Assessment of Lessors in Airbus and Boeing backlogs, narrow- vs wide-body

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Introduction

Nov. 30, 2014: Airlines now lease about 50% of their aircraft under a variety of mechanisms: operating, finance, leveraged and Islamic leases, just to name a few.

There are operating leasing, special purpose and “house” companies. There are leasing units of investment banks, insurance companies and a host of others.

Ireland is a popular leasing venue because of favorable tax laws.

The Big Four airframe OEMs have long sold aircraft directly to lessors, and the emerging airframe OEMs, COMAC and Irkut, have seen orders placed by emerging lessors in their home countries. ATR, the turbo-prop OEM, also has received orders from lessors.

Today we look at the lessor relationships with Airbus and Boeing.

Summary

  • Lessors represent a significant, but still a minority, part of the Airbus and Boeing backlogs.
  • Widebody airplanes constitute a small portion of lessor orders.
  • Boeing has more widebody lessors orders than Airbus.
  • Airbus has a larger lessor order book than Boeing.

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MTU investors day: views of its engine programs, future airplane timelines; separately, Embraer COO interview

GTF Milestones Nov 2014

Figure 1. Technical milestones have been passed on PW GTF programs for the applications on Bombardier, Airbus, Mitsubishi and Irkut airplanes and are approaching for Embraer. Source: MTU Investors Day. Click to enlarge.

Nov. 30, 2014: MTU Investors Day: MTU is a major participant in engine development and supplies, participating on the GEnx, GTF and GEnx program. It’s also a member of the joint venture in International Aero Engines and it’s a major player in the aftermarket Maintenance, Repair and Overhaul (MRO) sector, providing a serious competitive alternative to the aftermarket contracts offered by the engine OEMs. Its held an investors day conference Nov. 25. Highlights included:

  • Milestones have been passed on the Pratt & Whitney Geared Turbo Fanengine for the Bombardier CSeries, Airbus A320neo family, the Mitsubishi MRJ and Irkut MC-21; and are on schedule for the Embraer E-Jet E2.
  • The success of the GTF is requiring huge production commitments.
  • The large number of airplane/engine programs require a major ramp-up of production during the next few years.
  • The major investment in new engines is largely over for now, leading to the expectation of long-term revenue from MRO.

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Odds and Ends: Storm Warnings; Boeing photos now available to everyone; CSeries; Movin’ on up

Nov. 26, 2014:Storm Warnings: We’ve made references in recent posts about airlines on our “Storm Warning Flag” list.

Top 10 TA 2013

Our 2013 Top Customers and Storm Warning Flag list for wide-body airplanes. The Red are Middle Eastern airlines, blue from Asia and black from the US and Europe. Only one airline for wide-body orders was on our Storm Warning Flag list: AirAsiaX. Expansion and ordering we considered too rapid landed the carrier on the list. Sources: Airbus, Boeing. Click to enlarge.

In 2013, we compiled the Top  Customers for Single-Aisle and Twin-Aisle Airplanes for Airbus and Boeing. Here’s our 2013 Storm Warning Flag list. The name comes from the flag, which signals Storm Warnings. This list was compiled before the 777X orders announced at Dubai were firmed up, so the yellow boxes show what the Top 10 Boeing rankings would be had they been. We considered the quantity of orders, the current operations, financial status and other factors in placing a carrier on our Storm Warning Flag list. The Wide-body list also illustrates the growing importance of the Middle Eastern airlines (consider that this was a year ago). The wide-body list is pretty stable.

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Odds and Ends: E-175s for Alaska; AirAsia X and Norwegian Air; Production rates

Nov. 25, 2014: E-175s for Alaska Airlines: SkyWest Airlines of the USA, a provider of contract service to several US carriers, ordered seven Embraer E-175s for planned service for Alaska Airlines. Simultaneously, Alaska announced new service from its Seattle hub, using E-175s from SkyWest to Milwaukee, Oklahoma City, and from Portland to St. Louis.

This is Alaska’s first use of the E-Jet in its system. All service to now has been with Bombardier Q400s from ALK’s sister, Horizon Air, or Bombardier CRJs from SkyWest.

