The fuel effect; or old is beautiful

By Bjorn Fehrm

19 January 2016, ©. Leeham Co: When Willie Walsh, the CEO of IAG, said that the Airbus A340-600 “is a fantastic aircraft at fuel below $60 a barrel but perhaps not at $120,” he put operational words to something the Growth Frontiers 2016 conference in Dublin had been grappling with since it opened on Monday morning.

A340-600

What is going to happen now? Crude is falling below $30 a barrel and Jet fuel is below $1 a gallon. This must have an effect on how people decide, whatever the lessors and aircraft OEMs say.

And it had to be a senior airline CEO that broke the mantra that everyone was repeating: “We don’t see fuel prices having any effect on fleet planning for airlines.”

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Bjorn’s Corner: What did we learn in 2015?

By Bjorn Fehrm

By Bjorn Fehrm

08 January 2016, ©. Leeham Co: It’s the first Corner for the year and a look at 2015 as a year of technology advancements is due. 2015 will be remembered as the year when three clean sheet airliners passed important milestones. This will not happen for many years to come, so it will be worth to look at what they brought to world of aviation.

I’m thinking of Bombardier’s (BBD) CSeries getting certification for its first variant; the Mitsubishi MRJ doing its first flight’ and COMAC’s C919 being rolled out. Going forward, we will only have derivatives progressing through such milestones for years except for the roll-out of United Aircraft’s MS-21 single aisle airliner in 2016.

The Airbus A320neo was certified in 2015 and Boeing’s 737 MAX rolled out, but these are derivatives of in-service aircraft.

Embraer’s E-Jet E2 will roll out in February but this is a further development of today’s E-jet and Airbus A350-1000 is a variant of the in-service A350-900.

It will be a long time before we see so much new in a year, so it can be instructive to look at to what extent did these new aircraft bring the state of the art of airliners forward.

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New aircraft programs’ sorry record of delay

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Jan. 7, 2016, (c) Leeham Co. New aircraft programs used to be on time and a source of pride for the Original Equipment Manufactures (OEMs).

No longer. Delays are the norm, and despite “lessons learned,” there is little record so far that much has changed.

Boeing strives to turn this around with the 737 MAX. When the program was launched in July 2011, with a hasty decision to counter the Airbus A320neo order at American Airlines, Boeing forecast the first delivery would be in the fourth quarter of 2017 (October was the more specific target date). Within a year, Boeing revised this forecast to the third quarter, with July being the new target.

With the roll-out last month of the 737-8, Boeing so far appears to be on schedule for the new target. The plane hasn’t made its first flight yet, and plenty could still theoretically go wrong, but at least for now, things appear to be on track.

Embraer announced last month that the roll-out of its first E-190 E2 will be Feb. 25. The company has been tight-lipped about its timeline to date, other than a 1H2018 delivery target, but Market Intelligence indicates the roll-out is likely about a month sooner than had been planned. Suggestions by some that the MAX program is the “only” one on time are simply off the mark.

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Pontifications: Looking ahead to 2016

Jan. 4, 2016, © Leeham Co. Let’s take a walk through our outlook for 2016.

Boeing is 100

The Boeing Co. is 100 years old this year. July 15, to be precise. This is the last day of the industrial portion of the Farnborough Air Show.

There will no doubt be all kinds of celebrations at the Air Show. To the extent possible, I would imagine Boeing will try to have a whole lot of orders to announce there. There will be all kinds of run-up to the 100th anniversary. Few throw a party as well as Boeing. (Just don’t sing “Happy Birthday;” I never have liked this song.)

It’s a great achievement and we should all celebrate with Boeing for the next seven months.

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CS100 certified; We review CS100’s birth with VP CSeries, Rob Dewar

Introduction

By Bjorn Fehrm

21 December 2015, ©. Leeham Co: Bombardier (BBD) received certification of the smaller CSeries, the CS100, by Transport Canada Thursday.  Rob Dewar, vice president of CSeries, reflected on the journey to certification in an exclusive interview with LNC.

Rob Dewar with cert

CSeries VP Rob Dewar with CS100 Certificate. Source: Bombardier.

The interview was done against a backdrop of more than two years of delays, which in turn drained the coffers of BBD. To save the project and let it prove its game-changing character, management sold 49.50% of the CSeries program to the Province of Quebec for $1bn and 30% of its train division to Caisse de dépôt et placement du Québec, for an additional $1.5bn.

Dewar has managed the project from the program launch in 2008. The transcript of the interview follows.

