Leeham News and Analysis
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Leeham News and Analysis
- Pontifications: Technical challenges for UAMs, et al, only part of the problems March 28, 2023
- An uneven financial recovery among OEMs and Suppliers March 27, 2023
- Bjorn’s Corner: New aircraft technologies. Part 5. Optimal fuselage March 24, 2023
- Bjorn’s Corner: New aircraft technologies. Part 5P. Optimal fuselage March 24, 2023
- A Chinese intervention in Ukraine would kill its aerospace industry March 23, 2023
A Chinese intervention in Ukraine would kill its aerospace industry
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By Bryan Corliss
Commentary
March 23, 2023, © Leeham News – Chinese leader Xi Jinping flew into Moscow this week for a three-day summit with accused Russian war criminal Vladimir Putin.
They wined and dined. They talked publicly about economic accords and oil pipelines and pledged mutual support. In private, Putin almost certainly made a plea for stepped-up Chinese support for his faltering invasion of Ukraine. They made bold statements about banding together to oppose the hegemony of the West, which has united against Russia with sanctions including bans on providing Russia with the basic technology it needs to build weapons.
And at the end of it all, on Wednesday, Xi walked up the jet stairs to his Air China 747, built by Boeing in Everett, America. He turned and waved, and then flew back to Beijing.
That moment, with Xi standing in front of the massive American-made jet, may just illustrate China’s conundrum right now: Xi, by all accounts, wants nothing more than to shove aside the post-Cold War order that has confined his nation from global Great Power status. An alliance with Putin’s Russia could be a key step toward that.
And Xi, as he looks around the interior of his jumbo jet, has to be acutely aware that China remains dependent upon the Western democracies for software, computer chips, and – critically – aircraft.
- War has created headaches for aerospace
- Chinese tensions are bigger issue
- China loses in a proxy war with West
- Boeing’s China business is effectively frozen
- Airbus in China may also be at risk
Embraer deliveries surge; executives proclaim rebound from Covid, failed merger
By Bryan Corliss
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March 13, 2023, © Leeham News — Embraer executives said last week that the company is on a flight path to growth after weathering two major storms in 2020.
“As we have said, since 2020, the 2021 and 2022 years would be dedicated to the business recovery after two simultaneous crises – the pandemic and the end of the Boeing deal – and the focus will be on growth from 2023,” Embraer CEO Francisco Gomes Neto said Friday.
“We can now state we have fulfilled what was promised,” he continued. “The business turnaround was completed in 2022, and we are ready to start a new growth phase.”
Embraer still faces “supply chain challenges this year,” he acknowledged, “but we are optimistic about the company’s future in terms of revenue growth and profitability.”
Neto made the declaration as his company reported delivering 80 regional and executive jets in the fourth quarter of 2022, which was roughly half of the total deliveries for the year.
The company reported earnings before interest and taxes of US $166.2 million for the quarter, which was 196% better than its earnings in the same quarter of 2021.
- Embraer sees orders recovery
- China is one of two promising markets
- Business jet market ‘very robust’
- Continued investment in decarbonization
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New software issue delays some 737 MAX deliveries/Update
By Scott Hamilton and Laura Mueller
Boeing 737 MAXes in long-term storage at Moses Lake (WA). About 140 MAXes ordered by China remain undelivered. Credit: Leeham News.
Update, March 9, 2023: Some readers have interpreted this story as reporting that new deliveries directly from Boeing are being delayed. The wording is somewhat ambiguous. To clarify, airplanes purchased by lessors–who have taken delivery from Boeing–are experiencing delays in delivery to their lessees due to the issues with the Boeing software reconfiguration described.
March 6, 2023, © Leeham News and Airfinance Journal: A new issue with a software program is delaying deliveries of some Boeing 737 MAXes by up to a year, joint reporting by Leeham News and Airfinance Journal learned. The Federal Aviation Administration views its use as a safety matter that must be resolved before delivery on aircraft undergoing reconfiguration. It is not a safety issue when aircraft are delivered to the originally intended operator.
The Boeing software, called Option Selection Software (OSS), is used by Boeing to identify software installed on 737 MAXes that must be reconfigured when the airplanes are going from one airline going to another. For example, if a 737 was built for Airline A and instead it will go to Airline B, reconfiguring the cockpit display and related systems may be necessary. We are told that MAXes and 787s are impacted, given their large inventories of airplanes that have been stored long enough that some original customers no longer wanted the aircraft. When sold or reconfigured for a different operator, Boeing uses the OSS to reconfigure the software and identify related parts for any changes.
