Leeham News and Analysis
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A deep dive into the twin-aisle market
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By Vincent Valery
Introduction
Feb. 20, 2023, © Leeham News: Last month, LNA analyzed the single-aisle market order opportunities for Airbus, Boeing, COMAC, Embraer, and UAC. We now focus on the twin-aisle duopoly of Airbus and Boeing.
Unlike in the single-aisle market, Boeing leads in market share: 64% nominally and 69% after Boeing’s at-risk ASC 606 adjustments and LNA’s assessment for Airbus, which doesn’t publish at-risk order numbers. If we exclude government and freighter orders, Boeing’s market share lead is 60% and 65% after at-risk adjustments.
However, the A330ceo family has the broadest operator base, and there are still almost 1,000 units in passenger service. LNA investigates the order twin-aisle aircraft order books and assesses replacement opportunities for both OEMs based on the in-service fleet.
Summary
- Boeing has the edge in the in-service fleet;
- Breaking down the order books between replacements and growth;
- Keep track of order choices for older-generation operators;
- Flip orders and airlines that did not order;
- The twin-aisle freighter market.
Boeing Capital Corp. to be “realigned” within airplane division
By Scott Hamilton
Feb. 16, 2023, © Leeham News: Boeing Capital Corp. (BCC) will be absorbed by Boeing Commercial Airplanes (BCA) as Boeing continues to restructure following the 2019 grounding of the 737 MAX, a 20-month suspension of 787 deliveries, the COVID pandemic and challenges in certifying the 737-7, 737-10 and 777X. Airfinance Journal (AFJ) first reported this latest move.
BCC is Boeing’s aircraft leasing arm. About 181 airplanes are owned, managed, and ordered by BCC.
BCC’s future has been the subject of internal discussion for at least a year. LNA first learned of the discussions last year. Several scenarios were considered, ranging from a spin-off, total sale, partial sale, or a structure that could see Boeing rearranging assets within Boeing Commercial Airplanes (BCA). A partial portfolio sale and retaining certain airplanes appears to be the solution most favored. In recent weeks, multiple market sources indicated some decision was imminent.
Realigning BCC
“We plan to realign the Boeing Capital organization to operate within Boeing Commercial Airplanes, while maintaining strong coordination with Boeing Treasury,” said Brian West, CFO of The Boeing Co., in a memo to BCC employees, AFJ reported. “With the vast majority of BCC’s work focused on our commercial business, this alignment will help ensure consistency of support to our commercial customers. And as we realign, we will look for ways to simplify the organization and focus resources on our core work of supporting our customers and their financing needs.”
AFJ notes that BCC is Boeing’s aircraft leasing arm that was inherited in the 1997 merger with McDonnell Douglas Corp. (MDC) Then called McDonnell Douglas Finance Corp, MDFC served as a financier of last resort for poor-credit companies, aircraft trade-ins, and remarketing, and occasionally providing what’s called backstop financing for more creditworthy airlines, the trade publication wrote.
BCC historically has been a small part of The Boeing Co’s business model. It’s not considered core to its business. Following the prolonged 737 MAX grounding, the suspension of deliveries of the 787 from October 2020 to August 2021, the long-delayed certification of the 777X, and the impacts of the COVID pandemic, Boeing began considering alternatives for BCC. These included closing it, spinning it off, or selling its assets.
Pontifications: Ihssane Mounir’s big challenge at Boeing
By Scott Hamilton
Feb. 14, 2023, © Leeham News: Ihssane Mounir was named senior vice president of Global Supply Chain and Fabrication for Boeing Commercial Airplanes (BCA). Appointed in December, he previously was the top salesman for BCA.
Ihssane Mounir. Credit: Boeing.
Mounir has a huge challenge ahead of him that goes beyond managing the logistics of BCA’s huge supply chain. He faces an irate group of suppliers who are increasingly openly angry. Some border on open rebellion.
As LNA reported last week, suppliers at the Pacific Northwest Aerospace Alliance (PNAA), some suppliers on the sidelines of the conference openly complained about Boeing’s lack of transparency and reliability. Some vowed to reduce their exposure to Boeing or even abandon working with the company. As always, Boeing’s Partnering for Success program—a long-running cost-cutting effort that demanded suppliers cut costs or be terminated—was another complaint.
Some who also supply Airbus but have to trim costs for it as well nevertheless praised Airbus’ gentler, collaborative approach vs Boeing’s threatening tactics.
The latter is relevant for some of the panelists.
