of Boeing Commercial Airplanes. Not so fast, said McNerney, in a highly public and humiliating rebuke to Albaugh (who was gone within the year after this faux pas). Assemble the 777X derivative here? Don’t count on it, says McNerney. Assemble the 787-10 derivative here? Don’t bet on this, either. In the end, the MAX was located here, but we think that was payoff to labor (which also gave in return) in exchange for dropping the NLRB 787 lawsuit. Without this card, it’s up to the State to be blackmailed for more incentives (we really don’t think Inslee’s package is worth much on 777X).
We were pretty happy with McNerney’s ascension to chairman and CEO after the disastrous rule of Phil Condit and Harry Stonecipher. But McNerney’s performance throughout the 787 and 747-8 debacles was wanting, we (and many others) concluded. We think McNerney was slow to make changes in these programs, and he was on the Board of Directors who signed off on the McDonnell-Stonecipher-driven outsourcing approach on 787 that proved so disastrous. McNerney has been at war with the unions, who saved Boeing’s bacon during these programs. We certainly understand the need to control costs and we opined a lot on the medical and pension cost issues, generally coming down on the side of the company. But we can’t help but sense ingratitude from Chicago for all the hard and dedicated work performed here in Puget Sound.
Most significant, perhaps, is the thin bench there is to succeed McNerney. Shortly after he became CEO, McNerney said one thing that was his priority personally and professionally was to create a good succession plan. Who is there from within to possibly succeed McNerney in a year or 18 months? The answer is, at this point, nobody.
Ray Conner is well regarded, but he probably needs a couple of more years than a McNerney retirement timeline suggests. Pat Shanahan hasn’t any commercial sales experience. Dennis Muilenburg has no BCA experience.
McNerney may well have to get a waiver because so far he has utterly failed to have a succession path.
The debate over using DOT Form 41in comparing A320 and 737 costs
Long time readers know that we don’t think much of the veracity of data filed with the US Department of Transportation under Form 41, detailing maintenance and fuel costs. We know from a consultant who helped an airline create its methodology for filing the data that the airline “fudges” the methodology to distort the data for competitive reasons.
Boeing has cited Form 41 data for years in making its comparisons between the 737 and the Airbus A320. A key piece of information Boeing uses is the maintenance cost data, in which Boeing claims the 737 was up to 29% less costly to maintain than the A320. This comparison in particular drives Airbus crazy, and officials say the Form 41 data is “garbage.”
Boeing also previously used a study from IATA from 2006-2009, but dropped that in this year’s comparisons at the pre-Paris Air Show briefings.
Boeing also relies on DOT 41 data for fuel comparisons.
Beverly Wyse, VP and general manager of the 737 NG program, emphasized the reliance on DOT data in the comparisons.
“You don’t just have to believe us,” she said during the briefings. “We know that out there in the market ‘Airbus says,’ ‘Boeing says,’ and it’s hard to find the truth, so wherever we can we’re trying to use independent sources to substantiate the information that we are providing you. This data actually comes from the US department of Transportation Form 41. Depending on the model, and the configuration of the aircraft, the Dash 800 compared to an A320 or the A321 compared to the 900ER, you’ll see between 5% and 8% better fuel efficiency for the 737.”
Wyse credited the 737’s rival with good dispatch reliability, a rare Boeing compliment of the A320. But she claimed the 737 was nonetheless better.
“The A320 and 737 both have incredible reliability. Anything with 99 point something reliability is something to be proud of. The simpler design of the 737 contributes to 20% lower maintenance costs resulting in 67 fewer days out of service,” she says.
Given the reliance on DOT Form 41 data and our open doubts about using this data, we followed up with a series of questions to Boeing. Here is the exchange.
Boeing cites DOT 41 data in claiming the 737NG costs 20%-24% less on maintenance than the A320. First, DOT 41 data is crap. The airlines manipulate the data to mask what their true costs are from competitors. So how does Boeing purport to un-crap it?
DOT F41 data is a good source because it has rigorous reporting processes, contains constant costs in U.S. dollars, and includes reported data by operators who maintain both aircraft fleets, insuring consistent accounting practices. But it is not the only source of data for our claims. That goes toward your second question…
Secondly, Bev in one-on-one said, well, Boeing compares maintenance schedules between the 737 and the A320. Which is it? DOT 41 or company manuals?
