Leeham News and Analysis
There's more to real news than a news release.
HOTR: Boeing warns of forward losses on 787, 777X programs
By the Leeham News Staff
Aug. 5, 2020, © Leeham News: In another demonstration of the negative impact of the COVID-19 crisis, Boeing warned that two flagship airplane programs could face forward losses.
Neither the 787 nor the 777X are in forward loss positions yet. A forward loss means Boeing won’t make money on the program.
Despite the 787 incurring more than $30bn in deferred costs, Boeing hasn’t taken a write down. The deferred costs have been burning off since 2015. Other programs have been subjected to forward losses, including the 747-8, VC-25 (Air Force One) and the KC-46A tanker.
But with the production reduction of the 787, down to 6/mo in 2021, Boeing now says there is a risk to a forward loss.
Boeing’s big opportunity
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By Scott Hamilton
Analysis
Introduction
Aug. 3, 2020, © Leeham News: Boeing has one of the biggest opportunities in decades.
This is counter-intuitive, given the disaster it faces with the COVID-19 crisis.
But in chaos, there are opportunities.
There are some key assumptions that must be made. But these are not outlandish.
Summary
Assume:
- Boeing survives the virus crisis.
- Boeing consolidates 787 in Charleston.
- 787 demand doesn’t return, reactivating Everett line.
- Sharp gains in production efficiency.
- These lead to the Big Opportunity.
Bjorn’s Corner: The challenges of Hydrogen. Part 2. Ecosystem.
By Bjorn Fehrm
July 31, 2020, ©. Leeham News: In our series on Hydrogen as an energy store for airliner use we begin by looking at the needed ecosystem that can produce and distribute Hydrogen.
When I was skeptical about hydrogen as a means to propel our airliners three years ago, the main problem was the lack of this ecosystem. That year, in 2017, 13 transport and energy companies formed the Hydrogen Council, to create this ecosystem. Today the council has 81 members, with 22 joining in the last year, Figure 1. The list reads as Who’s Who in the transport and energy sector.
Figure 1. Members of the Hydrogen Council. Source: Hydrogen Council.
COVID production rates “firm” up
By Scott Hamilton
July 30, 2020 © Leeham News: Airbus and Boeing refined their COVID production schedules this week slightly downward in some cases.
Airbus largely held to its previously announced production schedule. It dropped the A350 rate by one, to 5/mo from six. The A320 rate remained at 40/mo, as did the A330 rate at 2/mo. The A220 rate is returning to 4/mo in Montreal and 1-2/mo in Mobile.
Airbus says A350 loans now WTO compliant
By Bjorn Fehrm
July 30, 2020, ©. Leeham News: Airbus CEO Guillaume Faury announced Friday that it had made the A350 Repayable Launch Investment (RLI) loans fully WTO compliant, to break the deadlock in the 16-year-old fight with Boeing over state subsidies to their airliner industries. The claim was reiterated today during the Airbus second-quarter earnings call.
“We have fully complied with all the WTO requirements. These additional amendments to the A350 RLIs demonstrate that Airbus has left no stone unturned to find a way towards a solution,” said Faury. “This is a clear signal of support to those who are suffering from the severe impact of the tariffs imposed by the USTR, especially at a time when industries are hard hit by the consequences of the COVID-19 crisis.”
Sunset of the Quads, Part 1
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By Vincent Valery
Introduction
July 30, 2020, © Leeham News: British Airways announced two weeks ago that it would immediately retire its entire Boeing 747 fleet. Several other operators announced accelerated retirements of their Queen of the Skies fleets. There are now fewer than 100 747s left in passenger service.
While less publicized, airlines have also been accelerating the retirement of their Airbus A340 fleets. Lufthansa put its 10 remaining A340-600s into long-term storage.
So far, Air France is the only airline to have permanently retired its A380 fleet, initially scheduled for 2022. However, Emirates and China Southern are the only airlines currently operating the Superjumbo in passenger service. All but a handful of A380s are in storage, with some airlines not intending to bring them back into service for several years.