Alaska is in a market battle with Delta Air Lines, which is expanding its hub at Seattle.

AirAsia X and Norwegian Air: CAPA, the Centre for Asia-Pacific Aviation, has a very good analysis about AirAsia X, the long-haul, low-fare carrier that has reported big losses for the last several quarters. This airline made it on our Storm Warning Flag list last spring. It’s got a big backlog of Airbus A330-300s, A330-900s and A350-900s and it’s announced some deferrals of the -300s. We consider this to be a shaky skyline for Airbus, particularly with the -300s.

Aviation Week has a good story about Norwegian Air Shuttle, another airline on our Storm Warning Flag list. NAS is building a long-haul business model based on the Boeing 787 in additional to plans to greatly expand its Boeing 737-based LCC model in Europe.

Production rates: We’ve written a great deal about production rates and production gaps. Flight Global’s sister company, Ascend, provides this broad look (free registration required in a particularly annoying process). The analysis missed the Airbus notice to the industry to plan to take production rates of the A320 to 54/mo in 2018, but otherwise this is a good analysis which happens to pretty well coincide with our views we’ve expressed throughout the year. This is a good one-stop piece.

 

 

Interview: CSeries program update with Bombardier’s program chief Dewar

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By Bjorn Fehrm and Scott Hamilton

Introduction

Nov. 24, 2014: Bombardier CSeries flight testing has now passed 500 flight hours, and with the addition of Flight Test Vehicle 5 to the test fleet soon, the head of the program believes BBD can hit its entry-into-service target of 2H2015.

Rob Dewar

Rob Dewar, VP-GM Bombardier CSeries. Source: Fliegerfaust.

Robert Dewar, VP and GM of CSeries, declined to affirm, or even confirm, a report that EIS now has an internal target of October 2015.

In a wide-ranging interview November 24 with Leeham News and Comment, Dewar talked about the flight test program; the repairs to the Leeham logo with Copyright message compactcomposite wing of FTV1 following an engine failure that showered the wing with debris; the Fly By Wire software that’s been nettlesome; and other issues.

Summary

  • October 2015 now target for Entry-in-Service, reports Canada’s Desjardins. Dewar reiterated the 2H 2015 target, which remains the company’s official statement.
  • Bombardier now has a four test aircraft flying with the fifth joining the test fleet around Christmas time.
  • The test aircraft has flown the full flight envelope with the Fly By Wires “normal” mode enabled. Right now the testing is concentrated on the FBW failure modes.
  • The next important test series is performance with FTV4, which has  production engines fitted for the purpose. FTV4 had just had its first flights when the FTV fleet was grounded for three months following the engine failure in May.
  • The final assembly facility is finished with its tooling in July and the first aircraft to be assembled there, the second production aircraft, is presently in final assembly in the facility.

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A320 v 737: the sales winner is….

It’s one of the bitterest rivalries in the industrialized world: Airbus vs Boeing.

Despite being world-class companies, executives at each often snipe at each other’s airplanes, claiming superiority in economics and passenger appeal. Like lawyers arguing a court case, data is typically selectively used to advance the claims.

One of the most hotly debated issues between the two companies is which is the best single-aisle airplane, the ones that fly the most routes in the world and which carry more passengers than any other type: the Airbus A320 or Boeing 737 families.

Boeing’s marketing and communications team has done a superb job of claiming its 737 is the best selling jetliner of all time and with 12,257 firm orders since the first program, the 737-100/200, was launched in 1964. The 737 edges out the A320 family’s 11,021 orders. (These figures exclude options and MOUs.)

But the A320 was launched in 1984, 20 years after the 737. A even-up comparison should begin in March 1984 comparing the A320 family with the 737 Classic from then to the end of the Classic’s production run; and with the 737 Next Generation from its program launch in November 1993; followed by the A320neo and the 737 MAX.

