Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
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- Does an Airbus A220-500 need a new wing and engines? May 1, 2025
With Boeing’s 737 MAX delivered to storage instead of customers, unique cost and revenue insights can be gained.
By Bjorn Fehrm
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Introduction
January 23, 2020, © Leeham News: The last three-quarters of non-delivered Boeing 737 MAX production exposes the internals of an airliner OEM as seldom before.
The second, third and eventually fourth quarterly reports from Boeing can be compared to the same reports for the 2018 quarters. The differences in the numbers represent the production cost of the 737 MAX being booked as inventory instead of revenue. These values make for interesting reading as they give deeper insights into the production costs and net customer prices for the model.
Summary:
- When the MAX goes to storage it’s delivered to Boeing Commercial Airlane’s inventory.
- The net production cost appears in an increased inventory cost and the net customer price is missing in revenue.
- By careful comparison of the quarterly reports between 2019 and 2018, cost and revenue insights can be gained
Analysts react negatively to Boeing slip of MAX recertification
Jan. 22, 2020, © Leeham News: Boeing’s announcement yesterday that it does not expect recertification of the 737 MAX until mid-year drew 
generally negative responses from Wall Street aerospace analysts.
More charges and costs to Boeing and the supply chain are expected beyond what was anticipated in next Wednesday’s 2019 earnings call.
Below are the initial reports from analysts in notes received by LNA. The bold face type is in the original.
Environment and aviation, a gap between aspirations and reality
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By Vincent Valery
Introduction
Jan. 20, 2020, © Leeham News: Talks about climate change and the need to reduce human-induced carbon emissions are nowadays a daily occurrence in Western media. After years of faster-than-trend growth in global passenger numbers, aviation-induced carbon emissions commensurably increased in spite of record deliveries in latest-generation, fuel-efficient planes.
As a result of this growth, airlines have been one of the main targets of environmental groups. The high growth culminated in the start of the flight-shame movement that originated in Sweden (flygskam). As outlined in a previous LNA article, there are discussions about introducing a jet fuel tax for all flights within the European Union.
Credit: Zunum Aero
Airbus is committed to the “decarbonization” of its next airplane design.
Boeing’s next move for a new airplane has been sidetracked by the 737 MAX crisis.
Embraer is devoting considerable effort to developing a “green” airplane.
Summary
- Airlines and politicians on the back foot;
- Variety of opinion among regions;
- And airlines make consensus-building hard;
- An obsession with one way to reduce emissions;
- Flybe’s bailout summarizes contradictions and challenges.
Pontifications: Another Calhoun challenge: fixing Boeing’s product strategy
Jan. 20, 2020, © Leeham News: David Calhoun has been CEO of The Boeing Co. for a week. A couple of new problems arose.
By Scott Hamilton
Late last week, the US Air Force weighed in that it’s unhappy, again, with Boeing over the KC-46A program. The Air Force was previously open about its dissatisfaction with Boeing’s performance. But top officials were quick to contact the new CEO with its unhappiness.
A new software problem was found on the 737 MAX which may add some time to the recertification timeline. The problem involves booting up two computers on start up and isn’t considered a big issue.
Last week, LNA posted a series of articles about Calhoun’s immediate challenges.
Last November, LNA posted a graphic that listed a host of problems that occurred under Denis Muilenburg’s watch. Calhoun must deal with these, too.
Today, we take a look at another challenge Calhoun must face: Boeing’s commercial airplane product strategy.
Air Canada inaugurates A220-300 service today
Jan. 16, 2020, © Leeham News: Air Canada inaugurates Airbus A220-300 service today, becoming the second North American carrier to operate the A220. Delta Air Lines was the first, with the A220-100 last year.
Air Canada A220-300. Photo by Scott Hamilton.
It is the first North American airline to operate the -300 model. The new service begins on the Montreal-Calgary route.
Airline and Airbus officials paid homage to Bombardier at a celebration yesterday in an Air Canada hanger down the block from Bombardier’s world headquarters on the edges of Montreal Dorval Airport.
Bombardier designed the aircraft, originally called C Series, in a bet-the-company challenge to Airbus and Boeing.
