Leeham News and Analysis
There's more to real news than a news release.
Analysts opine on Embraer, Bombardier
Goldman Sachs and JP Morgan issued notes this week that give some opinions on rivals Embraer and Bombardier:
Goldman Sachs: Embraer
July 31: We believe Embraer remains the best, yet most ignored, story in our commercial aerospace coverage. We highlight the following key incremental takeaways from the EPS report and conference call: (1) 2H regional jet new orders could equal or surpass 1H (even though 1H was a record) which would mean full-year 2011 book-to- bill would surpass 2.0X. We think demand for the E-190 right now is stronger relative to current supply than any aircraft in the world. (2) Tone on business jet was noticeably more positive for the first time in a while, with particular strength noted on the Phenom 300. We think ERJ can close to triple its business jet revenue between now and 2015. (3) Defense opportunities are occurring faster than expected. We continue to see very large upside potential in ERJ’s Defense segment given initiatives around the World Cup and Olympics and how large the KC-390 program will be. (4) Management sounds confident it can continue to expand margins despite the Real, and possibly meaningfully if the Real were to reverse. (5) Next-gen product strategy decisions are likely made by year-end, and it sounds like one of either a clean sheet or E-195 stretch / re-engine will occur (we believe the case for the latter increasingly makes sense).
Posted on August 2, 2011 by Scott Hamilton
American is the launch customer for 737RE–but not the launch operator
American Airlines is the launch customer for the Boeing 737 re-engine, but it’s not the launch operator.
As American’s 10Q SEC filing revealed the day the order was announced, AA won’t take delivery of the first 737RE until 2018. EIS is planned for 2016 or 2017.
We asked American about this. Sean Collins, director of financial communications for the airline, confirmed American doesn’t want to be the first operator of the aircraft.’
“We don’t like to be the first in line for a new airplane,” he said. “There is a learning curve to be worked out. We like to let that process work its way out. That’s the approach we’ve taken.”
American’s status as the launch customer but not the launch operator is somewhat ironic. Bombardier came under a great deal of criticism for having launch customers but not launch operators for its CSeries (a point rectified at the Paris Air Show, with an unidentified network carrier placing an order to become the launch operator). In fact, Boeing’s Nicole Piasecki, VP of Business Development and Strategic Integration, made the same criticism toward BBD in Boeing’s pre-Paris Air Show press briefing.
While BBD’s critics point to the facts that the CSeries is an entirely new airplane, using new materials, production techniques and suppliers, the 737RE is intended to be a reasonable straight-forward derivative of a well-established airplane. That American is sufficiently wary of being the launch operator is a statement of some kind.
We’ll leave it to analysts and observers to make their own interpretations.
But American’s decision leaves Boeing in the position of being able to offer initial delivery slots to Southwest Airlines and Delta Air Lines. Southwest launched 737 derivatives -300, -500 and -700 and has been agitating for two years or more for Boeing to upgrade the 737 or, preferably, proceed with a new airplane. Delta is currently deciding on the 757 replacement, evaluating the 737-900ER and the A321neo. A re-engined -900ER should change the dynamics of this competition a bit.
Posted on July 27, 2011 by Scott Hamilton
For Boeing: when one door closes, another door opens
There’s a saying that when one door closes on an opportunity, another door opens. This is the case with Boeing’s decision to proceed with a 737 re-engine. We first wrote about this in a previous post. Max-Kinglsey Jones of Airline Business picked up the theme in his recent blog.
There’s no question Boeing’s march down the path to re-engining was driven by Airbus, it was embarrassing and it was messy. Having said that, the re-engine frees resources and money to concentrate on getting the 787-9 right, launching the 787-10 and deciding what to do with the 777-300ER to meet the competition of the re-defined A350-1000.
Posted on July 23, 2011 by Scott Hamilton
US airlines ready orders
There has been a rash of articles this week breathlessly focusing on US carriers and the prospect they will order airplanes this year.
This is no revelation, nor is the prospect that Boeing customers might line up and buy from another manufacturer.
We’ve written about this in the past. It appears to be time to revisit the topic.
Posted on July 1, 2011 by Scott Hamilton
The GE Powerhouse and how it wins deals
Those of us who are intimately familiar with commercial aviation will find this as no news. For those who don’t deal in this business every day, this will provide a better understanding of how deals are won in aviation.
This is the story of the GE Powerhouse and how family ties combine to enable GE Aviation and CFM International to win deals that might otherwise go to competing engines.
None of what we’re about to tell you is to suggest that the GE/CFM engines are inferior (though, obviously, some might dispute this), because they are superb engines. But a telling comment came from CFM’s Sandrine Lacorre, product marketing director, who said at a UBM Aviation conference, “What we can’t do technically, we will do commercially.”
Posted on June 29, 2011 by Scott Hamilton
Odds and Ends, Post-Paris Air Show 2011
Here are our closing views of the PAS:
Boeing
Boeing did very well at the show. We know the headlines almost universally say Boeing had a bad show (which it didn’t) and was trounced by Airbus (which it was), but people easily overlook comparing Boeing’s performance vs. previous air shows.
Boeing announced more than 140 orders worth some $22bn–about equal to the 2009 Paris Air Show. By anyone’s standards, this ain’t shabby. Boeing often announces low numbers at air shows, claiming it doesn’t hold orders for the shows and Airbus does. We regard this as so much poppycock, because we know customers drive announcements and both Airbus and Boeing hold announcements for air shows at customer requests.
Posted on June 27, 2011 by Scott Hamilton
Odds and Ends at the Paris Air Show, Day 4
Our final Odds and Ends as we head back to Seattle Friday.
