Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Embraer downplays tariff impact on 2025 results May 6, 2025
- JetZero readies effort for private equity fund raising May 5, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 20. May 2, 2025
- Supplier Howmet exceeds expectations despite tariffs May 1, 2025
- Airbus 1Q2025 results: So far, so good, but US tariffs make future results unpredictable May 1, 2025
The Impact of Asian airline difficulties on OEMs
Subscription Required
By Vincent Valery
Introduction
Feb. 24, 2020, © Leeham News: Passenger traffic in the Asia-Pacific region has grown dramatically since the turn of the century. Except for temporary dips caused by SARS in 2003 and the global financial crisis in 2008-09, passenger growth has stayed comfortably above 5% each year.
China emerged as the second-largest commercial aviation market behind the US. Domestic traffic in mainland China grew fivefold, and international traffic doubled since 2003. Numerous low-cost carriers become powerhouses during that period.
Along with this growth came major aircraft orders. Five out of the 10 largest A320neo family orders are from airlines in the Asia-Pacific region.
However, airline profitability in the region recently lagged that of those in the US and Europe. Even before the COVID-19 (coronavirus) outbreak, numerous carriers had financial difficulties. The outbreak will accelerate the reckoning for some airlines.
According to an IATA report, the COVID-19 outbreak could translate into a $29.3bn revenue loss for airlines in 2019. Instead of a predicted 4.8% YoY passenger traffic growth for the Asia-Pacific region in 2020, traffic could contract by 8.2%.
In the first of a two-part analysis, LNA assesses the vulnerability of various airlines and the resulting potential impact on OEMs.
Summary
- Numerous airlines have significant capacity exposure to China;
- Several Asian airlines already had fragile balance sheets;
- Chinese airlines are under particularly acute cash pressure;
- Airbus and Boeing have material production exposure to affected airlines.
Pontifications: EU appears to be holding Boeing-Embraer JV hostage
Feb. 24, 2020, © Leeham News: I bet you’d never get an official of the European Union to go on the record.
By Scott Hamilton
But there sure seems to be plenty of anecdotal evidence that the approval of the proposed Boeing-Embraer joint venture is being held hostage.
The EU is plenty vocal about being pissed at the Trump Administration’s trade war against Europe. It’s also unhappy with Trump’s tariffs on Airbus jets imported into the US.
Trump initially levied a 10% tax on the planes, last October. Next month, this goes up to 15%.
As of last week, the US collected more than $277m in tariffs related to the Airbus complaint. The Trump Administration has WTO authority to levy 100% taxes, up to $7.5bn. Industries and countries that have nothing to do with aerospace are penalized in addition to Airbus.
It’s unclear from public information how much of the money collected so far is from Airbus imports.
Why the A321XLR makes sense for Alaska Airlines
By Scott Hamilton
Feb. 23, 2020, © Leeham News: Alaska Airlines last week said it will place an order, perhaps this year, for 200 aircraft for delivery over the next decade.
The carrier exclusively operated Boeing 737s until its acquisition of Virgin America. Officials repeatedly put off a decision whether to return to an all-Boeing fleet.
Alaska Airlines Boeing 737-900ER. Source: Alaska Airlines.
Virgin leases for Airbus A319s/320s extend to 2025. The ex-Virgin fleet numbers 61. Leases for Airbus A321s extend to late this decade.
Alaska has 30 A320neos on order from the Virgin merger. However, cancellation rights have small penalties.
The carrier ordered 37 737 MAX 9s. Three were built last year but are stored in the grounding. Seven more are due this year.
Alaska plans to aggressively grow in the next 10 years.
Here’s why converting the 30 Virgin orders to A321neos makes sense.
How much did the CSeries cost Bombardier?
By Bjorn Fehrm
Subscription Required
Introduction
February 20, 2020, © Leeham News: As we wrote in last week’s article about the A220 flying the Montreal to Toulouse route, the stakes are high in the civil airliner business. If you don’t have a very strong balance sheet you shouldn’t enter the business.
Bombardier learned this the hard way. Its follow up project to its successful CRJ regional jets, the CSeries, brought Bombardier to the brink of bankruptcy and it had to sell the project to Airbus at a fraction of its value. The project cost more to develop and produce than planned despite not running off the rails during development like Boeing’s 787 or Mitsubishi’s MRJ.
We analyze why it cost so much and at what fraction Airbus got the program.
Summary:
- The CSeries nearly doubled its development costs despite being void of major hiccups. What was the cause?
- Airbus picked up the program when Boeing forced Bombardier to sell. How much of a bargain did Airbus get?
Boeing may have checkmated Airbus in trade dispute
By Scott Hamilton
Feb. 20, 2020, © Leeham News: Boeing may have just checkmated Airbus in the long-running trade dispute between the US and European Union.
