Leeham News and Analysis
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Better to bring capacity back with a 777X or 777-300ER? Part 2
By Bjorn Fehrm
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Introduction
May 7, 2020, © Leeham News: With the Covid-19 pandemic depressing passenger traffic for years to come, we started an analysis last week on the options the airlines have who wait for their Boeing 777-9. Hold on to their 777-300ER or upgrade to the newer and more efficient 777-9?
We deepen the analysis this week by comparing the economics of a 10 years old 777-300ER versus a new 777-9.
Figure 1. The 777X has 30% larger windows than standard in the class. Source: Boeing.
Summary:
- The 777X is best seen as a cross between a Boeing 787 and a 777-300ER. It inherits the passenger comfort features the 787 brought to the market like lower cabin altitude, higher cabin humidity, larger windows, and a smoother ride.
- If a 777-9, with it’s higher capital costs, can compete on operating cost with a used 777-300ER depends on the fuel price.
Updated with earnings call: Spirit Aerosystems reports 1Q loss, expect worse 2Q
By Scott Hamilton
May 6, 2020, © Leeham News: Spirit Aerosystems, a major supplier to Boeing and Airbus, reported a net loss of $163m for the first quarter.
The loss was a negative margin of 15.5% on revenues of $1.08bn, but it was better than analyst expectations.
With a majority of revenues coming from Boeing, the grounding of the 737 MAX continued to hit Spirit hard. The COVID-19 crisis further impacts the company.
Spirit will deliver 125 737 fuselages to Boeing this year, down from 216 previously agreed, reflecting the COVID crisis. This includes 18 delivered in January before production was suspended. Spirit did not reveal how many of 116 produced and stored in parking lots will be among the 125.
On the earnings call, Spirit said the the storage will grow somewhat, peaking in July-August. It will get back down to the 120s by year end. The inventory will decline in 2021 and “burn down” in the next two years.
Supply chain focus: Safran’ s first 2020 quarter
By Bjorn Fehrm
May 5, 2020, ©. Leeham News: Next out in our COVID19 supply chain focus is Safran Group.
Safran, together with GE Aviation, is the largest supplier of turbofan engines to the World’s airliners. Their success in the CFM joint venture is unprecedented. The first joint engine, the CFM56 has passed 30,000 deliveries, and the follow-up, the CFM LEAP, has 16,000 orders.
At the back of this successful business, Safran has expanded to a major aeronautical supplier for propulsion, systems, and cabins.
Seattle Times, reporting team win Pulitzer Prize for Boeing 737 MAX coverage
May 5, 2020, © Leeham News: The Seattle Times and its reporting team won a Pulitzer Prize, it was announced yesterday, for its coverage of the Boeing 737 MAX crisis.
The team is Dominic Gates, Steve Miletich, Mike Baker and Lewis Kamb.
Engine OEMs forecast big hit to aftermarket revenue
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By Scott Hamilton
May 5, 2020, © Leeham News: The COVID crisis will damage the aerospace aftermarket in ways that are only beginning to be understood.
As key companies report 1Q earnings, it’s clear that engine aftermarket revenue is going to take a major hit for years to come.
Engine companies like CFM, GE Aviation, Pratt & Whitney and Rolls-Royce, rely on aftermarket sales as the key component of their business plans.
The research and development money that goes into an engine consumes such huge amounts of cash that the OEMs don’t recoup their costs for 10-20 years. The aftermarket for parts, maintenance, repair and overhaul is where they make their profits in the meantime.
But this is seriously threatened by the virus crisis.
“The aftermarket for key programs took 4+ years to return to 2008 levels out of the Great Financial Crisis, and that was with traffic decline at a fraction of the declines today,” Bernstein Research wrote in a May 4 note to clients.
Collapse of Boeing-Embraer JV gives Mitsubishi Aircraft new opportunities
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By Scott Hamilton
Introduction
May 4, 2020, © Leeham News: The collapse of the Boeing-Embraer joint venture removes a major cloud over another Boeing agreement with a different airframe company.
