Odds and Ends: WA Gov chases Boeing, IAM; CSeries EIS; Yank

Pursuing Boeing, IAM: Washington Gov. Jay Inslee told KING5 News (NBC, Seattle) yesterday that he will ask Boeing and the IAM to go back to the bargaining table to reach a deal on the contract extension that would build the 777X in Washington. This verifies our prediction the night of the IAM vote rejecting the contract with a 67% result.

We believe other politicians, such as US Sen. Patty Murray, will do likewise.

We think this will be an uphill climb for Washington to wind up with this production. A former state Legislator thinks the state should stop ponying up incentives for Boeing.

On a related issue, we’ve previously reported that Washington’s proposed environmental protection of salmon threatened to make Boeing an endangered species in the State instead. Crosscut, a political web newspaper in the State, reports today that this issue apparently has been solved.

Standing by CSeries: Bombardier’s CEO brushes off skeptics of the CSeries and its small number of flight tests compared with other programs. The Toronto Globe and Mail reports. No surprise there. But did he give a hint on the entry-into-service date? The Globe writes:

On Thursday, Mr. [Pierre] Beaudoin stood by his forecast. He noted that the company has 177 orders so far and “we still have a good year to go before our first delivery.” (Emphasis added.)

BBD has always said EIS would be 12 months after first flight, which was September 16. Beaudoin’s remark suggests this schedule has now slipped at least two months and possibly more. Most analysts believe EIS will be in the first quarter of 2015 rather than late 2014, a timeline with which we agree.

A380’s future: The Economist has an analysis of the future of the Airbus A380. Separately, Airbus explains to AIN Online why it thinks A380 sales will pick up.

Wrong landing: That landing by a Boeing Dreamlifter, operated by Atlas Air, could have impacted the 787 program if the plane had been damaged and put out of service, reports The Tacoma News Tribune.

Yank: Every once in a while we get struck by an irreverency we just can’t resist. We noted a story in The Seattle Times about research by Bill Gates (yes, of Microsoft fame) into developing new condoms. One contestant (no kidding) remarked on developing a stronger condom, “I could yank all day and it won’t break.”

Odds and Ends: 777X Shell game; CSeries updates; EADS unions; More oops

777X Shell Game: TheStreet.com asks whether the Boeing 777X orders announced at the Dubai Air Show amounts to a massive shell game. By this, the column means whether these orders merely will come from other airlines as traffic is diverted from the legacy European, US and Asian airlines to the Middle Eastern carriers as the latter expand their services.

There is no question there will be a diversion of traffic. Boeing a few years ago pointed out the diversion, then at around an estimated 5%, as the Middle Eastern airlines–Emirates, Qatar and Etihad–rapidly expanded into markets. But this is what competition is about. And this is what has got Delta Air Lines of the US so exercised over the US Export Import Bank financing the likes of Emirates Airlines.

Air traffic growth will accommodate some of the competition.

There are more than 1,000 Boeing 747-400s and 777 Classics in operation or on order that will require replacement by the 777X and the Airbus A350-1000. Business Week raises the question, how will Boeing maintain sales of the 777 Classic now that the 777X program has been launched?

CSeries Updates: Bombardier is “mulling” a new program schedule for the CSeries, according to this story from AIN Online. BBD should announce any new timeline for its flight test program, and presumably entry-into-service, within a few weeks. Flight Global reports that the program will see the addition of the second flight test vehicle shortly, which will increase the frequency of flights. Flight Global also reports that BBD officials see more orders and better pricing starting to flow as more flight tests and data from the program comes forth.

Bombardier now has 419 orders and commitments for the airplane.

Here is a profile of BBD’s top official in China.

EADS unions: Lest one forget, Boeing isn’t the only aerospace company with union issues. Airbus parent EADS is facing a walkout next week by one of its unions. Reuters reports the walkout is to protest layoffs as EADS restructures its defense subsidiaries.

Speaking of oops: Yesterday we reported that a Washington State advertisement supporting the Boeing 777X used a picture of an Airbus airplane. This lit up Twitter and made news all over the country. Today we woke up to find Twitter and the news lit up with reports that a Boeing Dreamlifter landed at the wrong airport in Kansas.

DXB13 Day 3: Bombardier, Boeing, Airbus announce small orders

Bombardier, Boeing and Airbus each snared some orders at Day 3 of the Dubai Air Show:

Bombardier

  • A Letter of Intent from Iraqi Airways for 5+11 CS300s;
  • Abu Dhabi Aviation ordered two Q400ss; and
  • Nok Air of Thailand announced orders, options and purchase rights for 2+2+4 Q400s.

