Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Solid start for stand-alone GE Aerospace despite cuts to LEAP output April 23, 2024
- SPEEA, Boeing at impasse over safety program, union says April 23, 2024
- Better transparency needed on Boeing’s 1Q earnings call April 22, 2024
- Bjorn’s Corner: New engine development. Part 4. Propulsive efficiency April 19, 2024
- Boeing unlikely to meet FAA’s 90-day deadline for new safety program April 18, 2024
Airbus repays launch aid on WTO complaint but has drawn aid for A350
Airbus has repaid nearly 2bn Euros in launch aid associated with the findings of the WTO complaint filed in 2004 by the US Trade Representative, an amount far less than the American agency alleged as US$25bn in illegal aid, but this isn’t likely to be the last word by any stretch.
Airbus parent EADS in 2010 has already drawn down “reimburseable launch aid,” according to the 2010 EADS annual report. The A350 funding was not part of the original US complaint, and is the only commercial model Airbus has produced not covered by the final report of the 2004 complaint. The USTR has threatened to launch a new complaint over the A350 launch aid. Airbus previously said launch aid for the A350 would comply with the findings of the 2004 complaint.
Airbus said after the WTO case was over that the WTO did not find reimburseable launch aid was illegal, only that the terms and conditions provided in the A-Series programs had been. This opened the door, Airbus said, for allowing launch aid for the A350 provided the terms and conditions complied with WTO findings. Commercially-based terms and conditions were at the heart of the illegalities.
The EADS financial statesments do not disclose the terms and conditions.
A spokesman for Airbus told us that the aid for the A350 complies with the terms and conditions findings of the WTO ruling, though most likely Boeing and the USTR will argue differently. The Airbus spokesman did not know the amount of the launch aid and the EADS 2010 annual financial statements (Page 63) does not disclose it: “European Governments refundable advances (incl. A350 XWB) net of reimbursements have increased in 2010.” The financial statements (select “Financial Statements 2010”) show the 2010 liability to be 5.968bn Euros vs 4.882bn Euros at Dec. 31, 2009. It is not disclosed how much of this is associated with the A350 or how much is associated with other programs, such as the A400M. However, military programs are not subject to WTO rules. The A320neo program was subject to research and development costs in 2010, which have been ruled illegal under WTO findings, but the program wasn’t launched until December 2010 and while it is theoretically possible some launch aid could have been drawn for neo, we think it more likely the spike in liabilities is largely associated with the A350.
The nine month interim financial reports do not discuss launch aid.
Boeing, IAM talk about labor deal
AirInsight has these two podcasts about the grand labor deal announced Wednesday between Boeing and the IAM.
Boeing’s Albaugh hints at 12/mo rate for 787
The chief executive officer of Boeing Commercial Airplanes Wednesday hinted at increasing production rates of the 787 beyond the committed 10 per month to 12 a month.
Jim Albaugh, speaking at the Credit Suisse Aerospace conference, reiterated plans to meet the oft-stated target of assembling 10 787s per month by the end of 2013.
“The 787 has been a tough program. Everybody knows that,” he said, citing the variety of difficulties the program has experienced. “All those were difficult tasks. We have more ahead of us. We have to get up to rate. [Plan] Z24 still has us going to 10 a month by the end of 2013. My view is that if we can get to 10 we can get to 11 [and] if we can get to 11 we can get to 12.”
The recently issued Z24 obtained by Flight Pro shows a sharp decline in planned production over Z23.
| 2012 | 2013 | 2014 | |
| Z23 |
61 |
95 |
120 |
| Z24 |
45 |
66 |
119 |
“We held the rate at two for quite a while and we had a couple of pauses as you know,” Albaugh told Flight Pro after his presentation. “Z24 does move some things to the right, but we still get to 10 a month at the same time, which is the end of 2013.”
Albaugh said the plan is to get to a production rate of five per month by the end of 2012. Rate bumps won’t happen before officials are convinced rates are stabilized.
The production rate does not reflect delivery rates, however. Boeing has more than two dozen aircraft produced but parked at its Everett (WA) assembly plant awaiting rework. Albaugh declined to specify the delivery rate for 2012, however.
“I know precisely [how many deliveries there will be] but I am not going to tell you. When we come out with our guidance for 2012 we give you some clarity on that,” he said.
Albaugh said Boeing’s Charleston facility “has demonstrated they can go beyond 2 ½ a month,” and he suggested the plant’s first 787 may be ready for delivery ahead of the planned June schedule.
Odds and Ends: A350 business case, Ryanair, Boeing and more
Airbus A350: Aspire Aviation in Hong Kong has a lengthy look at the Airbus A350 program.
Airbus launch aid: Airbus says it has complied with the findings of the World Trade Organization and cured those elements found to be illegal. It calls on Boeing to do the same. (The case against Boeing is under appeal.) Update: and the war of words continues. Here is Boeing’s response.
Boeing and IAM 751: Reaction to the agreement reached between Boeing and IAM to extend a new contract to 2016, settle the NLRB complaint and put the 737 MAX assembly in Seattle is winning accolades from everybody except some Republicans who was pissed they won’t have an election campaign issue to talk about next year. Never mind what’s good for Boeing.
Plane Talking, the entertaining if somewhat cranky blog from Down Under, has this piece about Ryanair’s Michael O’Leary opining on this and that.
Speaking of Ryanair: Heard in the hallway at the Credit Suisse conference: O’Leary is already circling over the American Airlines bankruptcy, looking to pick up 737-800s cheap if American doesn’t keep payments up and any are repossesed.