This issue has not been reported previously.
HOTR: China’s desire for aerospace self-sufficiency threatens Airbus, Boeing
By the Leeham News Team
China’s goal for C919
China’s state-run aviation industry is working toward self-sufficiency because of sanctions. But it is these same sanctions that will make it difficult to achieve.
Beijing wants to shift to supplying its single-aisle jet needs to the COMAC C919 by the end of this decade, according to a person familiar with the situation. But ramping production up to meet future demand is difficult under the best of circumstances.
With Western-built suppliers a key to the development of the C919, including the CFM LEAP 1C engines, there is little chance the domestic industry can shift exclusively to domestic suppliers on the scale required in the time desired.
Regardless of the feasibilities, these goals are bad news for Boeing—and most likely for Airbus, too.
Boeing’s dilemma with China is well known. Aside from the geopolitical challenges between China and the US and the well-known slow return to service of the in-country 737 MAXes, Boeing can’t deliver 138 new-build MAXes to China.
Deliveries are blocked for the aforementioned geopolitical considerations. Beijing’s three-year-long zero-COVID policies cratered domestic demand. With the policies recently lifted, passenger traffic is building but it is still well below pre-pandemic levels.
But that’s not all.
Outlook 2023 for China’s COMAC and Russia’s UAC
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By Bjorn Fehrm
Jan. 12, 2023, © Leeham News: China’s civil airliner OEM, COMAC, made significant progress during 2022. It achieved Chinese certification for its C919 158-seat domestic airliner in September last year, with the first delivery to the launch customer, China Eastern Airlines, in December. The first aircraft will be used in trial operations during 2023. The C919 follows the regional ARJ21, which has been in operation in China since 2016.
The progress, after several delays, of the COMAC programs is in stark contrast to the airliner progress of Russia’s UAC. The slow progress for the SSJ100, MC-21, and Il-114 programs has now ground to a standstill since the invasion of Ukraine and the ensuing Western sanctions.
Figure 1. Test flight of the first series delivery C919 of China Eastern Airlines. Source: Wikipedia.
Summary:
- China and COMAC have made significant progress in 2022 and will gradually build a viable airliner industry from 2023 onwards with a regional and single-aisle offering.
- The opposite is true of Russia’s UAC. A once viable airliner industry is now crushed by the Kremlin’s decision to invade Ukraine.
How much can China’s traffic growth slow? A look at Japan
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By Vincent Valery
Introduction
Dec. 12, 2022, © Leeham News: The Chinese commercial aviation market is now the second largest in the world after the United States. Growth has been very robust in recent decades, and all major OEMs forecast things to stay this way in the next two decades.
Credit: Japan Rail Pass
However, the Chinese economy’s GDP (Gross Domestic Product) growth rate slowed down significantly throughout the 2010 decade: from around 10% to 6% in 2019. Separately, China’s working-age population peaked during the same decade.
The growth in passenger traffic has historically had a strong correlation with GDP growth. Several studies have shown that passenger traffic has grown 1.5x to 2x faster than GDP. The consequences of a potential passenger traffic growth slowdown in China are, therefore, significant for commercial aircraft OEMs.
Another country in the Asia Pacific region faced a similar situation in the early 1990s: Japan. Even though there are substantial differences between the two countries, analyzing how things played out in Japan could help understand what lies ahead for Chinese passenger traffic growth.
Summary
- Demographic and economic parallels;
- Competition from high-speed rail;
- As Japan’s GDP grew, so did air and train travel;
- Explaining the 2010s Japan air traffic boom;
- Significant differences between China and Japan.
China will accelerate development of its commercial aerospace sector
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The second of two articles.
By Scott Hamilton
Nov. 21, 2022, © Leeham Co.: Western aerospace companies that invested in China face challenging times ahead in a changing trade environment.
The COMAC C919 is a means to an end in the development of China’s commercial aerospace industry. Credit: Leeham News.
This is especially true for US companies. The overhang of trade and political tensions between the US and China makes for difficult times ahead. European companies are less threatened. Nevertheless, these face uncertainties as China strives to build its own commercial aerospace industry.
This effort “puts western companies that have made capital investments in Chinese capacity in a difficult situation just structurally because they have either JVs or WFOES (Wholly Foreign-Owned Enterprises) or other engagements with Chinese-based industrial assets that will be hard to navigate simply from a trade compliance perspective,” says Michael McAdoo, Partner & Director, Global Trade and Investment for Boston Consulting Group.
“Non-Chinese companies now have a very difficult environment to navigate versus a decade ago. I think there will be a huge push to create the capacity, for engines, for airframes, and for key systems.”
