Leeham News and Analysis
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Boeing’s production plans
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By Vincent Valery
Introduction
Jan. 26, 2021, © Leeham News: LNA wrote earlier this month that Boeing needs a boring year after a challenging 2020. Ramping up 737 production, clearing up the accumulated 737 MAX and 787 inventories, and keeping 737-7/10 and 777X certification campaigns on track are among the OEM’s main goals for 2021.
Credit: Boeing
Like Airbus, Boeing had to significantly adjust its production plans downward for the foreseeable future as airlines pushed back scheduled deliveries. Boeing’s latest plans involve increasing the 737 line production rate to 31 per month by early 2022. The 787 production rate will go down to five per month (from a peak of 14) in the second quarter of 2021. The 747, 767, and 777 rates remain at 0.5, three, and two per month, respectively.
Ahead of Boeing’s earnings release on Jan. 27, LNA analyzes the updated delivery schedule for coming years on the five major commercial programs.
Summary
- Shallower rates on 747 and 767;
- Dreamliner delivery delays;
- Analyzing new 737 MAX order and inventory cleanup;
- Notable changes behind stable 777 production rate.
Small jet demand likely to stay depressed after COVID
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By Judson Rollins
Introduction
January 25, 2020, © Leeham News: As passenger travel trickles back to life, one trend that’s already apparent is a long-term diminution of airline yields in most regions.
This is largely driven by a reduction in business travel, some of which is likely to never return.
Regional jets and small single-aisles like the Airbus A220 and Embraer’s E2 family have higher unit cost, or cost per available seat-mile (CASM), than larger aircraft like the Boeing 737 or Airbus A320.
Achieving an operating profit with smaller jets requires high unit revenue, or revenue per available seat-mile (RASM). This will be difficult to achieve in a world where business travel is still down 70%-80% this year, even with a vaccine – and may be down 30% or more permanently.
What role will these smaller jets have after the pandemic? And will production match this new reality? A closer look is required.
Summary
- Regional jets and smaller single-aisles have higher unit costs.
- High costs require higher unit revenue to be profitable.
- Business travel likely slow to return, with some permanently impaired.
- Smaller jets previously used for routes now in danger of demand fragmentation.
The A350, Part 2: Analyzing the A350-800
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By Bjorn Fehrm
Introduction
January 21, 2020, © Leeham News: Before the holidays, we started a series to look into Airbus’ A350 family. We analyzed the development program and how the variants have sold.
Initially, the A350-800 won about 180 orders. But as the market received more information about the smaller variant, the more it realized it wasn’t an optimal airplane. It was never officially canceled. But orders was up-gauged to the A350-900. Airbus decided the variant wasn’t competitive and developed the A330neo instead. We now look into why.
Summary
- The A350-800 was positioned as Airbus’ main defense against Boeing’s new 787-9, the most efficient variant of the Dreamliner.
- As the A350 program was delayed, the A350-800 moved from an optimized variant to a “cut and shut” version. This compromised its efficiency.
- Gradually Airbus changed its strategy how to compete with the 787.
HOTR: Boeing could further cut 787 production rate—JP Morgan
By the Leeham News Staff
Jan. 20, 2021, © Leeham News: There is risk of another production rate cut for the 787, JP Morgan wrote in a Jan. 12 note.
Boeing already is reducing the rate to 5/mo this year. There are an estimated 60 787s in inventory due to production and quality control issues discovered last year that halted deliveries in November-December.
Boeing 787 family. Source: Boeing.
Podcast: 10 Minutes About China’s Commercial Aviation Industry
Jan. 19, 2021, © Leeham News: Today’s edition is 10 Minutes About China’s commercial aviation industry. 
China has one airliner in service, a second in flight testing and a third on the drawing board. Production is still a challenge.
We discuss how viable the airliners are and a bit about production–all in 10 minutes.
HOTR: Some predictions for Airbus and Boeing
Jan. 14, 2021, © Leeham News: Making predictions is always a hazardous business.
Some predictions take years to resolve. The outcome of others come sooner than later. If you’re right, you look sage. If you’re wrong, you look like an idiot.