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Odds and Ends: Goldman Sachs on CSeries; Embraer in China; A350 gets FAA certification;

CSeries: Bombardier presented to the Goldman Sachs Industrial conference this week. Goldman’s take:

  • CSeries test flight: BBD believes it can achieve the significant acceleration in flight test hours per month required to get to EIS because more aircraft are moving in to testing and because it did testing during the grounding. FTV4 is supposed to be in the air in weeks, and FTV5 in early 2015. BBD does not see any one or two major challenges remaining in flight test, rather just a need to get through total hours.
  • CSeries demand: BBD says it is on track for its 300 firm order by EIS target. When asked if anything could come from the current Zhuhai Air Show it said it is not a place for signing, and China tends to order in service jets.
  • CSeries impact on P&L: BBD says the CSeries is likely to be dilutive to the P&L as it ramps from unit 1 to full rate production, which could be a near three year process. Early aircraft would be more dilutive than later aircraft.
  • CRJ update: BBD believes they can maintain current CRJ production rates, but will clearly need success in current order campaigns to do so.

Goldman has a Sell rating on BBD.

Embraer in China: Embraer is shifting its sales strategy in China, failing to gain much traction with the mainline carriers, according to Bloomberg. Now it’s going to concentrate on start-up airlines.

EMB appeared at the same Goldman conference as BBD. Goldman’s take:

  • Overall Embraer continues to believe it can keep production relatively flat from current E-Jets to E2. It thinks 2015 and 2016 currently look solid. 2017 is a bit more of a question mark, but the timing of EIS of each E2 aircraft helps – largest E-Jet backlog (E175) has latest E2 EIS, and all aircraft are built on the same line. 2015 delivery mix will be similar to 3Q14 mix. Orders are likely to be in the 5-15 per range, or come from conversion of US options. ERJ says in the scenario where Bombardier does not refresh CRJ, E-Jets could become a substantial piece of the regional jet market, along with Mitsubishi (which it says is a solid aircraft).

Goldman has a Neutral (Hold) on EMB.

A350 certification: Airbus obtained certification for the A350-900 from the Federal Aviation Administration Wednesday.

Odds and Ends: 787 donation; Alenia sues Bombardier over CSeries; 2016 777 delivery slots opening up

787 donation: The Boeing Co. handed over 787 test airplane #3 (ZA003) to the Museum of Flight Saturday in an elaborate ceremony marking an unprecedented donation of a modern airliner to an aviation museum.

B787 ZA003 Logos

Boeing 787 ZA003, which went on a world sales tour, was donated to Seattle’s Museum of Flight Nov. 8, 2014. The logos of customers bracket the #2 door. Photo by Leeham News and Comment. click to enlage.

To be sure, the donation was made possible by the fact that ZA003 (and 002 and 001) can’t be sold due to the massive rework necessary, and these three airplanes have been written off for more than $2bn. But this doesn’t make the event any less significant.

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Odds and Ends: Rescuing a polar bear cub; new turbo-prop, sort of

Rescuing a polar bear cub: Long-time readers of this column know we’re fascinated with polar bears, so when we received the following press release, we couldn’t help but share the story with you.

Mi-26 saves polar bear cub

The crew of a Russian Mi-26 military helicopter from the Eastern Military District Army Aviation airbase saved a baby polar bear from starving to death in the Arctic, after the young bear became separated from its mother.
Polar bear cubThe Mi-26 was carrying out a routine transport flight in the Arctic zone, delivering goods from Anadyr to Wrangel Island, when one of the crew spotted a lone polar bear cub wandering along the Chukotka shore. The crew carried out several sweeps of the area, but there was no trace of the cub’s mother. The decision was therefore taken to pick up the polar bear cub.

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Zhuhai Airshow begins Tuesday: order announcements expected

The Zhuhai Air Show begins next Tuesday and a visit by President Obama to Beijing for a regional summit starts on the last day of the show, Nov. 16. Accordingly, we expect at least some orders to be announced during the show by Airbus, Boeing and perhaps the other airframe OEMs, including the home-grown COMAC, developer of the C919 and parent of AVIC, the developer of the ARJ21.

The Zhuhai Air Show has evolved into China’s premier show. While not on the international reputation and prestige of the long-established Farnborough, Paris and Singapore air shows, it’s become an important must-attend for OEMs and others wanting to do business in China.

Here is our forecast for next weeks’ event.

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