Leeham News and Analysis
There's more to real news than a news release.
Boeing starts 777 build at 8.3/mo rate
777 Build Rate: Even as Airbus opened its A350 Final Assembly Line in Toulouse today, Boeing announced it has now gone to rate 8.3/mo on the rival 777. (One must wonder if the timing of the announcement is coincidence….) Here is Boeing’s press release.
Randy Tinseth, in his blog, writes this, with some photos.
Airbus A350: Aviation Week has this story from today’s FAL opening, reporting the company is trying to reassure stakeholders that the program is on track.
Key supplier says engine makers unsure of Boeing ramp up plans
A key supplier says engine makers aren’t as positive about plans by Boeing to ramp up production.
Allegheny Technologies hosted an investors’ day last month. In a note issued September 14 by Buckingham Research Group, BRG wites:
ATI has confidence in BA’s production ramp schedule but believes engine manufacturers do not. ATI is confident BA will achieve 787 production rates of 10/mo at the end of 2013 and successful ramp on the 737 and 777. Although ATI has faith in BA’s production ramp, CEO Richard Harshman noted that the engine supply chain may not have the same faith in BA’s production ramp. ATI’s observation is that the engine supply chain is being very tightly managed and that engine OEMs are being very guarded about getting ahead of airframe manufacturers (historically they have gotten ahead, anticipating production increase). This somewhat supports our view; although we think execution on the 787 has been better than BA expected, we think BA will be challenged to meet its production rate schedule of 10/mo by the end of 2013. We also think that view is well within buy-side expectations.
From our conversations with suppliers, we know that there is a general fear of the high rates announced by Airbus and Boeing, let alone those being studied. We believe these concerns are natural, given the unprecedented volumes announced and under study. Concern is also driven by a fragile global economy.
Airbus, Boeing battle for US MAX-NEO market share
With the announcement by Alaska Airlines for 20 737 MAX 8s, 17 737 MAX 9s (and 13 Next-Generation 737-900ERs), Airbus and Boeing continue their battle for the US market.
There are still a number of customers who have not ordered either aircraft. US Airways has been exclusively an Airbus customer. Airbus lost a hard-fought battle to Boeing in the competition for the A321-737-900ER order. ILFC orders seem to be on hold pending its Initial Public Stock offering.
| 737 MAX | A320neo | No Order Yet |
| American* | Spirit Airlines | US Airways |
| Aviation Capital Group** | Frontier Airlines | Delta Air Lines |
| Southwest Airlines | jetBlue | |
| United Airlines | American* | |
| Air Lease Corp | Aviation Capital Group | |
| GECAS | CIT Aerospace | |
| Alaska | Virgin America | |
| *To be affirmed in bankruptcy court**Commitment, not yet converted to firm order | ILFC |
EADS-BAE merger off; government interference, key shareholder kill it
The EADS-BAE Systems merger is off, killed by a combination of government interference and a key BAE shareholder who opposed it. Read here and here and here.
We favored the merger as a way to get the French and Germans out of EADS’ knickers. The British government also meddled in the affair, for its concern about the diminished role of BAE post-merger. BAE is a top UK employer and defense contractor.
Flight Global published a list of the Top 100 aerospace companies in the world. Boeing is #1, EADS #2 and BAE #15. A PDF is here Top 100 Aerospace Companies, avoiding Flight’s annoying new Flight Global Club nonsense.
Military contracts exempt from government subsidies
A new round of news articles has emerged concerning launch aid to Airbus for the A350. This one is typical. It and others tied the subsidies identified in the long-running WTO case received by Airbus to the proposed merger between Airbus parent EADS and Britain’s BAE Systems.
BAE gets about half its revenue from the US Department of Defense. According to Bloomberg rankings, BAE was DOD’s No. 9 supplier last year (down from #5 in 2009 when the US was still engaged in the Iraq War).
Some say the Airbus WTO issue may cause a problem for the merger with US authorities while others say it shouldn’t. The news that Airbus received $4.5bn in launch aid will add fuel to the fire.
(We wrote a couple of years ago that Airbus had received launch aid–it was revealed in the EADS financial statements. We’re a bit perplexed why the big hubbub now.)
Airbus and the European Union say launch aid per se wasn’t deemed illegal by the WTO and only the terms and conditions providing below market interest rates and other T&C were. Any subsequent launch aid would comply with the WTO ruling.
Boeing and the US Trade Representative say launch aid itself is illegal.
But while some try to connect launch aid to military contracts (see the USAF tanker) and even to this merger, the fact remains that military contracts are completely exempt from WTO rules over subsidies.
SPEEA and Boeing: the next round
The Seattle Times has this story about the latest developments in the contract negotiations between SPEEA and Boeing. The Everett Herald has this story. Note the discussion of moving jobs in The Times story and note what we said in The Herald story.
It strikes us that Boeing may not have learned anything from the outsourcing dispute in the IAM NLRB dispute. We told a Boeing communications person during the discussions about where to put 787 Line 2 that all the focus on the union and strikes was a bad idea and that a good reason to locate a line elsewhere was to diversify from the natural disaster risk. The response to us then was “that wouldn’t be true.”
Now Boeing is openly saying once again it will move jobs if it doesn’t get the labor contract it wants. What is it thinking??? You can move jobs because Washington State can’t fill them and there’s nothing that anyone can argue with about that.
This is another head-shaking moment of bewilderment in Boeing management strategy.
Update: Boeing’s Doug Alder sent us this statement:
“Boeing has made no threats to move work. We have simply noted our ability to use the full resources of the company in order to stay competitive. We’re confident we can reach an agreement with SPEEA that benefits the company and our workforce.”