Leeham News and Analysis
There's more to real news than a news release.
Larger engine, longer range A350-1000 to be announced at Paris Air Show
Airbus and Rolls-Royce have agreed to up-size the Trent XWB engine powering the A350-1000, which will add about 500nm of range, Leeham News has learned.
The formal announcements have been planned for the Paris Air Show. Airbus issued a “no comment” to our inquiry and Rolls-Royce did not return calls.
Emirates Airlines CEO Tim Clark has been urging Airbus to add power to the airplane and enlarge it to 380 passengers in three-classes and add range to allow non-stop service from Dubai to Los Angeles. Qatar Airways and Korean Airlines have also encouraged Airbus to enlarge the airplane.
UBS: Boeing too aggressive in 787 ramp-up plans
UBS Securities issued a note today that says Boeing is too aggressive in its production ramp-up plans for the 787. A synopsis:
* 787 learning curve appears more aggressive than 777: BA’s assumed learning curve is a key component of its forecast for 787 profitability and cash generation. Our analysis indicates that BA is assuming much faster learning on 787 than it was able to achieve on 777 despite having less control of production this time. With 777 type learning, we estimate BA would likely be in a forward loss with flat to progressively worse 787 cash flow over the next several years.
Paris Air Show outlook for Boeing
Here is a preview for Boeing for the Paris Air Show. More detail will be coming from AirInsight next week.
Odds and ends: More on DC-7B trip
Here are some more photos from our DC-7B trip. All photos by Scott Hamilton.
This PBY Catalina, a derelict but intact condition, is at the San Juan Airport. Given the loss of a PBY several years ago in a landing accident, could this become a new, restored edition?
Analyst takes on Boeing’s investors’ days
Here is what the analysts are saying about the Boeing investors’ days this week:
From Wells Fargo:
- 787 and Ramp Up. Overall, we believe the biggest issues that investors have been trying better to understand are (1) the ability of Boeing to ramp up production of the 787 to 10 per month in 2013; (2) the program accounting for the 787; and (3) the plan for replacing the 737NG and its impact on R&D. Management did not give any more clarity to the production ramp up and thinks it has increased its visibility into the supply chain through MRP & IT systems and that it believes the Tier 1 suppliers should be able to support the ramp to 10 per month. Management is more concerned about Tier 2 & 3 where it has less visibility into their readiness.
Flight recorders narrow cause of AF447
Recovery of the flight recorders from Air France 447, an Airbus A330-200 that crashed into the Atlantic two years ago, appears to have quickly identified the events that led to the crash–and contrary to all those who claimed the vertical tail fell off or the A330 is a deathtrap, it appears the pilots simply weren’t trained properly to handle the events.
The Wall Street Journal has this detailed account of what investigators have found.
Lest anyone now charge that the failure to fly through the frozen pitot tube situation is exclusively an Airbus problem, Flight Global’s David Kaminsky-Morrow posted a link to a National Transportation Safety Report from 19– in which a crew stalled an airplane after the pitot tubes froze up and crashed, killing all aboard.
The aircraft? A Boeing 727-200.
The point: accidents like these often happen across OEM lines. And the actions of Airbus-haters was pretty disgusting.
Odds and Ends: $19bn cash turnaround for Boeing
We’re catching up from a week out of the office and one thing that especially caught our eye is this comment in a research note late last week from JP Morgan:
Potential cash turnaround on 787 is enormous. By the end of this year, Boeing plans to have amassed $19 bil in 787 inventory, most of which will consist of so called deferred production costs, or the extra cost above the long-term average to build the first few dozen aircraft. We expect the initial 787 block to be 1,000 aircraft, which should take ~8 years to deliver. Even if the program never contributes a penny of earnings and ends after that initial block, it should therefore generate ~$19 bil of operating cash flow over that delivery period, or an average of ~$3/share annually. While from an accounting standpoint this would be a reduction of inventory, it is best thought of as underlying cash profitability on the aircraft (say 20% margin on 120 units/year times $100+ million each) that is offset perhaps entirely by the amortization of the sunk cost from the delays. The potential $3/share of positive 787 FCF compares to an expected cash outflow of $8/share from 787 inventory build this year, plus another $3/share of R&D and capex, making the total 787 outflow ~$11/share. Overall, the vast majority of the cash flow improvement opportunity results from elimination of the cash outflow, so while the difference between a 20% margin and a 10% margin might be significant, it pales in importance next to simply getting the program ramped up and into the black.
Other items of note:
We’re back, looking at the WTO’s ruling on Airbus case
While we were gone, the WTO issued its ruling on the Airbus case, which was appealed by both sides.
There’s been plenty post-ruling analyses written already, and since we’re nearly a week later, we’re not going to add much to it except to point you to Aspire Aviation’s analysis and say this: Both sides won some and both sides lost some in this case. The USTR failed to achieve its top goal, and that is to have the WTO rule launch aid illegal, so blocking aid to Airbus to make the A350 XWB was a failure.
Flightblogger has a very good take on how both sides “spin” the final appeal report. The Wall Street Journal has a balanced view on who won and who didn’t.
This is a major defeat for the US–and for Boeing.