Boeing nabbed an order from TUI Travel for two 787s. Turkish Airlines firmed options for three 777-300ERs.

Airbus announced that Air Serbia ordered 10 A320s and Air Algerie signed an MOU for three A330-200s.

Other headlines from the show:

Airbus considers boosting A320 production

Engine Alliance ponders A380 engine improvements

Bombardier launches high density Q400

Watch out, US airlines, the Arabs are coming

Emirates to compete engine supplier for 50 A380s

DXB13, Day 2: A350 Regional; New Libyan airline; 777X production timeline; More on IAM-777X issue

It looks like the big news of the Dubai Air Show has already come-and-gone. There was little order activity on the second day.

A350 Regional: Etihad Airlines’ order for Airbus A350s include a regional version, with lighter weight, lower range and lower thrust. Aviation Week has details.

Libyan start-up orders Airbus: A new airline in Libya has placed an order for Airbus A350s and A320s.

Boeing produced this slick video to introduce the 777-8/9. As you might expect, the quality is top rate. Boeing has some subtle digs toward the A350, cleverly done as they were.

[youtube=http://www.youtube.com/watch?v=Fop6Qu2CN0E&w=560&h=315]

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Headlines from the air show:

[youtube=http://www.youtube.com/watch?v=3O_QDOXrjEs&w=560&h=315]

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Bombardier may take the CSeries to Wichita (KS), where it has a facility, for flight testing if weather in Canada is poor.

Other News:

IAM 751-777X Vote

In Dominic Gates’ Seattle Times article taking a behind-the-scenes look at the IAM 777X contract fiasco,  Gates wrote:

Buffenbarger also raised a concern about the vote outcome. He said that the final vote tally Wednesday showed that 5,000 members hadn’t voted.

While he said he’s not alleging vote fraud, he said the absence of those votes leaves the outcome “questionable.”

“To have that big a number that didn’t vote stands out,” he said.

Buffenbarger needs to check his math. With 31,000 machinists, 5,000 “not voting” means 26,000 did. Sixty-seven percent rejected the contract, or 17,420, and 33% voted to approve it, or 8,580–a difference of 8,900. Even if all 5,000 had voted for the contract (a highly dubious prospect), it still would have lost by nearly3,900 votes. Buffenbarger’s comments to Gates (and we assume accurate reporting) further illustrates to buffoonery of IAM International in this entire mess.

Countdown to 777X site selection: Bloomberg News reports that Boeing will decide within three months where to build the 777X. This doesn’t leave a lot of time for the IAM to get its act together.

Embraer E-Jets in focus

Embraer reported its third quarter earnings October 31 and disappointed the market with results that missed targets, resulting in a share price decline and some downgrades by analysts. Fewer commercial E-Jets and business jets were delivered than expected by analysts. Despite assurances by the company that year-end targets would be met, market reaction was unenthusiastic.

 

Embraer’s been struggling some on E-Jet sales. The backlog of the of current E-Jet, now dubbed internally as E1 with the launch of the re-engined E-Jet, called E2, had been shrinking until EMB won key orders from SkyWest Airlines of the USA, Republic Airways Holdings (for American Airlines) and from United Airlines, all for the E175. Even so, with a production rate capacity of 17 per month, there are large gaps but also open opportunities to offer near-term slots. The current production rate is only 7.5/mo-less than three years.

 

Embraer delivered 122, 98, 105 and 106 E-Jets in 2009, 2010, 2011 and 2012. It’s forecast to deliver 90 this year and next, followed by 85, 80 and 75 through 2017, the year before the E2 enters service. This forecast, by UBS, means Embraer has to find sales to fill the slots. Embraer and Bombardier are competing for a significant order from American Airlines. This order has been stalled pending the merger with US Airways, which has been delayed by the Department of Justice lawsuit seeking to block the combination. The order is important to Bombardier and Embraer because of the thin backlogs for the CRJ and E-Jet.

 

The E2 isn’t scheduled to enter service until 1H2018, with the E190 E2 the first model. The E195 E2 and E175 E2 follow in 2019 and 2020.