McAdoo The C919 essentially was China going shopping basically for what it considered to be best of breed and all these different technologies. The majority of these come from Western suppliers. Then they were integrated into China with some Chinese design and build structures, but even that structure had some western partners at various places.
Related articles:
Excluding China in Boeing forecast recognizes trade, geopolitical realities
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By Scott Hamilton
Nov. 8, 2022, © Leeham News: Boeing CEO David Calhoun last week said Boeing’s future through at least 2025/2026 doesn’t include assuming China is part of its equations.
It’s a good thing. Relations between the US and China are heading south. The Pentagon last week outlined an extremely pessimistic outlook pointing to future military conflict with China. The Biden Administration not only didn’t reverse tariffs imposed in 2017 by the Trump Administration, but in some respects, Biden upped the game.
Related Article
Boeing started remarketing 737 MAXes ordered by China. It also began taking engines off those airplanes to put onto new production aircraft. Boeing—and others—don’t see China taking any new deliveries from China in the next two or three years or placing orders with Boeing.
Michael McAdoo of Boston Consulting Group. Credit: Leeham News.
Trade publication Airfinance Journal reported Oct. 31 that nearly one in five leased aircraft owned by Chinese lessors are being offered for sale to non-Chinese interests. LNA previously reported that Chinese lessors were being allowed to accept a small number of MAXes providing they were leased outside China.
A trade expert for Boston Consulting Group outlined how he sees relations between China, the US and Europe in an Oct. 26 interview with LNA.
Summary
- China considers the US to be the enemy, one well-placed observer notes.
- The US, EU see China differently.
- Airbus has a window of opportunity.
China still needs Boeing as much as Boeing needs China, despite interminable limbo
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By Scott Hamilton
Oct. 31, 2022, © Leeham News: China needs Boeing as much as Boeing needs China was the conclusion of an analysis by LNA in July 2021. A trade expert last week agreed. Airbus and China’s COMAC won’t be able to fill the future demand forecast for China.
Michael McAdoo, Partner & Director, Global Trade and Investment of the Boston Consulting Group (BCG) in Montreal and a former strategic chief of Bombardier Commercial Aircraft, told LNA in an interview last week that China needs the Boeing 737 MAX and widebody airplanes to meet demand in the near-to-medium term.
It will be long-term before China’s commercial aviation industry will be competitive with airplane designs and production.
Summary
Forecasts for China’s demand for jet aircraft are consistent between Airbus and Boeing. But COMAC, which is the leader of China’s burgeoning commercial aviation industry, is significantly higher in its forecast. The independent Japan Aircraft Development Corp (JADC) is significantly lower.
- Boeing forecasts that China needs 8,485 new jets through 2041.
- Airbus forecasts 8,420 new aircraft will be needed through 2041.
- COMAC forecasts China will need 9,084 aircraft through 2040.
- JADC is more conservative, forecasting a requirement for 6,172 new jets in China through 2041.
Source: Boeing Current Market Outlook.
China will account for 21% of the world’s new aircraft deliveries through 2041, Boeing says.
UPDATE: Calhoun upbeat on cash flow despite fifth consecutive quarterly loss
By Bryan Corliss
Oct. 26, 2022, (c) Leeham News: The Boeing Co. posted a loss from operations of nearly $2.8 billion for the third quarter, citing losses on fixed-price defense development programs that offset an overall 4% growth in revenues.
The consensus of Wall Street analysts earlier this week was that Boeing would announce profits of 13 cents a share and would break a streak of four consecutive losing quarters. Instead, Boeing posted a loss of $5.49 a share.
However, in a conference call with stock analysts later in the morning, Calhoun was upbeat, emphasizing Boeing’s positive operating cash flow of nearly $3.2 billion for the quarter.
“This quarter was a big one for us,” he said. “We hit a marker … to generate positive cash flow.”
Boeing booked losses of roughly $1.95 billion on two defense programs, CFO Brian West said: KC-46 tankers and new Air Force One presidential transports. Both are fixed-price contracts for commercial jet conversions that forced Boeing to eat any cost overruns.
“We aren’t embarrassed by them,” Calhoun said. “They are what they are.”
But in an interview with CNBC’s Phillip LeBeau Wednesday, Calhoun said Boeing will not do fixed-price defense contracts in the future. “That is not our intent.”
Summary:
- BCA: 737 and 787 deliveries resume; engines in short supply
BDS: ‘Labor instability’ hurts key programs
Calhoun: Boeing ‘supports China’ but is re-marketing planes
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