The Maintenance Schedules or Check Intervals (that is the interval between performing various levels of Checks, typically classifieds as A, C and D-Checks) are obtained from our company manuals and for the A320, from industry publications and conferences. Specific A320 check intervals are periodically announced in Airbus press releases, journals and conference papers. It may be noted that F41 data provides a look at historic data while the Maintenance Planning Document (MPD) provides the check intervals for the future occurrence of check events. The continuous improvements that occur in the Boeing MPD usually result in even lower maintenance costs to airlines than being currently reported in F41 data. Our focus is to enable the airlines to continuously reduce their operating costs including maintenance costs through better product and services.
Third, I know from my own sourcing from within Boeing that to get to 24%, Boeing has compared new 737s to the oldest A320s using the earliest engines. When new-to-new is compared, the delta is 4% in favor of Boeing. Bev responds to this that this is a fleet-wide analysis.
Bev is absolutely correct; we use fleet-wide data in our comparison. There are many differences in the fleets of different airlines, like airplane age and the average stage length (Fhrs/Trip). Both affect maintenance costs. To enable true comparison, maintenance cost is normalized for a common airplane age. Since A320 is usually an older airplane the normalization process actually reduces the A320 costs to bring it to say a level of 737NG airplane age (say 8 years). Without normalization for age, the cost difference would be an additional 4 to 5% to the advantage of 737NG, but we diligently apply our processes while showing the relative cost and remove this fleet age based difference . Similarly, costs are normalized for stage length and some other factors. All these normalizing processes are approved by the IATA Maintenance Cost Task Force of which both Boeing and Airbus are also members and uniformly used by most of the industry. We compare costs and do modeling in our tools on basis of the normalized costs.
In summary: All maintenance costs are compared on basis of like airplane age. Our multi level data analysis is for “as reported data”, normalized data and data from airlines operating both airplane types. In each case, the airframe costs for the 737NG are lower and on an average 20 percent lower.
Fourth point: If this is a fleet-wide analysis, how is this possibly fair? The NG didn’t enter service until 10 years after the A320, so maintenance on aging aircraft skews everything.
Maintenance cost data is normalized to the same age level for instances where the airplane ages are different. This is done for each airline and then grouped together. The analysis ensured we were comparing like-aged aircraft not the entire fleet. By that comparison, the 737 has about 20% (+/-) lower airframe maintenance cost than the A320. But consider that there also are a number of other factors …
Five facts that drive lower maintenance cost for the 737:
1. Newer simple value added design
2. Lighter weight, smaller size;
3. Fewer systems
4. Fewer installed components
5. Longer intervals; fewer maintenance visits
Airlines believe and give us credit for our maintenance story.
If there were truly a 20%-24% maintenance delta, why would anyone buy the A320? It doesn’t all come down to price, you know. The A320ceo evenly splits the market with the 738 but the A321ceo outsells the 739 by a wide margin and the neo widely outsells the MAX.
Maintenance and its cost is only one of the criteria by which airlines judge airplanes, and a relatively small one at that. Airframe Maintenance is usually 4 to 5 percent of cash operating cost. However, maintenance and reliability plays an important role in the operational experience for an airline. Price is an important factor in airline decisions, but you are correct that it doesn’t all come down to that. As you’re aware, for example, there can be political issues, or even funding issues. As for the division of the single-aisle market, we are very aware of the inroads Airbus has made in its relatively short existence and are very much motivated by that. Arguably, that’s another reason some airlines opt for one plane or another. So, too, is the ability to deliver an airplane when an airline wants or needs it. The on-time reliability of one model or the other can be a factor (while both companies produce reliable airplanes, Boeing’s 737s have better on-time statistics). Too, some airlines prefer to stick with airplanes compatible with their installed fleet to reduce maintenance, training and scheduling costs. The choice is very complex.
I note, too, that this year Bev dropped citing the 2006-2009 IATA maintenance data. How come?
IATA data is used extensively within our own internal analysis. However, we acknowledge that there are some issues with IATA data. IATA airlines do not report data consistently over a long period. They may drop out entirely, miss reporting in some years and new airlines may join for a period. The Form 41 (US DoT) data is mandatory to report and usually aligns with the airline’s Annual Reports reported costs. In addition, variation in currency exchange rates becomes come into the picture. Airlines report in their own currency and that is converted to U.S. dollars. Inconsistency of reporting and the additional currency variable frequently clouds the data.
