With high cargo prices, will airlines fly larger aircraft in their widebody fleets?

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By Bjorn Fehrm

Introduction

October 14, 2021, © Leeham News: Over the last weeks, we’ve seen that the present cargo crunch and high yields will influence what aircraft variants airlines purchase. Models that are too large passenger-wise for years to come will be paid for by a longer belly that can take more cargo.

This trend will remain as long as cargo prices are high. Will the high cargo yields also affect what aircraft to keep stored and which to fly of an existing fleet? We apply the analysis to an airline with a fleet of Boeing 777s.

Summary
  • The increased yields for air cargo changes the fleet planning for the widebody fleet. The most suitable passenger models stay in the desert, and the longer siblings fly despite lower load factors.

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C919 EIS target year end; production rate forecast is aggressive

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By Scott Hamilton

Introduction

Sept. 13, 2021, © Leeham News: The first COMAC C919 is supposed to be delivered to China Eastern Airlines before the end of the year.

If so, it will be the milestone of the program launched in 2008, 13 years ago, becoming one of the longest launch-to-EIS in aviation history. COMAC’s ARJ 21 took one year longer. This regional airliner program was launched in 2002. Entry-into-service was in 2016.

The C919 is China’s direct challenge to the Airbus A320 and the Boeing 737. Similar in appears to the A320, for which there is an assembly line in Tianjin, the C919 is powered by the CFM LEAP 1C and a domestically-produced engine. But the C919 only has an advertised range of 2,200-3,000nm. The A320 and 737-8 have ranges of 3,500 and 3,550nm, respectively.

COMAC forecasts producing 150 C919s a year by the middle of this decade. Achieving this rate in this period should be a major challenge. Based on normal learning curves, a more realistic ramp up to 150 a year will take until early 2031.

Summary
  • China forecasts a production rate of 150/yr by the middle of the decade.
  • History suggests a much lower rate by then.
  • LNA’s production rate forecast is detailed through 2030.

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Pontifications: The reshaped commercial aviation sector

By Scott Hamilton

July 12, 2021, © Leeham News: With Washington State and the US open for business following nearly 18 months of COVID-pandemic shut-down, there is a lot of optimism in commercial aviation.

In the US, airline passenger traffic headcounts are matching or exceeding pre-pandemic TSA screening numbers. Airlines are placing orders with Airbus, Boeing and even Embraer in slowly increasing frequency.

The supply chain to these three OEMs looks forward to a return to previous production rates.

It’s great to see and even feel this optimism. But the recovery will nevertheless be a slow if steady incline.

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Here’s why China needs Boeing as much as Boeing needs China

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Now open to all readers.

July 7, 2021, © Leeham News: China’s government policy of operating commercial aircraft that generally are no more than 12-15 years old means the carriers face a replacement bubble that the home market can’t possibly meet.

According to data reviewed by LNA, there are just 303 COMAC C919s on order. Delivery is supposed to begin this year with one airplane. Currently, the peak year for deliveries is 2027 with 55 aircraft scheduled.

There are about 1,116 Boeing 737 NGs built between 2008-2018 operated and stored by Chinese carriers. China has just 296 737 MAXes on order—a deficit of 820 aircraft needed for replacement of these aging airplanes. (Boeing’s website shows just 104 outstanding orders, but Chinese-owned lessors aren’t included in this tally.)

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China distorts progress in Boeing 737 MAX return to service

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By Scott Hamilton

Introduction

June 28, 2021, © Leeham News: There are now 265 Boeing 737 MAXes in airline service, according to data reviewed by LNA.

There are 263 MAXes in storage that appear to be previously delivered airplanes. This number is artificially inflated by the 95 MAXes that are grounded in China. China’s regulator hasn’t recertified the MAX, a move widely considered political due to the long-running trade war between the US and China initiated by the Trump Administration.

When the MAX was grounded in March 2019, there were 387 in service. The math indicates 147 MAXes were delivered from inventory or new production since the airplane was recertified by the Federal Aviation Administration in November 2020 and other regulators shortly afterward.

There were 400 MAXes in inventory at the end of the first quarter, down from 425 at the end of the year. Boeing resumed production in the single digits. Boeing does not reveal its rate, but it is believed to be about 10-14/mo going to 16/mo in the third quarter.

In contrast, there are 106 A320neos and 38 A321neos in storage as of last Friday.

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China’s air travel “recovery:” volume improving, but revenue still elusive

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By Judson Rollins

Introduction 

May 6, 2021, © Leeham News: In a media briefing this week, the International Air Transport Association (IATA) showed a deep contrast between the airline landscapes in the US and China versus the rest of the world.

The two countries together delivered 55% of the world’s domestic passenger traffic in March, with Chinese domestic capacity approaching 100% of pre-pandemic levels. China’s three largest carriers – Air China, China Eastern Airlines, and China Southern Airlines – are matching their US peers by deploying A350s and 787s on domestic routes, as most international routes to/from China remain closed.

However, first-quarter data continued to paint an ugly picture as unit revenue, or revenue per available seat-kilometer (RASK), was down at every publicly-traded carrier. Some of this was due to reduced load factors in January and February, but a key driver is the ongoing sale of “all you can fly” passes on most Chinese airlines.

