Asian airline troubles could affect up to 20% of Airbus, Boeing backlogs

By Judson Rollins
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In last week’s analysis, LNA examined which airlines in greater China and the rest of Asia may be in imminent risk of financial distress due to the growing coronavirus outbreak. We found that airlines from Malaysia to Japan have significant exposure to the Chinese market. Several have shaky balance sheets and were already losing money prior to the outbreak, most notably AirAsia, AirAsiaX, Thai Airways, Nok Air, Malaysia Airlines, and Asiana.

The coronavirus outbreak has now spread to Europe and the Middle East, but we are continuing our focus on Asia as it’s been most greatly affected so far. Additional analysis focusing on Europe will follow, with particular attention to the potential for further airline consolidation on the continent.

LNA reviewed ownership and operating data on aircraft to understand top manufacturer and lessor exposure to greater China, which includes Hong Kong and Macau, and the rest of East Asia.

Summary
  • Airbus has greater exposure to China and the rest of East Asia, especially in widebodies;
  • Boeing’s 787, 777X difficulties will be exacerbated by Asian airline troubles;
  • COMAC’s sales book is almost exclusively in China, but government support is likely;
  • ATR has material exposure to Southeast Asia; other regional aircraft OEMs are largely unaffected.

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Pontifications: Boeing’s alphabet soup of airplanes and more

  • It’s time for catching up on Odds and Ends.

By Scott Hamilton

March 2, 2020, © Leeham News: NMA. NSA (version 1). NSA (version 2). NLT. FSA. MOM.

By Scott Hamilton

These are Boeing’s acronyms for its next airplane.  Whatever it will be.

NMA stands for New Midmarket Airplane.

NSA version 1 stood for New Single Aisle Airplane. It was replaced by version 2, New Small Airplane. This was replaced by FSA, Future Small Airplane. Some called this the Future Single Aisle airplane.

Then there is NLT, New Light Twin, from 2011. Which really begot the NMA, which was initially the MOM, or Middle of the Market Airplane. We called it MOMA at times.

It’s all very confusing. The Next Boeing Airplane is such a moving target. Maybe it should be called the NBA, although some association involving basketball might object. (The Next Airbus Airplane logically would become the NAA.)

Then there is the next new airplane from Embraer, after its joint venture with Boeing is finally approved (as I believe it will be).

Embraer CEO John Slattery want to do a turboprop. So does this become the E3TP?

The JV agreement calls for Embraer (to be named Boeing Brasil-Commercial) to do the next jet in the 100-150 seat category. Does this become the E3150, E3JET, BBCX or something else?

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Bjorn’s Corner: Why e in ePlane shall stand for environment, Part 11.

February 28, 2020, ©. Leeham News: We now look at technology developments that make sense, and can deliver real improvements in the near future.

We start in this Corner with what more electric aircraft and engines can bring.

Figure 1. Boeing’s 787, the first more electric airliner. Source: Boeing.

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Why was the 737-8 losing market to the A320neo before the MAX crisis?

By Bjorn Fehrm

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Introduction

February 27, 2020, © Leeham News: While we wait on the Boeing 737-8 to get back in the air, we take a look at how this best seller in the 737 series compares with its direct rival, the Airbus A320neo.

The 737-800 and its follow on, the 737-8, have been the most popular single-aisles in Boeing’s lineup for decades. The 737-800 sold more units than the A320. But when both got re-engined, this changed. The A320neo is now outselling the 737-8.

We look into why.

Summary:
  • The trend where the A320neo is outselling the 737-8 started well before the MAX crisis. Is the root cause better airframe performance?
  • We find the cause to be another. The difference is not about a change in relative airframe performance between the two.

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Boeing engineers voting on surprise contract extension

By Bryan Corliss
Feb. 25, 2020 © Leeham News — Unionized engineers and technical workers at Boeing begin voting this week on unexpected new contract proposals from the company that address two major areas of worker complaints LNA reported on last month: annual raises and paid family leave.

The proposals, which would extend the current contract by four years, came after SPEEA (the Society of Professional Engineering Employees in Aerospace) threatened to take Boeing to court over what it claimed were deliberate attempts by company management to hold down raises that engineers and tech were entitled to under the current contract.

Those threats led to talks between SPEEA’s executive board and Boeing managers, resulting in the proposed contract extensions. 

SPEEA’s seven-member executive board negotiated the extensions and is urging a “yes” vote. However, the union’s larger Bargaining Unit Councils (one each for both the engineers and techs, with a combined total of close to 100 representatives) did not go along with the endorsements.

There are two separate but related offers, one for engineers and one for technical workers. Voting is by mail. Ballots will be counted on March 9. About 18,000 Boeing workers are involved, most in Washington, but also in California, Oregon and Utah.

Summary

  • Union confronted Calhoun over pay on Day One
  • Proposal locks in annual wage increases
  • SPEEA gets family leave this year

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Europe to Boeing: Not so fast on your WTO move; tariffs still likely

By Scott Hamilton

Feb. 24, 2020, © Leeham News: Not so fast, Europe says about Boeing’s claim it is curing illegal tax breaks from Washington State.