Aerospace supply chain needs capital, which isn’t always easy to find–and it may be expensive
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By Scott Hamilton
Feb. 13, 2023, © Leeham News: The aerospace supply chain is still struggling to recover from the grounding of the Boeing 737 MAX, the suspension of deliveries of the 787, the delays to the Boeing 777X, and the COVID pandemic.
Labor shortages and workforce quality/experience is also a challenge for the supply chain.
Profits remain elusive and capital is available at high interest rates, if at all. CFM, GE, Pratt & Whitney, and Rolls-Royce continue to face technical challenges with their engines. The CFM LEAP and PW Geared TurboFan engines have durability issues and must be taken off wing for maintenance and warranty work at a fraction of the time their predecessor engines were on wing.
It’s a rather bleak picture painted of the state of the aerospace industry during the annual conference of the Pacific Northwest Aerospace Alliance (PNAA) last week in a Seattle suburb.
Summary
- Suppliers need capital; Boeing should return to 30-day payment terms for immediate capital injection.
- Recovery not over, suppliers can make better investments in defense.
- Without a new airplane, there’s no reason for suppliers to invest in commercial.
HOTR: Boeing slammed in absentia at conference
By the Leeham News Team
Feb. 9, 2023, © Leeham News: Boeing wasn’t present, but that didn’t stop a succession of speakers and suppliers from slamming the company during the annual meeting of the Pacific Northwest Aerospace Alliance this week in Lynnwood (WA).
Boeing boycotted the conference for the second year in a row. In October 2021, Boeing withdrew from the February 2022 conference over an alleged sexual discrimination lawsuit filed by a woman against the then-executive director of PNAA and against the organization. The lawsuit was settled out of court and the executive director today is a woman. But Boeing declined to return to the conference this year.
Boeing’s absence was roundly criticized by suppliers on the sidelines of the conference. The suppliers complained about Boeing’s payment policies (deferring payment to them for 90-120 days) after years of cutting prices under Boeing’s Partnering for Success. They also complained bitterly about Boeing’s lack of transparency and frequently changing production plans. Boeing should have been at the conference to face them and communicate with them.
Kevin Michaels, managing director of Aerodynamic Advisory, is a supply chain expert. For many years, he criticized Boeing’s approach toward the supply chain. Tuesday wasn’t any different. He once again criticized Boeing for its treatment of the supply chain. Noting that suppliers, mainly Tiers 1 and 2, went through “Partnering for Poverty 1 and 2” cutting prices, Boeing then promised payment terms of 30 days. In subsequent days, payments stretched to 60 days, 90 days, and now up to 120 days. Coupled with the 737 MAX grounding, 787 delivery suspension, and the COVID pandemic, the extended payment terms put additional stress on the suppliers.
In terms unusually blunt for Michaels in this forum, he predicted it will not be long before “the shit hits the fan.”
‘What kind of vision is that?’ Industry analysts scorch Boeing and CEO Calhoun
By Bryan Corliss
Feb. 7, 2023, © Leeham News – Less than a week after Boeing CEO Dave Calhoun stood in the company’s Everett factory and vowed to “maintain this leadership culture forever,” a panel of top aerospace industry analysts blasted Boeing’s corporate culture and criticized Calhoun’s leadership, saying he lacks vision, industry knowledge – even charisma.
Aerospace analyst Kevin Michaels.
“No new aircraft until 2035,” said AeroDynamic Advisory Managing Director Kevin Michaels. “What kind of vision is that?”
Having Calhoun at the helm of Boeing at this juncture is “the worst-case scenario,” said Michaels’ partner at AeroDynamic, Richard Aboulafia. “(Calhoun) is somebody not only not from this industry, but someone who maintains a willful ignorance of it.”
The challenges Boeing faces mending fences with all the groups it has disappointed or alienated in the past 20 years – customers, suppliers, regulators and workers – are immense and it may be more than one person can handle, said Bank of America Managing Director Ron Epstein, who also was on the panel.
“It’s a hard, hard, hard job right now, to be the president of the Boeing Co.,” Epstein said.
- Panel rips lack of new product development
- Without a new airplane, whole industry is challenged
- Panel: Boeing struggles to retain engineering talent
- Michaels: Suppliers in ‘crisis’
Orders at risk: Year-End 2022 snapshot
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By Vincent Valery
Introduction
Feb. 6, 2023, © Leeham News: With the publication of the Airbus and Boeing announcing 2022 orders and deliveries last month, and Boeing’s published its 2022 Annual Report (10-K), we undertake our annual analysis of at-risk deals on their books.
Airbus and Boeing have outstanding orders with airlines where there is a material probability some orders won’t translate into deliveries. Most were the result of airlines encountering financial difficulties, but some were related to contractual disputes. Boeing flags such orders as subject to an ASC 606 accounting rule adjustment.