Long ago, Boeing and Mitsubishi Aircraft Corp. (MITAC) entered into a support agreement for what was then the MRJ program.
MITAC was to receive marketing and services support from Boeing for the MRJ.
From the moment the news emerged that Embraer and Boeing were talking about a merger, acquisition or joint venture (the goal moved over time), questions arose over the future of the MITAC agreement.
Summary
- Boeing said the MITAC agreement would be honored, but skepticism remained.
- The MRJ and later the SpaceJet would compete with the former Embraer product line.
- Recovery consensus 3-5 years.
- With collapse of Boeing-Embraer JV, Mitsubishi-Boeing can reaffirm, strengthen their cooperative agreement.
Pontifications: Ugly, fundamental changes coming for airline industry
By Scott Hamilton
May 4, 2020, © Leeham News: The global airline industry is on the cusp of a fundamental restructuring that will be painful, and painfully long.
A few airlines already ceased operations.
Several others are on the brink of filing for bankruptcy—among them Lufthansa and Virgin Atlantic, brand names that aren’t normally at the top of an endangered list.
A shake-out in Europe was already underway before the COVID-19 crisis erupted. The inevitable shake-out in Asia hadn’t yet begun.
Fleet rationalization among legacy carriers will occur at rapid-fire speed. And some carriers now have the opportunity to shed unprofitable routes that were maintained for market share.
It’s going to be an ugly process, though.
Better to bring capacity back with a 777X or 777-300ER
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By Vincent Valery
Introduction
April 30, 2020, © Leeham News: The travel restrictions implemented in the aftermath of the COVID-19 outbreak lead to an unprecedented collapse in global passenger traffic.
These travel restrictions should remain in place until a COVID-19 vaccine becomes available for the wider population. Combined with the economic effects of the various social distancing measures, travel demand will remain depressed for a substantial period. Leeham Co. predicts that it will take four to eight years before traffic returns to 2019 levels.
Boeing 777-9 on the way to what was hoped to be its first flight Jan. 24. Photo by Scott Hamilton.
Airlines grounded a large number of aircraft due to the collapse in passenger demand. As a result, there will be plenty of aircraft in long-term storage available for lease or purchase at discounted prices once demand recovers.
These aircraft will compete against those coming off the assembly line. The 777-9 is planned to enter service in 2021 at the earliest. Apart from Lufthansa, all the airlines that ordered the 777X are 777-300ER operators. Once traffic bounces back, they will have to ponder whether they are better off keeping (or sourcing) older 777-300ERs or take deliveries of 777-9s as scheduled.
In this article series, we will compare the economics of the 777-300ER with the 777-9 on the world’s busiest intercontinental route.
Summary
- Depressed demand brings airlines to the brink;
- Near-terminal wounds to heal once demand recovers;
- A perfect storm for new (large and expensive) aircraft;
- Peculiarities of operating on the busiest intercontinental route.
Boeing techs ratify contract extension
By Bryan Corliss
April 29, 2020 © Leeham News — Unionized technical workers who initially rejected a proposed contract extension with Boeing have changed their minds.
Their union – the Society of Professional Engineering Employees in Aerospace (SPEEA) – on Tuesday announced that the techs had approved a 
proposed contract extension with a 74% yes vote.
The deal extends the techs’ contract with Boeing until October 2026, putting them in sync with unionized engineers at the company, who had approved a companion contract offer in March.
SPEEA represents some 4,700 techs at Boeing – mostly in Puget Sound, but also in California, Oregon and Utah – along with nearly 13,000 engineers.
Boeing to cut rates on 787, 777 production; posts big 1Q loss
By Scott Hamilton
David Calhoun, CEO of Boeing.
April 29, 2020 © Leeham News: Boeing will cut production rate of the 787 in half and the 777 from 5/mo to 3/mo in response to the dramatic drop in demand from the COVID crisis.
Production of the 737 MAX resumes at a low initial rate with a current target of 31/mo next year.
Boeing announced these rates in its first quarter financial results. The company has an operating loss of $1.35bn and a net loss of $641m on revenues of $16bn.
