Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Bjorn’s Corner: Air Transport’s route to 2050. Part 22. May 16, 2025
- Services are driving revenues and profits in difficult times, Part I May 15, 2025
- The BWB has a long way to go before flying passengers, freight May 12, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 21. May 9, 2025
- Does an A220-500 need a new wing and engines? Part 2. May 8, 2025
Odds and Ends: Airbus to Mobile; No “doubts” about A350
Airbus to Mobile: The New York Times reports that Airbus is gearing up to announce plans to build the A320 in Mobile (AL). We reported this prospect during our reporting from the Airbus Innovation Days last month. Bloomberg has this take.
A350: No doubts at Airbus. But the margins are probably gone to first flight and EIS. Airbus is sticking to its schedule of EIS by mid-2014; we think it will slip into early 2015.
Update, June 28, 10am PDT:
We can confirm that as of this moment, EADS/Airbus has not made the decision to establish a final assembly site in Mobile. We think we have a reasonably clear understanding of the situation that leads us to believe an affirmative decision is near. It is our belief that any FAL will follow along the lines that were discussed for the KC-30/45 FAL: build the parts within the current supply chain and ship to Mobile for final assembly. This follows the well-established FAL model for Hamburg, Toulouse and Tianjin.
We received some speculation that this FAL might be fore the A330 P2F conversation. We don’t see a business case for this. Our focus is entirely on the A320 family and the intense competition with the 737 family. Note we do not distinguish between ceo/NG and neo/MAX.
Albaugh retires, replaced by Ray Conner
Update: 8:00am PDT June 27: The Seattle Times has a detailed story, including indications why Albaugh chose to retire.
Original Post:
In shocking news, Boeing announced that Jim Albaugh is stepping down as CEO of Boeing Commercial Airplanes and retiring Oct. 1.
Albaugh is just 62. He had been a candidate for CEO of The Boeing Co. when Harry Stonecipher was fired, a job that went to Jim McNerney. McNerney later tapped Albaugh, who was CEO of what was then known as Boeing Integrated Defense Services, to head Boeing Commercial Airplanes when BCA CEO Scott Carson was largely forced out following yet another delay in the 787 program.
Conner was widely assumed to be one of two candidates–Pat Shanahan was the other–to succeed Albaugh, who was assumed to be the CEO of BCA until retirement at age 65–three years from now.
Farnborough Air Show preview
Overview
This is really expected to be a boring show from the perspective of orders. Airbus has been downplaying expectations following last year’s Paris Air Show blow-out of more than 1,200 A320neo orders. How can you match that? The answer is, Airbus can’t.
Boeing will certainly firm up hundreds of 737 MAX commitments, so this will be Boeing’s show. And there is the buzz that Boeing is partnering with Lockheed Martin and NASA (oh, another government subsidy?) to produce a 2,500 mph SST, with details supposed to come at the Air Show. Then there is the leak that the 787 will fly there, the first time in 28 years Boeing has an aerial flying display.
We’ve talked with several journalists and industry personnel who are skipping the Air Show this year. So are we, and we’ve been at the Farnborough and Paris air shows since 2008. We just don’t expect enough news this year that we can’t get from the press releases.
So here are our expectations for the show:
787 fuel burn, GEnx and how it relates to LEAP-1B
787 fuel burn: Aviation Week has this story about the early fuel burn results for the Boeing 787 beating expectations (which admittedly were tamped down because of the program difficulties). Some of this has been reported before. What caught our eye was the detail about the GEnx engine. Why? Because the CFM LEAP-1B derives much of its technology from the GEnx, including the higher temperatures fleetingly referenced in the AvWeek piece.
CFM is relying on high temperatures to achieve the fuel burn required by Boeing’s 737 MAX. This is hotly debated (pun intended) between CFM and Pratt & Whitney in the competition between the LEAP and the PW GTF.
CFM advocates that its hotter-running engine, equipped with advanced technology ceramics and other advanced materials, gives it the advantage over PW’s Geared Turbo Fan technology. PW argues that the hotter CFM engine will require more maintenance. Engineers that we ask generally agree that the hotter temperature approach will be a challenge for long-term maintenance but fall back on CFM’s sterling reputation of reliability as a measure of comfort. At the same time, these same engineers–who have no connection to either CFM or PW–like the GTF technology but want to see it proved in service.