Certification process for 777X is another hurdle for Boeing
By Scott Hamilton
Jan. 16, 2020, © Leeham News: Certification of the Boeing 777X is far off. The airplane’s first flight hasn’t occurred. There is no date announced when it will, but sources suggest it could be this month.
Boeing 777-9. Source: Boeing.
The fallout from the 737 MAX crisis and its certification process isn’t fully understood. Neither Boeing nor the Federal Aviation Administration announced what the 777X process will be.
It’s assumed that the discoveries about the MAX certification process will result in a revision to the FAA’s approach to 777X certification.
There are questions circulating in the aviation community whether the FAA will revisit every certification step done so far for the 777X and what it will look like in the future.
A new question arises: will the 777X be certified as a derivative of the 777 Classic—the path Boeing wants. Or will the FAA decide that enough changes are designed into the 777X that it needs an entirely new type certificate?
How far can Boeing’s remaining cash cow, the 787, pay the company bills, Part 2?
By Bjorn Fehrm
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Introduction
January 16, 2020, © Leeham News: Last week we started the analysis of how much margin the Boeing 787 program is generating to cover the costs for The Boeing Company’s Commercial Airplanes division when the other cash cow, the 737 MAX program, brings no revenue or margin.
The 787 program is now in a state where it generates significant revenue and margin. The other programs, the 767 and 747 freighters, the 737NG (P-8A Poseidon) and 777 Classic make up less than 45% of deliveries with the 787 covering 55% of deliveries, and these programs are in phases where they deliver less margin.
Summary:
- The 787 program accounting employs different accounting block production costs for the different 787 variants.
- The 787-10 carries the highest accounting block cost and is accordingly the most important variant for the payback of the deferred costs.
- The 787-8, despite leading the program, generated the largest deferred costs (due to learning curve effects), amortizes the least of the variants.
Read more
Boeing hasn’t hit bottom yet. Neither have suppliers.
By Scott Hamilton
Analysis
Jan. 15, 2020, © Leeham News: The extent of the damage to Boeing from the 737 MAX crisis still is unfolding.
Billions of dollars in new costs and charges are expected to be announced on the 2019 earnings release and call, Jan. 29.
But the long-term effects, only surmised until now, are beginning to become evident following information obtained by LNA from multiple sources.
- Restarting production will be at a low initial monthly rate.
- Ramp to previously targeted 57/mo likely lags by three years.
- The impact on suppliers will be profound.
- Impact on employee retention is unknown.
- 737 backlog delivery schedule will require major adjustments.
- Airbus stands to benefit from Boeing’s extended lower production rate.
- New airplane years away—even as it’s needed for Boeing’s future.
- Lower 737 production rate reduces cash flow; 787 rate reduction will hurt, too.
Boeing hasn’t hit bottom yet. The worst is yet to come for suppliers.
MAX delivery process will be slowed by FAA’s fewer resources
By Scott Hamilton
Jan. 14, 2020, © Leeham News: Boeing likely faces an extended timeline to clear its inventory of 400 737 MAXes. LNA estimates it will be well into 2022 before these new-production airplanes are delivered to customers.
The new timeline is based on LNA discussions with key people and our analysis. Boeing won’t comment. Wall Street analysts so far haven’t significantly shifted their forecasts of 3Q or 4Q2021.
The decision last year by the Federal Aviation Administration to assume responsibility to certify each Boeing 737 MAX before delivery is key to LNA’s estimate.
Pontifications: Boeing Board needs major shake-up
Jan. 13, 2020, © Leeham News: Today is David Calhoun’s first day as the president and CEO of The Boeing Co.
To say that he’s got his work cut out for him is an understatement.
By Scott Hamilton
I’ve put together a list below, which probably is only half of the important tasks at hand. Most of this list is obvious and doesn’t need any additional reporting because of all the coverage in 2019.
This column is focused on another task that should be, and in the view of many, must be done.
Boeing’s Board is preoccupied with the MAX crisis, but on the theory it can do more than one thing at a time, it need to also turn its attention to some introspection.