 

Aircraft

E170

E175

E190

E195

Sub- 

Total

E175 E2

E190 E2

E195 E2

Sub-

Total

Total

Backlog

6

140

78

22

246

100

25

25

150

396

 

The EIS sequence for the E2 is intriguing. Although the E175 E2 has the largest backlog, it will be the last to enter service. The largest variant, the E195 E2, at 132 seats single class, is directly competitive with the Bombardier CS300 (135 seats single class) but somewhat less capable with a range of 2,000nm vs 2,950nm for the Bombardier.

 

Embraer has a large customer base for the E-Jet, 67, that gives it an advantage over Bombardier when it comes to selling the E2 vs the CSeries. Bombardier has to create a customer base for the CSeries, which is more directly competitive with Airbus and Boeing small jets than is the E2. Embraer made the conscious decision not to proceed with a brand new design in order to avoid the wrath of the Bog Two OEMs.

 

But selling the E2 also means replacing the E1, and our market intelligence tells us that placing used E-Jets is problematic. The cost of engine overhauls, a reported $3m+ on an engine that costs $4.5m at list prices, is a deterrent, one lessor tells us. Book values also tend to be higher than current market values, this lessor says, making remarketing sales and reset lease rates an issue.

 

Bombardier’s CRJ700 and CRJ900 have lower operating costs than the E1, but Embraer has the advantage on passenger comfort. Recognizing the cost disadvantage, Embraer announced modifications to the E1 to improve fuel performance to a point where it believes the E1 will be competitive with the CRJ economics.

 

Major carriers in the US also have labor issues to consider when it comes to evaluating the E1 or E2 vs the CSeries. Embraer’s E175, at 70 seats remains below the Scope Clause threshold of 76 seats in many US airline labor contracts. The E190 in dual class also falls just below this threshold. The CS100 seats 100 passengers in dual class and 110 in single class, eliminating it from Scope Clause-driven competition. The decision between BBD and EMB in this case may come down to whether a carrier wants the greater economics of the CRJ or the comfort of the E190 E1 and comfort and economy of the E2.

 

Embraer faces several years of soft sales in advance of the E2.

The implications of the American-US Airways merger for OEMs

The agreement between American Airlines, US Airways, the US Department of Justice and the states suing to block the merger to settle their lawsuits clears the way for AA-US to merge.

This has implications for the Big Four airframe and the engine manufacturers who have been living in some uncertainty. Here’s the rundown:

Airbus

American and US Airways have large orders with Airbus: American for the A320ceo and neo family and US Airways for the A320ceo family and A350-800/900.

American is taking delivery of the A319ceo and A321ceo. The neo comes several years into the future. American has been taking a large number of A319s, while US Airways have been up-gauging its Airbus single aisle orders, passing on the A319 in favor of the A320ceo or A321ceo. US Airways management, which will take over the New American Airlines, may elect to change the mix within the 18 month lead time limitations.

The more interesting question is what US Airways will do with its A350-800 order. US Airways, along with Hawaiian Airlines, is now the largest customer for the -800. Airbus has been shifting customers from the -800 to the -900 and the -1000, in part to de-risk the program and in part because the larger models are more profitable for Airbus. But some customers elected to switch because the economics of the larger capacity -900 are better than the smaller -800 while operating costs are about the same.

Now that AA and US will combined, the -800 seems surplus when the large order held by American for the Boeing 787-8/9 is considered. The US Airways management could elect to drop the -800 in favor of the 787. Such would unlikely be a total loss for Airbus, however: New American would likely up-gauge to the A350-900 or even the A350-1000, or order more A320neos to keep Airbus “whole.”

Boeing

US Airways hasn’t ordered a Boeing airplane since the days of the 737 Classic or 757/767, and the current management has been retiring all of them as fast as they could. Now they’re solidly back in Boeing territory. “Old” American has a large order of 737NGs and 737 MAXes in addition to the 787 orders. Old American is only taking the 737-800 and the New American will continue this type and probably select only the 737-8 MAX to fulfill that commitment. But we don’t look for any burst of new orders.

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Bombardier CSeries in focus

Bombardier’s CSeries is one of three new or derivative airliner to take to the skies, along with the Airbus A350-900 and the Boeing 787-9. But its flight test program is going at a pace far behind the Big Two. Only a handful more flights occurred since its first one on September 16, with a full 27 days between the third and fourth flights.

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The latter occurred on October 30, the day before Bombardier’s third quarter earnings call. Thus it was with great anticipation that aerospace analysts who follow BBD, and the media, hoped for some clarity about the pace of the program and whether entry-into-service would be delayed.