But HOTR is going to take a stab at it anyway.
Boeing’s Calhoun completes first year as CEO
By the Leeham News Team
Jan. 13, 2021, © Leeham News: Today marks the first anniversary of David Calhoun becoming CEO of The Boeing Co.
Calhoun’s first year faced challenges unprecedented in Boeing’s history. There was the 737 MAX crisis. Sales of the 777X were stagnant. The balance sheet was stressed.
And then COVID exploded, all but destroying commercial passenger demand and with it, ability by airlines to take delivery of new airplanes.
David Calhoun. Source: CNBC.
Boeing’s balance sheet went further upside down. Production and quality control problems with the 787 emerged.
Finally, Calhoun was afflicted with a case of foot-in-mouth disease. This contrasted with his calm, well-received initial public face during the waning days of then-CEO Dennis Muilenburg’s stilted public persona.
Pontifications: Boeing’s exodus from Puget Sound
Jan. 11, 2021, © Leeham News: Last week appeared to be an ominous week for Washington State for aerospace.
By Scott Hamilton
On Monday, The Seattle Times reported that Amazon surpassed Boeing as Washington’s largest employer. The retailer now employs more than 80,000 in the state. Boeing, following COVID- and 737 MAX-grounding induced layoffs, employs just under 59,000 in Washington.
The Times reported Tuesday that Boeing’s research and development center at Boeing Field will be closed. At its peak, the center was to employ 900. The expansion began a mere 10 years ago.
Previously, Boeing announced Oct. 1 that it will close the Everett 787 production line and consolidate the final assembly at the Charleston (SC) plant.
The exodus by Boeing from Puget Sound and Washington State is underway. But was closing the R&D center as significant as it seemed?
Boeing to pay $2.5bn to settle criminal charges stemming from 737 MAX crisis
Jan. 7, 2021, © Leeham News: Boeing today agreed to pay $2.5bn to settle criminal charges with the US Department of Justice over the 737 MAX investigation.
The settlement comes in the form of a Deferred Prosecution Agreement (DPA).
In a filing with the Securities and Exchange Commission, Boeing synopsized the agreement:
The DPA contemplates that the Company will: (1) make payments totaling $2,513.6 million, which consist of (a) a $243.6 million criminal monetary penalty; (b) $500 million in additional compensation to the heirs and/or beneficiaries of those who died in the Lion Air Flight 610 and Ethiopian Airlines Flight 302 accidents; and (c) $1.77 billion to the Company’s airline customers for harm incurred as a result of the grounding of the 737 MAX, offset in part by payments already made and the remainder satisfied through payments to be made prior to the termination of the DPA; (2) review its compliance program for implementation of continuous improvement efforts; and (3) implement enhanced compliance reporting and internal controls mechanisms. Under the terms of the DPA, the criminal information will be dismissed after three years, provided that the Company fully complies with its obligations under the DPA. Of the payments described above, $1.77 billion has been included in amounts reserved in prior quarters for 737 MAX customer considerations. The Company expects to incur earnings charges equal to the remaining $743.6 million in the fourth quarter of 2020.
However, Dominic Gates of the Seattle Times points out that “Only $243.6 million, less than 10%, is a fine for the criminal conduct. And Boeing must pay an additional $500 million compensation to the MAX crash victim families. However, 70% of the $2.5 billion cited is compensation to airline customers that Boeing has already agreed to pay.”
Outlook 2021: Boeing needs boring, Airbus looks for recovery
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By Scott Hamilton and Vincent Valery
Introduction
Jan. 5, 2021, © Leeham News: What’s in store for Airbus and Boeing this year?
Boeing needs a boring year.
Airbus is clearly better positioned than Boeing.
Twenty-twenty one is a year of recovery for Boeing. It must dig out from a very deep hole.
Airbus reported that it hit cash break-even in the third quarter. But the company is not out of the woods yet.
Everything depends on something largely out of their control: how quickly the airline industry recovers from the COVID pandemic.
Summary
- Boeing hopes to deliver about half of the 450 stored MAXes this year.
- Low-rate production inches up for the 737.
- Widebody sales dried up for Airbus and Boeing.