Credit: Qantas
The slump in passenger traffic caused by the COVID-19 outbreak accelerates the sunset process of the markets operated by quad-engined aircraft. What did the quads bring that was desirable and what changed? Are quad engine aircraft gone for all times?
We look into these questions in this article series, and we start with the Queen of the Skies, and we focus its best selling variant, the 747-400.
Summary
- Shrinking quad-engine jet fleet;
- Flying an A340 or 747 will be rare;
- Uncertain future for A380;
- 747-400 commercial success;
- An ultra-long-range route.
Boeing’s second quarter of 2020; cutting production as revenue halves due to MAX grounding and COVID-19
July 29, 2020, © Leeham News: Boeing presented its results for the second quarter of 2020 today. The company revenue is halved compared with the last second quarter with full 737 MAX production, 2Q2018. The reported loss was $3bn but the real loss, masked by program accounting, is close to double this number.
Boeing will now cut production of the cash cow 787 to less than half the pre-COVID rate, producing six planes per month instead of 14, and the 777/777X rate goes from five presently to two per month next year and stays there for 2022.
The 737 MAX production will stay at a very low level until the present inventory of 450 produced MAX has cleared. Present planning is a slow ramp during 2021, with a rate of 31 per month only reached at the end of 2022.
Applying ASC 606 to the Airbus Order Book
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By Vincent Valery
Introduction
July 27, 2020, © Leeham News: Since the first quarter of 2018, Boeing applies a new revenue recognition accounting standard, ASC 606, to its aircraft order book.
As a result, the OEM needs to remove orders from the backlog when a customer deviates materially from its contractual obligations.
ASC 606 adjustments affect all Boeing commercial aircraft programs apart from the 767. Orders removed from the 737 backlogs increased from 183 to 622 between the end of 2019 and June 2020. The figure should rise further as more airlines have strained finances due to the COVID-19 outbreak.
Other aircraft OEMs, notably Airbus, do not apply such standard. As a result, the firm backlogs of Airbus and Boeing aren’t apples-to-apples comparisons.
With Airbus reporting earnings Thursday, LNA adjusts the OEM’s order book for orders at material risk of cancellation. The goal is to obtain a more representative market share picture.
Summary
- ASC 606 Course 101;
- Identifying Boeing ASC 606 customers;
- Applying adjustments to Airbus’ order book;
- Estimation of adjusted market shares.
Looking ahead for 2020 and 2030 decades: Mitsubishi
Sixth in a Series
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By Scott Hamilton
July 23, 2020, © Leeham News: The Mitsubishi Aircraft (MITAC) SpaceJet program is in limbo.
MITAC parent Mitsubishi Heavy Industries (MHI) suspended development of the M100 SpaceJet in the wake of the COVID-19 crisis. Customers are
suppliers are in the dark about this program’s future.
MHI continues to complete certification of the M90 SpaceJet, which is simply the rebranded MRJ90. But, as LNA previously wrote, the M90 is at an economic disadvantage to the competing Embraer E-Jets.
The planned entry-into-service for the M90 is next year. However, certification process by the Japanese regulator is slow. The impact by COVID on the certification process and EIS remains to be seen.
Summary
- M100 program on hold at least until next year.
- What’s next for MHI?
- Strengths, Weaknesses, Opportunities and Threats
HOTR: Norwegian claims $1bn+ in damages from Boeing
HOTR072120
By the Leeham News staff
July 21, 2020, © Leeham News: Norwegian Air Shuttle said June 30 it canceled orders for 92 Boeing 737 MAXes and five 787s.
The orders still appear on Boeing’s Unfilled Orders website, which is updated monthly.
In a lawsuit filed June 20 in Cook County Circuit Court (Chicago), NAS claimed breach of contract for failure to deliver the MAXes due to grounding. It claims breach of contract for failure to delivery 787s due to the long-running issues with the Rolls-Royce engines.