- Marc Birtel, one of the corp-com guys at Boeing, asked us what we were impressed by at the Air Show (this was Tuesday, before the Airbus landslide of NEO orders). We must be getting too jaded or too familiar with Air Shows, because we said, “nothing comes to mind.” On reflection, these impressed us: Boeing’s display of technology in the form of the two 747-8s, a 787, a 737-700 with the Sky Interior; the ever-impressive A380 flying display; the Breitling Constellation; the Bombardier “igloo” Pavilion (well, its contents, actually) was way-cool; and of course the impressive number of NEO orders.
- We were also impressed by the laid-back, almost shoulder-shrugging at attitude of Airbus CEO Thomas Enders. We interviewed him shortly after the press conference summarizing the best Airbus Air Show ever and the historic AirAsia order, the largest ever in commercial aviation. He seemed suitably excited in the press conference but afterward he could have been ordering a cup of coffee. (He did consent to a glass of champagne). The orders were all well and good, he said, but now Airbus had to produce and deliver them. Today’s news was already yesterday, for Enders; there were other things to be concerned about.
- We opined over at AirInsight about the increasing nasty battle shaping up between Airbus and Bombardier.
- See this story about John Leahy dancing to seal the AirAsia deal. CEO Tony Fernandes was very funny when telling it and words can’t do it justice. But Leahy dancing is not a vision we want to have. But it’s better than the story of his old boss, Jean Pierson, dropping his pants to seal a deal. Now that’s not a vision to go to bed with.
- The saying is “Paris in the springtime.” We can say, “Paris in June sucks.” It rained (sometimes heavily) for three of the four days at the air show. In 2009, it was two out of four.
Posted on June 23, 2011 by Scott Hamilton
CSeries order intact, says Republic; CFM offered “great incentives” for engine deal
Bombardier’s CSeries order with Republic Airways Holdings, announced today at the Paris Air Show, is intact, says the company spokesman.
Peter Kowalchuk told us late Wednesday (Paris time) that there is no change in the CSeries order, despite the Airbus one announced today for 40 A320neos and 40 A319neos. First delivery, of the A319neo, is in 2016.
The first CSeries is scheduled for delivery in 2015.
Posted on June 22, 2011 by Scott Hamilton
Odds and Ends at the Paris Air Show, Day 2
Odds and Ends at the Paris Air Show, Day 2
Airbus
Airbus owned the day again with a bunch of orders, including capturing a Boeing 737 operator, Garuda Indonesia. For the A320neo (In this context, we’re not counting SAS, which already operates A320s.) Up to now, Boeing has been dismissing the sales of the neo as being only to A320 airlines, as well as winning deals on price and asserting the neo only brings the airplane to “parity” with the 737-800. Airbus’ John Leahy, COO-customers, counters that airlines aren’t buying Boeing’s line and are buying the neo because it is more efficient than the 737-800. So, it would seem, lessors are also convinced. ILFC previously ordered the aircraft. Air Lease Corp, CIT Aerospace and GECAS also placed orders.
The ALC order could be considered particularly significant. Its CEO, Steven Udvar-Hazy, previously was cool to the neo and now placed a bet for 50 of them.
Posted on June 21, 2011 by Scott Hamilton
Qatar’s CEO on A350, CSeries
Qatar Airways was the launch customer of the Airbus A350-1000, for which Airbus has now moved entry-into-service back from 2015 to 2017 in order to provide for a higher-thrust engine design from Rolls-Royce, increased payload and increased range.
John Leahy, Airbus COO, said Saturday at the EADS media day, that all delays for the -1000 and the -800, which is also seeing an EIS adjustment from 2014 to 2016, were “consensual” with the customers.
This makes comments by Akbar Al-Baker, Qatar’s CEO, all the more interesting. Al-Baker was at a Boeing press conference to announce the order of six 777-300ERs. In the Q&A, he was asked about the A350-1000. His response from the recording we made:
Q. How does the performance of the revised A350-1000 compare to the 777?
Al-Baker: …We have great confidence in Boeing, they have the finest products in the range of the Triple 7 type. As far as the A350s are concerned, it is still a paper airplane. The proof is in the pudding. The Triple 7 is already flying. It is doing fantastic. It is reaping us huge benefits. I would not like to talk about the Dash 1000 at the moment until I have been properly briefed by Airbus and of course I will critique that product when I have been given more details, as I do not have them. It would be unfair for me to sit her and criticize the competitor’s product, especially since we are the launch customer.
Q. I know you don’t want to talk about the A350-1000 in detail, but could you give us any reaction at all to the delay? Is that going to pose a significant problem for you?
A. Yes, we are hearing rumors that the aircraft will have significant delay. This will dent our expansion and fleet replacement program. As CEO of an airline, it would never make me happy that one of the programs we are so dependent on is getting delayed. This is very disappointing to us. We hope that the performances they are today talking about is the right information and it will do what Airbus says they are intending to do.
Qatar has also been a key target to order the Bombardier CSeries. Expectations were high at the Farnborough Air Show last year that Qatar would do so and when it didn’t, BBD suffered huge negative press. Expectations have been that the order was likely ready to go at this show. We learned shortly before the show that there would be no order.
We caught up to Al-Baker immediately after the Boeing press conference ended and had this exchange:
Q. Could tell me what your approach to the CSeries right now. It seems to be on and off, on and off, on and off.
A. No, the CSeries, we have just deferred our decision because we have so many airplanes coming one after the other within the same time, so we have deferred it. We still have confidence in the CSeries. We feel it is a very fine airplane. We have not changed our mind, we have just deferred the decision until not too long in the future.
Q. How long? Three months, five months?
A. I don’t know. We still are quite busy with what is in the pipeline, but we are still very keen. I assure you that the CSeries is an extremely fine airplane in its category of aircraft.
Posted on June 20, 2011 by Scott Hamilton