The World Trade Organization has to agree to Boeing’s interpretation. This will take at least a year. In the meantime, be prepared for tariffs to be levied on Boeing airplanes by this summer, just as the company hopes the 737 MAX is recertified and deliveries can resume.

Boeing must get the WTO’s approval that the move to suspend the tax breaks will bring the US and Boeing into compliance with a ruling they are illegal.

This process could take a year, said a person familiar with the process. He spoke on the condition of anonymity in order to speak freely.

In the meantime, tariffs that have been authorized for the European Union to impose on Boeing, and other US products, may take effect once the amount is approved. This decision is due in May or June.

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The Impact of Asian airline difficulties on OEMs

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By Vincent Valery

Introduction  

Feb. 24, 2020, © Leeham News: Passenger traffic in the Asia-Pacific region has grown dramatically since the turn of the century. Except for temporary dips caused by SARS in 2003 and the global financial crisis in 2008-09, passenger growth has stayed comfortably above 5% each year.

China emerged as the second-largest commercial aviation market behind the US. Domestic traffic in mainland China grew fivefold, and international traffic doubled since 2003. Numerous low-cost carriers become powerhouses during that period.

Along with this growth came major aircraft orders. Five out of the 10 largest A320neo family orders are from airlines in the Asia-Pacific region.

However, airline profitability in the region recently lagged that of those in the US and Europe. Even before the COVID-19 (coronavirus) outbreak, numerous carriers had financial difficulties. The outbreak will accelerate the reckoning for some airlines.

According to an IATA report, the COVID-19 outbreak could translate into a $29.3bn revenue loss for airlines in 2019. Instead of a predicted 4.8% YoY passenger traffic growth for the Asia-Pacific region in 2020, traffic could contract by 8.2%.

In the first of a two-part analysis, LNA assesses the vulnerability of various airlines and the resulting potential impact on OEMs.

Summary
  • Numerous airlines have significant capacity exposure to China;
  • Several Asian airlines already had fragile balance sheets;
  • Chinese airlines are under particularly acute cash pressure;
  • Airbus and Boeing have material production exposure to affected airlines.

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Pontifications: EU appears to be holding Boeing-Embraer JV hostage

Feb. 24, 2020, © Leeham News: I bet you’d never get an official of the European Union to go on the record.

By Scott Hamilton

But there sure seems to be plenty of anecdotal evidence that the approval of the proposed Boeing-Embraer joint venture is being held hostage.

The EU is plenty vocal about being pissed at the Trump Administration’s trade war against Europe. It’s also unhappy with Trump’s tariffs on Airbus jets imported into the US.

Trump initially levied a 10% tax on the planes, last October. Next month, this goes up to 15%.

As of last week, the US collected more than $277m in tariffs related to the Airbus complaint. The Trump Administration has WTO authority to levy 100% taxes, up to $7.5bn. Industries and countries that have nothing to do with aerospace are penalized in addition to Airbus.

It’s unclear from public information how much of the money collected so far is from Airbus imports.

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Why the A321XLR makes sense for Alaska Airlines

By Scott Hamilton

Feb. 23, 2020, © Leeham News: Alaska Airlines last week said it will place an order, perhaps this year, for 200 aircraft for delivery over the next decade.

The carrier exclusively operated Boeing 737s until its acquisition of Virgin America. Officials repeatedly put off a decision whether to return to an all-Boeing fleet.

Alaska Airlines Boeing 737-900ER. Source: Alaska Airlines.

Virgin leases for Airbus A319s/320s extend to 2025. The ex-Virgin fleet numbers 61. Leases for Airbus A321s extend to late this decade.

Alaska has 30 A320neos on order from the Virgin merger. However, cancellation rights have small penalties.

The carrier ordered 37 737 MAX 9s. Three were built last year but are stored in the grounding. Seven more are due this year.

Alaska plans to aggressively grow in the next 10 years.

Here’s why converting the 30 Virgin orders to A321neos makes sense.

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How much did the CSeries cost Bombardier?

By Bjorn Fehrm

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Introduction

February 20, 2020, © Leeham News: As we wrote in last week’s article about the A220 flying the Montreal to Toulouse route, the stakes are high in the civil airliner business. If you don’t have a very strong balance sheet you shouldn’t enter the business.

Bombardier learned this the hard way. Its follow up project to its successful CRJ regional jets, the CSeries, brought Bombardier to the brink of bankruptcy and it had to sell the project to Airbus at a fraction of its value. The project cost more to develop and produce than planned despite not running off the rails during development like Boeing’s 787 or Mitsubishi’s MRJ.

We analyze why it cost so much and at what fraction Airbus got the program.

Summary:

  • The CSeries nearly doubled its development costs despite being void of major hiccups. What was the cause?
  • Airbus picked up the program when Boeing forced Bombardier to sell. How much of a bargain did Airbus get?

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