Steven Udvar-Hazy said it best. It will be five to seven years after the engines are in service before the industry knows the reliability and performance of either engine’s advanced technology.
Odds and Ends: MAX EIS dates; McNerney on business climate; A320 Tianjin plant only breaks even
MAX EIS dates: Aviation Week has this story that lists the planned MAX EIS dates: 737-8, 2017 (we previously reported 4Q2017); 737-9 in 2018 and 737-7 in 2019. AvWeek also reported the bypass ratio for the LEAP-1B is 8.5:1.
Eulogy for the 747-400: Bloomberg has this interesting piece about the current status of the Boeing 747-400.
McNerney on US business climate: Boeing CEO Jim McNerney has these comments on the US business climate.
Airbus Tianjin plant only breaks even: so says this report in Aviation Week.
US Air’s 1549 A320 now in museum: It’s a tribute to the flight crew and to aviation safety.
American Icon: Saving Ford and Alan Mulally
We just finished the new book, American Icon: Alan Mulally and the Fight to Save Ford Motor Company. It is well worth reading.
There’s very little about Mulally and his time at Boeing, though there are lots of references. The most extensive discussion is Chapter 3, The Man on the White Horse, in which Ford CEO William Clay Ford Jr. approaches Mulally to leave Boeing and the process Ford–and Mulally–went through for his decision-making.
Part of the process was the interaction between Mulally and Boeing CEO Jim McNerney–and McNerney doesn’t come off looking too good. This may not be particularly surprising, since the story is told from Ford’s and Mulally’s viewpoint and is not a deep look into the Boeing side of things. But this examination is nonetheless interesting. This is a big omission, but the machinations reported are insightful.
But the main event–the crisis Ford was facing when Mulally joined, and how he built a team to deal with it–is fascinating reading. It makes you wonder how different things might have been on the troubled 787 program had Mulally been here as things went south, with his applied management tactics that were very different than the atmosphere widely discussed among employees once Mulally left. This atmosphere, employees said, punished bad news rather than rewarded honesty and candor, and Mulally’s successor, Scott Carson, simply didn’t have the technical background to cope with the 787’s growing challenges.
The author, Bryce C. Hoffman, was the automotive reporter for the Detroit News. He gives a candid look at some of Mulally’s errors, but by-and-large this is a story in which Hoffman paints a picture in which Mulally can do little wrong.
Is he a fawning story-teller or do the results speak for themselves, driving the story to its constant pat-on-the-back approach to Boeing’s refugee? We think largely a results-story. At the end, Hoffman gives credit to those who also had a hand in saving Ford, but almost as an after-thought–except for Bill Ford himself, who realized he didn’t have the depth or experience to do the job himself and set aside his ego and family legacy to bring in Mulally.
UBS estimates MAX break-even at 200
UBS Securities issued this note today:
Boeing is accounting for its 737 NG (Next Generation) program over a large number of aircraft with roughly 2,200 remaining in its block as of Q1, reflecting production into 2016 at planned rates. Across its block, we estimate Boeing is booking margins on 737 NG around 20% on a pre-R&D basis. With the launch of its re-engined model, the 737 MAX, Boeing will need to either account for MAX as part of its existing 737 accounting block or create a separate block. We think Boeing is most likely to add 737 MAX to its existing 737 NG block given fairly limited design changes on the MAX relative to the NG that wouldn’t appear tojustify a separate accounting block.
We expect initial MAX production to come through at lower margins than Boeing is currently booking on NG, diluting BCA (Commercial Airplanes) margins. The inclusion of lower margin initial MAX production in the 737 block will also negatively impact EPS relative to expectations as Boeing will need to book a lower average (program) margin on its current 737 deliveries. We expect MAX costs to improve at a fairly rapid pace with our assumed breakeven program quantity at 200 implying that unit margins approach 737 NG type levels near the end of our assumed 1,000 unit accounting quantity (two years of production).
737 MAX vs A320 neo: The debate continues
Here’s the next round in the continuing debate.
Bernstein Research published this chart detailing how Airbus and Boeing differ on the performance improvements they predict.
There is, of course, no way to know who is correct until the airplanes enter service.
We hear the A320 sharklets are performing better than advertised (Aviation Week actually reported this a while back as well). If the figure we’re hearing proves correct, the neo and MAX should have parity.