In an unexpected move, Boeing and Washington State crafted legislation to void tax breaks 
dating to 2003. The tax breaks were given to support development and assembly of the 787 in Washington. They were extended in 2013 to support assembly of the 777X in Washington.
The tax breaks were found to be illegal by the World Trade Organization. The US appealed the amount of damaged. An outcome is pending was due in May or June.
This case is parallel to another against Airbus. The WTO found Airbus received illegal subsidies and failed to cure them in connection with the A350 and A380 programs. All Airbus airplanes imported into the US, along with other goods unrelated to aerospace imported from the EU, are now subject to tariffs. The Airbus planes have been taxed at a 10% rate since October. This goes up to 15% in March.
Boeing helps some suppliers, but squeezes others
By Scott Hamilton
Feb 19, 2020, © Leeham News: Boeing says it is helping some suppliers with liquidity while the 737 MAX is grounded.
Other suppliers complain that Boeing is dunning them for alleged bad workmanship, squeezing cash. Still others say Boeing proposes not paying them for MAX parts until every regulator in the world recertifies the airplane. There are some 80 regulators who have to approve restoring the MAX to service.
And one Tier 1 supplier, Leonardo, sued Boeing Dec. 23 for withholding $20m in payments for 767 slats. Boeing alleges faulty workmanship. 
Leonardo says Boeing won’t provide documentation of this claim.
(US District Court for Western Washington, 2:19-cv-02082-JLR.)
Boeing’s tactic of withholding payments for claims against future invoicing was echoed by some of the suppliers attending the annual conference of Pacific Northwest Aerospace Alliance Feb. 4-6. Some complained Boeing is using them for its “bank.” It’s a complaint of long-standing even if for different reasons.
Boeing finds debris left in new 737 MAXes, now in storage
By Scott Hamilton
Exclusive
Feb. 18, 2020, © Leeham News: Boeing recently discovered some of its stored 737 MAXes have foreign objects in the fuel tanks.
The entire fleet of 400+ newly produced but undelivered MAXes is being inspected.
Foreign objects, called foreign object debris (FOD) in aviation parlance, consist of tools or rags. FOD has been found in the fuel tanks of some MAXes. MAXes are stored at four locations in Washington State and in San Antonio (TX).
It’s unlikely that the FOD inspections will delay recertification or testing of the MAX.
Pontifications: In chaos there is opportunity for Boeing during MAX grounding
Feb. 17, 2020, © Leeham News: Boeing executives said that while the 737 MAX production is suspended, efficiencies are being implemented on the assembly lines.
By Scott Hamilton
At a Cowen & Co. conference last week, EVP and CFO Greg Smith outlined some of the efficiencies that are being put in place.
But another area that could be improved, not addressed by Smith, while the lines are shut down is supply chain tracking. This has huge ramifications for cost savings and streamlining. It’s part of the business plan for the next new airplane, whatever this is.
This process is called ERP, or Enterprise Resource Planning. Boeing is transitioning to a more advanced method, called SAP, or Systems Applications Projects.
Boeing Australia and Boeing Global Services have made the transition. But Boeing Commercial Airplanes’ transition is stalled due to middle management inertia, said several people who attended the Pacific Northwest Aerospace Alliance annual conference Feb. 4-6.
Boeing should use the production halt and slow ramp up to implement SAP, they said.
Boeing 737 MAX 2020-23 backlog will require to 2026 to deliver: analysis
Subscription Required
Introduction
By Scott Hamilton
Feb. 14, 2020, © Leeham News: It will take Boeing years to deliver new production airplanes scheduled for delivery in 2020-2023 because the restart of the 737 MAX production will fall far short of delivery commitments.
There are an estimated 2,682 deliveries scheduled in this timeframe. Boeing’s production restart and ramp up provides delivery positions for an estimated 1,827 aircraft. This leaves an estimated 855 aircraft that will have to be rescheduled into the future, from 2023.
These will compete with Boeing sales for new order delivery slots. For example, the MOU for 200 MAXes from IAG, the parent of British Airways and other carriers, has delivery slots in these periods.
An analysis by LNA indicates it will take at least until 2026 to deliver these 855 airplane if no other orders are slotted in through 2025.
Boeing sued in Seattle over 737 MAX
Feb. 13, 2020, © Leeham News: A Seattle law firm filed what is believed to be the first lawsuit over the Boeing 737 MAX crisis in King County Superior Court.
King County includes Seattle and Renton, where Boeing’s Commercial Airplanes division is headquartered.
Lane Powell PC filed the lawsuit (20-2-04003-7) naming The Boeing Co. and BCA as defendants. The plaintiffs are two special purpose companies (SPC) that own two 737-8-based MAX BBJs (business jets.) This is believed to be the first BBJ owners to file suit against Boeing.