Summary
  • Domestic load factors have picked up, but international traffic near non-existent.
  • First quarter financial reports show unit revenue fell below even last year’s abysmal levels.
  • “Airpass” promotions continue, but it’s unclear how long they will go on.
  • Fleet utilization during COVID: widebodies down but not out.

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HOTR: Annual Reports give hint to MAX return in China

By the Leeham News Team

May 4, 2021, © Leeham News: Annual reports from some Chinese airlines give an indication when Boeing can expect to resume deliveries of the 737 MAX there.

China Southern’s report issued this week indicates 48 MAXes will be delivered next year. Another 44 are shown to be delivered the following year. This compares with five A320 series this year and none next year. Only 15 A320s were delivered in 2020.

Five 787s and one 777s are scheduled for delivery to China Southern this year. Four A350s are scheduled for delivery this year and next.

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Boeing cites US-China relations as business watch item in 1Q earnings

April 28, 2021, © Leeham News: Boeing’s first quarter financial results were slightly worse than estimates by Wall Street analysis.

“Boeing reported first-quarter revenue of $15.2bn, primarily driven by lower 787 deliveries and commercial services volume, partially offset by higher 737 deliveries and higher KC-46A Tanker revenue,” the company states in its announcement. “GAAP loss per share of ($0.92) and core loss per share (non-GAAP) of ($1.53) reflect year-over-year KC-46A Tanker improvement, higher 737 deliveries, and lower commercial airplanes period costs, partially offset by lower tax benefits and higher interest expense. Boeing recorded operating cash flow of ($3.4)bn.”

Boeing recorded a charge of $318m for the VC-25B (Air Force One) program. Impacts from COVID-19 and a vendor that Boeing sued (and which counter-sued) are cited as reasons.

Productions rates remain unchanged.

The press release is here.

But buried in the slide presentation for the earnings call at 10:30 EDT is a one line reference that US-China relations are a business environment watch item. Credit Suisse notes this is the first time Boeing has so referenced China in earnings calls.

First reactions to the financial reports and China are below.

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Pontifications: Embraer’s China ambitions

March 22, 2021, © Leeham News: Embraer wants to become a big player in China.

By Scott Hamilton

“We see a huge market potential there,” said Arjan Meijer, CEO of Embraer Commercial Aviation, in an interview with Nikkei Asia. The news outlet continued, “The company expects worldwide demand for 5,500 jets with up to 150 seats over the next 10 years. A third of that will come from Asia, with a large part of it from China, Meijer added.”

However, China presents risks and few rewards to companies wishing to gain a significant foothold. This is especially true for commercial aviation companies. China has high ambitions for the commercial aviation industry. Partnering with China in this sector produced more heartbreak than success.

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China’s hollow airline “recovery”: capacity without revenue

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By Judson Rollins

Introduction 

March 15, 2021, © Leeham News: A flood of media coverage has centered on Chinese airlines’ supposed recovery from COVID-19.

The Chinese “big three,” Air China, China Eastern, and China Southern, made headlines with their rapid restoration of flights and even the announcement of new routes. Industry commentators and industry group IATA trumpeted the “recovery to pre-crisis levels” in China.

New routes garner headlines in normal times, but even more so now. And there is other good news: the US Transportation Security Administration last week processed the highest number of passengers since the pandemic all but shut down traffic a year ago.

But yield quality of such traffic in most markets is problematic. Cheap fares draw leisure travelers, yet business traffic remains a fraction of pre-pandemic levels and there are few signs of near-term recovery. Executives at Lufthansa Group, where business travelers deliver nearly 60% of revenue, said earlier this month they believe such travel will ultimately only return to 80-90% of pre-pandemic levels – and not until mid-decade.

If market analysts want to examine China’s recovery, they have to look at the whole picture. China may be leading the way in capacity restoration, but it’s not the “good” news touted.

The positive trends in China are in mainland domestic flights and seats, not passenger traffic or revenue — and not at all for regional (Hong Kong, Macau) or international routes. Scant attention has been paid to operational data from the country’s airlines – and even its national aviation regulator – showing passenger traffic even on domestic routes is still well below pre-COVID levels.

The “big three’s” third-quarter 2020 financial reports – when the domestic market was supposedly beginning to hit its stride – showed revenue losses far greater than the airlines’ pre-crisis share of revenue from international service. Even those disastrous results included a strong tailwind from increased cargo revenue, as the airlines don’t break out their revenue by business segment outside of annual reports.

LNA dug into the reports of China’s three state-owned airlines, privately held Hainan Airlines, low-cost carrier Spring Airlines, and monthly data releases from the Civil Aviation Administration of China (CAAC). Much of this data is only published in Mandarin, or in English only after long delays, so we enlisted translation help to build a more complete picture.

Summary
  • Capacity is (mostly) back, but passenger volumes haven’t followed.
  • Desperate sales promotions are widespread among Chinese carriers.
  • Third quarter 2020 financial reports show grave revenue losses.
  • Fourth quarter traffic isn’t materially better – and early 2021 is worse.
  • Continued excess capacity appears to be driven by politics, not demand.

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