Unlike Boeing, Airbus isn’t subject to an accounting rule like the ASC 606 adjustments at a program level. Therefore, the European OEM does not break down the orders at risk of cancellation by the program. Airbus only discloses the nominal value of its total adjusted order book in its annual report.
LNA analyzed July 2020, November 2020, August 2021, February 2022, and August 2022 Airbus’ and Boeing’s order books to identify orders at risk and come up with an apples-to-apples comparison. We update this analysis with the latest order books from both OEMs. The above links explain our methodology and its differences with Boeing’s ASC 606 adjustments.
Summary
- Lingering order book cleanup for older programs;
- Improving single aisle order book quality;
- Country-level single-aisle market share
- One order materially affects OEM twin-aisle market share.
Good news for 4th 737 production line, but lots of unanswered questions remain
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By Scott Hamilton
Feb. 2, 2023, © Leeham News: Boeing’s announcement that it will establish a fourth 737 MAX final assembly line (FAL) at its Everett (WA) widebody plant by the second half of 2024 answers some but hardly all questions.
Related article
The fourth Boeing 737 MAX production line in Everett (WA) will build the MAX 10. Credit: Leeham News.
The news is welcome at the plant, which assembled the 747, 767/KC-46A, 777, and 787. The last 747 rolled off the line last month after 54 years in production. The 787 FAL closed in 2020, and consolidated with the line in Charleston (SC). The 767/KC-46A line is ticking over at 3/mo and the 777 line is at a 2/mo rate—both well below their peaks.
Rework on 110 787s is to be completed by the end of 2024. This rework is moving from the 787 bay to the 747 bay and a building south of the massive assembly building. The 737 line will go into the 787 bay.
The new FAL gives some certainty to workers and the neighboring supply chain, and to Everett and Snohomish County in which the city lies. But there are lots of questions that are unanswered.
Summary
- What will the production capacity of the new FAL be? How long will it take to reach the capacity?
- Where is the tooling coming from?
- How will the 737 fuselages get from Wichita (KS), where they are made?
- How long before all three lines in Renton are to full capacity of 63/mo?
- When does production of the P-8 end? (Put another way, how long is the backlog?)
- Is there any thought to expanding the MAX production someday into the sawtooth building?
Boeing CEO Calhoun vows commitment to innovation as 747 flies into the sunset
By Bryan Corliss
Jan. 31, 2022, (c) Leeham News — Standing in the chilly hangar where 1,574 747s were built, Boeing CEO Dave Calhoun committed the company to continued innovation in commercial aircraft.
“Our commitment as a leadership team at Boeing is to maintain this leadership culture forever,” he said. “We’re committed to it and we will be forever.”
Boeing “continues to have visions just like this one,” the CEO said, gesturing to the last 747. “The hangars are full of innovation.”
Calhoun also thanked everyone who’s been involved with the 747 program in recent years.
“If a company ever needed to stand tall on a legacy it was the Boeing Co.,” he acknowledged. “For the past three or four years it has been tumultuous.”
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Boeing to add 4th 737 FAL at underutilized Everett plant
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By Scott Hamilton
Jan. 30, 2023, © Leeham News: Boeing will establish a fourth final assembly line (FAL) for the 737 in the vast Everett (WA) assembly plant in 2024. The company announced the move internally today.
Boeing Everett plant, where all widebody aircraft are assembled. Boeing will add a narrowbody 737 line. Credit: Everett Herald
The move was one of many rumored for months. Consolidating the 787 FALs in Charleston (SC), a move announced in the early days of the COVID pandemic, and shutting down 747 production, announced two years ago, the future of the big, empty spaces at Everett was a question. When Boeing was studying whether to launch a New Midmarket Airplane (NMA), Everett was on the list for an FAL (as were other places). But when CEO David Calhoun killed this program, more questions arose.
Rework on the 787 temporarily filled the 787 bay and now, part of the 747 space. But this was hardly enough.
LNA has obtained production rate studies Boeing shared with suppliers for the future. Conceivably, the aggressive numbers could be accommodated at the 737 plants in Renton (WA), but there is more to consider than raw production numbers.
Summary
- Boeing has a lot of skilled workers in Everett who are losing their assignments when the 787 rework is completed (target: year-end 2024) and with the cessation of 747 production. These skilled workers need replacement work.
- Boeing needs to keep up with the Joneses (aka Airbus). Boeing is studying very high 737 production rates.
- There is no new airplane program for Everett and a lot of empty space.
- Everett’s overhead absorption rate is now covered by just the 767 and 777 at very low rates and rework.