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Those listeners and participants on the earnings call were disappointed. Pierre Beaudoin, president and CEO, said the testing program is what Bombardier laid out from the beginning and that the paucity of flights isn’t of concern or indicative of anything amiss.

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But aerospace analysts weren’t convinced. Stock traded down 10% and a few analysts downgraded the stock. It must be noted that there were other factors: aircraft and train deliveries were short of target, contributing to the disappoint. And Embraer, which reported earnings the same week, also missed targets and suffered similar stock declines and some analyst downgrades.

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Beaudoin continued to maintain the target for EIS is 12 months from the first flight. With 2,400 flight hours required, even with five CS100 and two CS300 Flight Test Vehicles, Bombardier will be challenged to meet this target.

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The CSeries Flight Test Vehicle #1 has had a dearth of flying compared with the Boeing 787-9 and the Airbus A350-900. So how does BBD, so far, believe it can stick to its entry-into-service timeline of 12 months from first flight on September 16?

Because it will have seven FTVs (five CS-100s and two CS-300s) in the flight test program instead of the five for Airbus and the initial plan of five or six for the Boeing 787. This, plus the ground time in the CIASTA iron bird.

Beaudoin left plenty of wiggle room for an EIS delay. He said conversations were underway with customers. He said some customers wanted to swap the 110-seat CS100 orders for the larger, 135-seat CS300. He said a program assessment in a few months would tell what the timing will be.

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Even before the earnings call, analyst consensus concluded that EIS will slip from September 2014 (the 12-month target) to 1Q2015 or later. We concluded several months ago that a first quarter 2015 EIS was likely.

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Should this timeline emerge to be correct-or even if it slips to 2Q2015-these delays will still be a far better performance than those of Airbus and Boeing on their A380, A350, 787 and 747-8 programs. But a slip to 2015 will narrow the advantage Bombardier had over Airbus with its New Engine Option, which was a direct response to Bombardier’s clean-sheet CSeries design.

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The Airbus A320neo, who is the next size up from the CS-300 and not truly a direct competitor, is planned to enter service in October 2015. The A319neo-which is the direct competitor to the CS-300-is slated to follow by six months. This, of course, assumes Airbus doesn’t have a delay on its NEO program, but nothing we’ve heard suggests one is in the offing.

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How serious a threat is the narrowing gap to Bombardier? We don’t believe it is much of one. Airbus and Bombardier are already sold out in the near-term, so customers are locked in. There have been on 45 A319neos ordered; we have to wonder whether customers will swap these for the larger A320neo. The A319neo, which is heavy for today’s standards, is a question mark whether it will be built. If so, will it be the next A318, a poor sales model that proved so unpopular that there is no secondary market for this sub-type and it’s already headed for the scrap heap.

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Nor is there much of a threat from Embraer’s E-Jet E2. The E-195 E2, which is sized midway between the CS-100 and the CS-300, doesn’t enter service until 2019 (if on time). The E-190 E2 is the first planned for EIS, in 2018, and this is somewhat smaller than the CS100.

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Nor is Boeing’s 737-7 MAX a threat, despite Bombardier’s EIS slip to date and likelihood for an additional one. The 7 MAX EIS is planned for 2019. Only a handful of these have been sold to two customers, WestJet and Southwest Airlines of the USA. Like the question looming over the A319neo, we wonder if the 7 MAX will be swapped for the larger 8 MAX, or whether the 7 MAX becomes Boeing’s 737-600, another poor-selling sub-type.

Odds and Ends: Boeing Everett; SkyWest raises doubts about MRJ; Boeing and Charleston on 777X

Boeing’s Everett Footprint: With the news that Boeing will build 1.5m sf of space for a new 777X Final Assembly Line and wing production facility if the IAM 751 members ratify the new contract and Washington State ponies up on incentives, the obvious question is: what happens with the current Everett plant?

It had been assumed the 777X would be built in the current facility, integrating with and ultimately replacing the current 777 line; or starting off in the space now occupied by the 747-8, which is struggling to stay alive and which many–ourselves included–believe will die off with the advent of the 777-9.

Let’s consider this latest twist.

