Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- 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
- Does an Airbus A220-500 need a new wing and engines? May 1, 2025
Embraer presents 3Q2019 results.
By Bjorn Fehrm
November 12, 2019, ©. Leeham Co: Embraer announced its 3Q2019 results today. The company delivered a report which disappointed analysts regarding revenue, earnings and free cash flow. Commercial deliveries were 17 jets (15 in 2Q2018) but only two of these were of the E2 generation. Total E2 deliveries now stand at eight jets after 18 months of deliveries, a very low figure.
The Joint Venture with Boeing is now delayed as the European Union says it sees a risk for diminished competition in the Airliner market. Embraer will close the carve-out of the Commercial Aircraft division and its services at the end of the year while waiting for final approvals.
Wall Street rewards Boeing with December MAX delivery forecast
Nov. 12, 2019, © Leeham News: Wall Street rewarded Boeing with a $15 spike in its share price after the company said it expects the recertification of the 737 MAX and the first deliveries to begin in December.
Boeing photo.
Actual return to service is not expected until January, following pilot training, Boeing said.
“Boeing rallied 4.5% today in a slightly down market after the company outlined the remaining milestones for the 737 MAX’s return to commercial service,” JP Morgan’s aerospace analyst wrote in a note after the close of the market.
“Boeing’s messaging has now caught up to Street expectations, which is that the MAX can return in early 2020, though the company’s timeline still allows for FAA certification and potentially deliveries before year-end.”
Airlines look toward another peak season without the MAX
Subscription Required
Introduction
Nov. 11, 2019, © Leeham News: Airlines are beginning to make plans for another peak summer season either without the Boeing 737 MAX in their fleets, or a reduced number.
With the recertification of the MAX continually sliding, like an airline’s creeping delay at the airport, this is stating the obvious. Airlines keep shifting the true return to service (RTS) (not recertification) from 2019 into 1Q2020.
Source: Boeing.
American and Southwest airlines, the two carriers with more MAXes grounded than any other airline, now target RTS March 5 next year—just a week short of the global grounding of the airplane.
Boeing’s chairman, David Calhoun, acknowledged in an interview with CNBC Nov. 5 RTS will now fall into 2021.
This was two days before the Federal Aviation Administration and EASA rejected Boeing’s documentation that is required before recertification is granted. According to media reports, this could add an inconsequential number of days to the process or a significant number of weeks.
Concerns are beginning to emerge that recertification may not come until after the first of the year.
All this increases the uncertainty for the airlines.
Summary
- Creating Plan B—no MAX in the peak season.
- Stored MAXes may face a “calendar” deadline, requiring C Checks before RTS.
- Lessors offering new, year-long leases on A320s and 737 NGs.
Air France-KLM wants to simplify the fleet
Subscription Required
Nov. 7, 2019, © Leeham News: Air France-KLM will strive to greatly simplify its fleet by early next decade, the group outlined in an investors day presentation Nov. 5.
The Group includes Air France, KLM and Transavia. The low-cost carriers Joon and Hop! are discontinued.
Fleet simplification
KLM
The company wants to reduce today’s fleet types at KLM from six to four, dropping the Airbus A330 and Boeing 747s.
The Future Fleet concentrates around the Embraer E1 and E2 E-Jets; the Boeing 737 NG; the Boeing 787-9 and the Boeing 777 Classic.
At the moment, there are no Boeing 737 MAXes in the future fleet plans. KLM had none on order, even before the October 29, 2018, Lion Air accident.
The possibility of a Boeing 777X is also not shown in the rendering.
Aviation Forum Munich: Boeing moves away from Partnership for Success
By Bjorn Fehrm
November 6, 2019, ©. Leeham News at Aviation Forum Munich: The second day of Aviation Forum Munich had an interesting presentation from Boeing’s VP of Sourcing, Jody Franich.
He described the One Boeing approach for Manufacturing and Sourcing and how Boeing is moving away from its supply chain Partnership for Success program, with the supplier cost down focus replaced by a more long-term cooperation model with a mutual benefit focus.
Boeing’s VP Sourcing Office Jody Franich presents to Aviation Forum Munich.
“It’s not easy to compare:” Airbus’ CEO Faury
- Guillaume Faury has been the chief executive officer of Airbus Group since April 1. In this exclusive interview, he looks back on his first six months and ahead for the future of the company. Part 1 appeared Oct. 30. This is the second of two parts.
Guillaume Faury
Nov. 6, 2019, © Leeham News: “It’s not easy to compare the performance of the two companies,” says Guillaume Faury, the CEO of Airbus, when the inevitable comparisons between his company and Boeing are made.
The context was talking about advanced manufacturing, discussed in Part 1 of this interview.