Thoughts on the Boeing-IAM deal
We couldn’t be more delighted.
The agreement announced Nov. 30 between the IAM 751 local and Boeing is an outstanding development.
Who wins? Basically, everybody.
The Company gets:
- Production stability through most of 2016 without the pain and agony of protracted negotiations and all the uncertainty associated with this process;
- No-strike through most of 2016;
- The NLRB case goes away., by all indications. How this specifically relates to Charleston and the Surge Line remains to be seen;
- A contented workforce; and
- Stability for ramping up production of all the 7-Series, most particularly the 737.
The union gets:
- The 737 MAX;
- More work on the KC-46A tanker if Boeing Wichita closes;
- An economic package with no apparent “take-aways;” and
- No stress over contract negotiations or a strike.
Customers get:
- No strike;
- No interruption of deliveries; and
- Certainty over deliveries.
Suppliers get:
- Pretty much the same thing as customers.
Washington State gets:
- The 737 MAX and all the jobs and supply chain benefits there from.
Losers:
- Everybody else who salivated over the prospect of winning the 737 MAX, but more or less you don’t miss what you don’t have; and
- Airbus: it can ‘t play on the uncertainty of a Boeing strike and delivery reliability.
We’re delighted management and labor set aside the antagonism of the decade-and-a-half and all the testosterone that went with it and realized that a partnership is more beneficial than being in their corners ready to fight.
A note of interest: Boeing Commercial Airplanes CEO Jim Albaugh was asked at the Credit Suisse conference Wednesday morning about the prospect of labor negotiations next year. (This during the 8am hour, EST.) Albaugh, in his characteristic understated way merely opined he was optimistic a successful negotiation could be achieved.
Six hours later, the deal was announced.
American bankruptcy may prompt US Airways bid
American Airlines’ bankruptcy filing may at long last prompt a bid by US Airways to make a bid for the carrier.
Doug Parker, CEO of US Airways, has a long history of bidding for Chapter 11 carriers. He was successful when, as America West Airlines, he bid for US Airways. He was unsuccessful as US Airways in bidding for United Airlines and Delta Air Lines. He is on record as saying a bid for American made no sense without a bankruptcy by the Ft. Worth (TX)-based carrier.
We won’t be surprised in the slightest if Parker makes a bid
China won’t be competitor for 20 years: Leahy
China’s emerging commercial aerospace industry won’t be a viable competitor to Airbus and Boeing for 20 years, predicts John Leahy, COO Customers of Airbus.
Speaking at the Credit Suisse Aerospace conference in New York, Leahy noted the challenges COMAC has with the ARJ21 regional jet; and the development of the C919 mainline aircraft, neither will commercially be an effective aircraft compared with today’s aircraft from Western companies.
Boeing’s Jim Albaugh, CEO of Commercial Airplanes, speaking separately at the same event, agreed. He also said Boeing has erected “high walls” around its technology, and will maintain its lead over China by building “tomorrow’s airplane” while China is building “today’s airplane.”
Albaugh acknowledged there is some technology transfer of today’s generation.
Boeing looks at improving 737 production rate efficiency
Boeing is considering how to make the already-lean 737 production line even more efficient with an eye toward increasing rates beyond 42 per month, the commercial airplane division CEO said today.
Jim Albaugh, speaking at the annual Credit Suisse Aerospace conference, said the demand is here for a higher rate.
“We went into this year wanting to reduce the backlog and we failed miserably,” he said, referring to record orders and commitments for the 737NG and 737 MAX.
The challenge of going higher is that the Renton 737 plant is nearing capacity. A solution may be to further increase efficiency of the facility.
“If you go back two years with the 777 program, the maximum rate we had was seven per month in the factory. With lean manufacturing and engineering, we were able to take that up to 8.3 per month with very insignificant investment. It is my hope that as we continue to lean-out the 737 program, we could be in a similar position where we can go even higher than 42 if we chose to,” Albaugh said.
“We don’t have to make a decision on going higher than 42 for a while. We’re going to go to 42 in 2013. We’ll look at the market, we’ll look at the demand…and probably in late 2012, late 2013, if we can go higher we’ll make that decision.
“The other thing that we have to do is really think about how we transition from the 737NG to the 737 MAX. Regardless as to where we are going to build the 737 MAX, you don’t want to get into a situation where we aren’t delivering narrowbodies. We have to build a bridge to the 737 MAX.”
The 42 rate is sustainable, Albaugh said. “As we look at the skyline, the demand is there. We’re basically sold out through 2015. We can sustain them.”
Where will MAX be built?
“We are looking at quite a number of things. We’re taking a long-term view of what makes sense. How complicated can we be. The business climate. The environment. The assurity of delivery. We’ll make a decision when we have the facts.”
Odds and Ends: Wait a minute, we’re No. 2
We’re at the Credit Suisse aerospace conference in New York. Occupy Wall Street is demonstrating outside and passed out a flier criticizing defense spending. Boeing is listed as the number 5 defense contractor.
Jim Albaugh, CEO of Boeing Commercial Aircraft, looked at the flier and with his ever-present sense of humor said, “That’s wrong. We’re number 2. Take this out and have them retract this.”
Stay tuned for updates throughout the day.
American, parent, subs file Chapter 11
It’s done: American is the last legacy carrier to file for bankruptcy. Press releases here, here and here.
Our discussion last week of what a bankruptcy would mean to orders is here.