  • The 787 Line 1 is assumed to eventually reach a production rate of 7/mo, with Charleston also target for 7/mo, with the goal of the combined lines going to the announced rate of 14/mo by 2018/19.
  • The KC-46A tanker, which occupies half of one bay, goes to two a month in a few years, though it has capacity to go to three. The other half of this bay is currently occupied by the 787 surge line, but in theory this is supposed to go away once Charleston is up to rate 3. Boeing now says this will happen in the first quarter (it was supposed to by year end) but this may not be achieved by then, according to some. But one has to believe Charleston will be ready to rock by 2016, when the 777X is gearing up.
  • The current 777 line, now at 8.3/mo rate, is assumed to have a two year overlap from 777X EIS, or around 2022, when it’s been assumed the current generation 777 would be discontinued. But the 777-200LRF may live on, both in its current form and as a replacement for the KC-10 tanker. Although the USAF is reportedly looking at a 2040 procurement date for the KC-10 replacement, some believe this is too far out into the future and this date will be brought forward.
  • Then there is the 747-8 production space. It’s also assumed this airplane is living on borrowed time. The USAF says it wants to replace the Air Force One fleet in 2021, and this is a long time to keep this line alive. Boeing is counting on the cargo market to return in 2014 to spur demand of the 747-8F, but some believe main-deck freighters of this size will have a very tough time when cheap 747-400 conversions can be had for a fraction of the cost.
  • If space at the primary Everett plant does open up, what is there to fill it if not the 777X? Any number of potentials: the Y-1 737 replacement, closing the Renton factory in the process and splitting the Y-1 between Washington and South Carolina (or Texas, or some off-shore location). A maintenance, repair and overhaul operation: Boeing wants to dramatically increase this service business. Component production.

Over to Readers for your thoughts.

Meanwhile, The Puget Sound Business Journal has this long story on the expected use of robots in building the 777X.

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Odds and Ends: Lufthansa on Airbus plan; Lion Air; Boeing statement on IAM deal; CSeries test flights

Lufthansa on Airbus’ 18-inch seat plan: Nein! Runway Girl Network (Mary Kirby’s new venture) reports that Lufthansa’s fleet planner doesn’t think much of the Airbus campaign to make coach seat width an 18-inch standard for the industry.

Lion Air: Aviation Week has an article that falls short of a full profile of Lion Air but one which discusses some of the thinking of those huge airplane orders.

Boeing on IAM deal: In the crush and rush of the events yesterday, we didn’t see this Boeing statement on the tentative agreement for extend the IAM contract for eight years in exchange for building the 777X in Seattle.

CSeries: It looks like software upgrades, vibration and shimmy tests are done and flight testing in back on track. Yesterday Bombardier’s CSeries had its fifth flight and its sixth appears coming today, according to Fliegerfaust, a blog mostly dedicated to CSeries news.

Odds and Ends: Looking toward the South; Lion Air updates CSeries interest; 787 fuel advantage

Looking toward the South: As a follow-up to our previous post, Implications of the IAM-Boeing talks on 777X, here is a commentary from The Wall Street Journal about the migration of US industry to the South, were unions have a more difficult time.

Lion Air and CSeries: Indonesia’s Lion Air, which made news a few months ago with the prospect of a large order for the Bombardier CSeries, poured cold water on the prospect of placing one any time soon, according to this article in Aviation Week. Seeing actual flight test results from the larger CS300 is key, the airline’s head told AvWeek.

We previously raised our own doubts about the prospect of another large order because of the prospect of over-commitment of existing orders from Airbus and Boeing.

But Lion Air told The Wall Street Journal that an order for 50 CSeries could come by the end of the first quarter. A key piece of information in the AvWeek and WSJ articles is this, from the WSJ:

Mr. Kirana said Bombardier claims the larger of two CSeries models with 160 seats will be able to fly with the same economics as much larger Airbus A320neo jets, which carry around 160 to 180 passengers. He said the Bombardier CS300 jet’s range and economics makes it attractive for new longer international routes to smaller cities in China.

787 Fuel Advantage: In the never-ending war of words between Airbus and Boeing, readers know we always connect with airlines to cross-check what the OEMs say.

As readers also know, Boeing promotes its 787 as being 20%-25% more fuel efficient than today’s airplanes. With the (also) never-ending prospect of Airbus proceeding with an A330neo, the question arises over what the delta is between the A330 and the 787. We asked a fleet planner. The answer: 10% in favor of the 787, a gap that an A330neo could narrow considerably (but be unlikely to close altogether) with new engines and sharklets. So how about that 20%-25%? These figures compare with the 767 and A340 respectively, the fleet planner tells us.