“I don’t think we are behind on digital. I think they might have gained more preparation on the future of production systems. We are catching up big time if not ahead in some important places. I think we will know who’s first when the next generation of airplanes is launched. These will be the first ones with digital design and manufacturing. There’s not a single plane today which is full DDMS.”
The issue is key to the next new airplane produced by Airbus or Boeing.
Boeing charges, costs nearly $35bn since 1996
By Vincent Valery
Introduction
Nov. 5, 2019, © Leeham News: Boeing already has racked up $9.2bn in one-time charges and additional costs to the accounting block in the 737 MAX crisis.
Some expect there will be more substantial charges before the dust settles. Even Boeing officials said it will be years before all customer claims are settled. Legal liabilities are only partially covered by insurance.
Program accounting, which is unique to the US, allows a company to spread the costs of an expensive development over the anticipated life of the program and the forecasted orders.
Other countries require unit accounting or charging off costs as they occur during development.
Boeing is one of few companies in the US to use program accounting. This masks current charges in the GAAP-approved financial statements. A few years ago, Boeing also began reporting non-GAAP numbers on the basis of unit costs as additional information.
With one-time charges and added costs to program accounting assumptions related to the 737 MAX grounding, Boeing’s accounting policies are back in the spotlight. The accounting policy became controversial as deferred production costs spiked on the 787 program.
As commercial and defense programs faced cost overruns and delays, the company had to record billions of US Dollars in charges and various losses over the years.
LNA went through all of Boeing’s annual 10-K filings since 1996 to identify all the charges recorded on commercial and defense programs.
After recording billions in charges since Dennis Muilenburg became CEO in 2016, we assess whether there is more to come in future quarters.
Summary
- Program Accounting fundamentals;
- Dreamliner Deferred production cost controversy;
- Billions in (not so) one-off charges;
- Current and future charges under Muilenburg’s watch.
Big Three Gulf Carriers’ financials
Subscription Required
By Vincent Valery
Introduction
Nov. 4, 2019, © Leeham News: The rise of the Big Three Middle Eastern carriers since the mid-2000s has been nothing short of astounding.
They took full advantage of an advantageous geographical location: 85% of the world population is within a 10-hour flight from either Qatar or the UAE. Emirates and Qatar Airways connect all continents, except Antarctica.
This transformation i
nto super connectors did not come without controversies. The most vocal are the Big Three US legacy carriers, through the Partnership for Open and Fair Skies. They accuse the Gulf Carriers of benefiting from massive subsidies that allow them to underprice their competitors.
As part of a deal between Qatar, the UAE, and the USA, the Big Three Gulf Carrier started publishing audited financial statements. Emirates’ and Qatar Airways’ financial statements are publicly available on their websites since 1994 and 2015, respectively. Etihad Airways has been releasing some income statement information since 2010.
Ahead of the upcoming Dubai Air Show Nov. 18-19, LNA had a look at those financial statements. We outline our takeaways in this article.
Summary
- Very high growth at all three airlines;
- Funded by different means;
- Global slowdown and Geopolitical tensions force strategy rethink;
- Varying levels of earnings quality;
- An unsuspected (significant) source of revenues.
Pontifications: Congressional hearings on Boeing dominated by grandstanding–but damning documents revealed
By Scott Hamilton
- Senate hearing largely theater.
- House hearing has grandstanding, but substance, too.
- House reveals some damning documents.
- Muilenburg claims no knowledge of legal strategy, but top lawyer reports directly to him.
Nov. 4, 2019, © Leeham News: Last week’s Congressional hearings about the Boeing 737 MAX crisis was just as I expected: theatre, lots of grandstanding, little substance and testimony that elicited little in the way of new information.
The US Senate hearing was a perfect example of playing to the television by many Senators.
The House hearing certainly had its share, but in more lucid moments, some House members produced new documents that were especially damning to Boeing.
Boeing CEO Dennis Muilenburg and John Hamilton, VP and chief engineer, did no harm to Boeing, which was probably the prime objective. (Hamilton is no relation to me.)
Muilenburg did harm to himself, however, and some Members of Congress landed some damning blows.
A Basic “MCAS” System was installed in the Boeing 707 in the 1960s
By Oliver Stuart Menteth
Fintech Aviation Services
Special to Leeham News
Oliver Stuart Menteth
Nov. 1, 2019, © Leeham News: It was simplistic in design, had a graduated and limited input into the pitch control system and details were included in the relevant training, operational and maintenance manuals. It worked seamlessly and because of this its existence, and reason for installation, has eluded most people in the industry. The system was installed not as a result of a recommendation or regulation imposed by the FAA but at the insistence of the Air Registration Board (now the Civil Aviation Authority) of the United Kingdom.
But first, some relevant background.