Bev says, though, that what tipped its use in the end in these slides, however, was that the data we had at the time was old.
We asked Airbus for a response to some of these questions. Engaged in the Air Show this week, we have yet to hear back.
It’s official: Boeing launches 787-10 with 102 orders, commitments
Here’s the Boeing press release.
Boeing expects the 787-10 to perhaps be the best selling model of the family over time. With a range of 7,000nm, it will have the ability to do most airline missions; 8,000nm-8,500nm range airplanes (let alone the proposed 9,400nm range of the 777X) is really more than most carriers need. We expect the orders to double by the end of the year.
In other Paris Air Show news, easyJet chose to stay with Airbus for its fleet renewal ordering a combination of 35 A320ceos and 100 neos. This was hard-fought competition. Boeing thought it won the deal on price, and Bombardier was ready to go with its own contract when Airbus came in at the last minute with a low price of its own, blowing both competitors out of the water.
Bombardier: This story explains in part why Bombardier has been challenged in selling the CSeries. The US Scope Clause inhibits sales to regional airlines; and lessors want to see a broader customer base. This is in addition to Airbus under-pricing Bombardier in key campaigns to block sales.
ATR landed an order for up to 90 ATR-72-600s.
Boeing will market the Embraer KC-390 to the Pentagon. After all the Boeing campaign about the Pentagon buying a foreign airplane for a tanker, this really takes the cake.
Paris Air Show Day 1
UBS has this easy-to-read Table of the orders and commitments announced on Day 1 of the Paris Air Show:
The big news, of course, is the launch of the Embraer E-175/190/195 “E2” (second generation). The press release is here.
Embraer Rendering
Airbus scored an unexpected order for the A380: 20 from specialty lessor Doric Leasing, which has financed a number of A380s. We think this is an odd deal, and it must be one that already has some A380 customers lined up.
Tomorrow is expected to be the day Boeing launches the 787-10, so it should be Boeing’s day. We also believe tomorrow will be the day Airbus does a fly by of the A350 XWB. A little tit-for-tat, perhaps.
“We’ll be in a constant state of development for the next 10 years:” Boeing’s Fancher
Boeing may not be designing new airplanes to replace the 737 NG or the 777 family, but the head of Airplane Development says Boeing employees will be busy just the same.
“We’re going to be in a constant state of development for the next 10 years,” says Scott Fancher, VP and GM. “We can very seamlessly move talent, move experience, move lessons learned from one development from one project to the next to maximize talent.”
The 787-9 entered assembly at the giant Everett plant last month. The 787-10 has been in design for the past several years; launch is expected Tuesday at the Paris Air Show.
Photo by Scott Hamilton
The 777X, in two models, is expected to be launched at the Dubai Air Show with a massive order from Emirates Airlines. The 737 MAX is moving forward, with assembly of the test airplanes to begin in 2015.
“The EIS for those airplanes extends early into the next decade,” Fancher said of the 777X.
The KC-46A, based on the 767 platform, is in pre-production design. The 737 NG, 747-8 and 777 continue to get Performance Improvement Packages (PIPs).
Airplane Development, a new department within Boeing Commercial Airplanes under Fancher, was created to put key talent under one roof, so-to-speak, as one way to avoid the problems of past programs.
“This becomes a one-stop shop,” Fancher told an international assembly of media during the briefings in advance of the Paris Air Show.
Part of this was detailed in our post about the 777X’s retention of an aluminum fuselage.
Fancher also said new airplane development needs to work with suppliers in a closely coordinated manner that provides for profitability for both. This seemed to fly in the face of recent statements by Boeing CEO Jim McNerney, who said suppliers need to cut costs.
We subsequently asked Fancher about the apparent inconsistency.
“Profitability and competitive pricing are not mutually exclusive,” Fancher said. “We want our suppliers to be healthy and profitable, which they can be while also cutting their costs to be more competitive.”
Fancher said that as a result of lessons learned from the 787 program, Boeing has and will bring more design work back in-house, but suppliers may build to the Boeing design. The 787 handed a great deal of design-and-build work to suppliers, which caused problems, delays and cost overruns.