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The future of the A319neo and 737-7

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Introduction

Dec. 14, 2015, © Leeham Co. There are just 49 orders for the Airbus A319neo. There are only 55 orders for the Boeing 737-7 MAX.

The A319neo has been ordered by Avianca (19), Frontier Airlines (18) and there are 12 orders from Undisclosed customers.

The 737-7 has been ordered by Southwest Airlines (30), WestJet (25) and Canadian start-up Jetlines (5).

Bombardier’s CS300 is a direct competitor. There are 190 orders, but a fair number of these are soft, such as Iraqi Airways, Republic Airways Holdings and lessor LCI.

Embraer’s E-195 E2 has 90 orders through September, the most recently reported period by the OEM. While it is not a direct competitor when configured to the same standards—it carries slightly fewer people—EMB is effectively competing the 195 E2 as a replacement for the 737-700 and A319ceo in “right sizing” operations.

Summary

  • The A319neo and 737-7 can’t compete economically with the CS300.
  • Minimal interest raises doubts over future of A319neo and 737-7.
  • No orders for the CS300 for more than a year, and despite recapitalizing BBD, market confidence remains on the sidelines.
  • Embraer makes solid case for revenue enhancement through right sizing but union Scope Clauses limit appeal of 195 E2.

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Boeing sees green for 2016 financing sources

Dec. 8, 2015: Boeing Capital Corp. sees a robust financing market next year for an estimated $127bn in new airplane deliveries.

The forecast is for the global picture, and not just Boeing Commercial Airplanes (BCA) deliveries.

In its new Current Aircraft Finance Market Outlook 2016, BCC paints a picture of financing that is the most optimistic in years. In its annual Green/Yellow/Red assessment of various financing sources, there are no Reds for the first time since 2011, although there are two Yellows—the Export financing credit agencies and the aircraft and engine OEMs themselves, which don’t like to do direct financing. All other sources are Green (Figure 1).

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Pontifications: Looking to year-end

Nov. 30, 2015, © Leeham Co.: One month to go to the end of 2015. What’s left to come?

  1. The first Boeing 737 MAX is rolling out of the factory Dec. 8. For reasons that defy obvious explanation, Boeing is low-keying this event. Only a few members of the press will be there with the employees. This is a Big Deal, yet Boeing isn’t making it one. Strange.
  2. The final race is on to wrap up orders by the end of the year. Airbus salesmen are scurrying around. So are Boeing salesmen. So are Embraer’s. Bombardier’s sales force is taking a targeted approach to sell its CSeries, but it’s unclear if there will be any deals announced by the end of this year. United Airlines is a big target, but there are some interesting goings-ons there (see below).
  3. It’s pretty clear Airbus will win the order race. Boeing is trailing far behind. At the beginning of the year, Boeing predicted sales-to-deliveries (Book:Bill) of one. More recently the tone changed to saying it would be close to one.
  4. Embraer is having another good year with its E-Jet sales.

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Bombardier looks to the future

By Bjorn Fehrm

Nov. 25 2015, ©. Leeham Co: Bombardier (BBD) has not had an easy year. The stock plunged from just over $4 at the beginning of the year to a low of just over $1 today on the continuing of a cash crisis and what to do with the CSeries program.

The stock market wasn’t reassured by the annual investors day yesterday in New York City, even though some analysts were more positive. Robert Spingarn of Credit Suisse wrote:

“In addition to offering some level of financial forecast and visibility for the next 5 years, the most important thing BBD’s new management did at today’s investor event in NYC was to clearly demonstrate a much welcomed sense of leadership, organizational structure and accountability.”

We tend to agree with him and it was a leadership that described a plausible roadmap to a future. Bombardier could before the event relegate the question of the company’s immediate survival to the past, thanks to La Caisse de dépôt et placement du Québec (CDPQ) taking a 30% stake in the BBD Train unit.

This will inject US$1.5bn to the company cash in addition to the $1bn that the Province of Quebec previously agreed to inject in the CSeries program. Both investments are scheduled to close in the first quarter. The conference could therefore be focused on a presentation on how to transform the company for 6% annual compound growth and acceptable profitability in all its business units until 2020. Read more

State investment in Bombardier further mockery of WTO

Nov. 24, 2015, (c) Leeham Co. With the $1bn investment by the Province of Quebec in the Bombardier CSeries program, another example of government funding emerges in commercial aviation development.

Setting aside whether the investment might be challenged before the World Trade Organization—and whether this makes good business sense for Quebec—the move makes a mockery of the entire concept of avoiding government support.

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