Leeham News and Analysis
There's more to real news than a news release.
Pontifications; Does the pandemic change the airliner market dynamics?
By Bjorn Fehrm
October 19, 2020, ©. Leeham News: Airbus and Boeing have dominated the world’s airliner market over the last 30 years. In the next 30 years, will this change?
Before the COVID-19 pandemic, the answer was no. The only viable competitor, the Chinese aircraft industry, would need more time to catch up. But the pandemic has changed the dynamics in the world.
For China COVID-19 is history. For the rest of the World not. China’s society and most noteworthy its travel industry are back to normal. September’s domestic flights were 103.5% of 2019 levels and passenger numbers were at 98% while the rest of the world is busy throttling back network plans from already low levels. We know that airlines in China are stimulating traffic with discounted fares, taking losses in the process. However, they have the backing of the government and it is traffic that ultimately drives demand for aircraft.
The Chinese system handles the crisis magnitudes better than the free world. Will the newfound Chinese self-confidence spread to bootstrapping the in-house air transport industry even further to capture the increased airliner demand?
Lessors to Take Growing Share of Fleeting the Future
By Kathryn B. Creedy
Air Lease Executive Chair Steven Udvar Hazy expects lessors to play a larger role in aircraft fleeting in the future, according to comments made during yesterday’s Aviation Week Fireside Chat with the lessor.
“I don’t see lessors going below 40%,” he told Air Transport World Editor Karen Walker. “I see it creeping up to perhaps 50% or 55% and that includes operating leases and various other exotic mechanisms.”
Udvar Hazy pointed to the poor financial shape of the world’s airlines which have used all their current levers to increase liquidity to ride out the Covid 19 crisis.
A lost decade for aircraft manufacturers, suppliers
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Introduction
By Judson Rollins, Bjorn Fehrm & Scott Hamilton
Sept. 21, 2020, © Leeham News: Commercial aviation is facing a lost decade due to COVID.
Yes, most forecasts target 2024-2025 as returning to 2019 passenger traffic and aircraft production levels.
However, LNA in July published its own analysis indicating full recovery may not occur until 2028. Breathless headlines notwithstanding, it will take years for vaccines to be widely available and considered safe by enough of the world’s population. Growing concern about vaccine production and distribution capacity through 2024 underscores this view. Even Southwest Airlines CEO Gary Kelly said earlier this month that business travel might not fully return for a decade.
Indeed, the 2020s may well be a lost decade for aircraft manufacturers and their supply chains.
Summary
- Debt-laden airlines will have little money to order new airplanes
- Interest in re-engined 787, A350 likely nil this decade
- Airbus, Boeing, Embraer have little interest in launching new programs
- Engine makers too financially stretched to develop new designs
- Engineering talent, knowledge will be decimated by inevitable job reductions
- OEMs must “play the long game” at a short-term cost to safeguard their futures
Looking ahead for 2020 and 2030 decades: Embraer
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Fourth in a series.
By Bjorn Fehrm
Introduction
July 8, 2020, © Leeham News: All airliner OEMs have a disastrous 2020, but for Embraer, the year has been even worse. After spending a year and over $200m to carve out the Commercial Aviation division to merge it into Boeing, the Joint Venture Agreement (JV) was stopped by Boeing at the last moment.
The Executive Jets and Defense side were not affected, but now Embraer was organized as two companies instead of one. The company must now re-merge the organizations to save costs in a COVID-19 environment where limiting cash outflow, and lowering costs are necessary for survival. At the same time, it’s arch-rival on the world market, Airbus A220 has gone from strength to strength through basket selling with the popular A320.
How does Embraer come back from the Boeing pass up and regroup in a regional market that is no longer a fight of equals? Embraer competes with Airbus that in 2019 was 11 times larger in airliner deliveries and 29 times in airliner revenue.
Only in the below 100 seat market is it saved from the giant, who doesn’t have a model in the segment. And it seems the below 100 seat competitor, Mitsubishi, might fold its entry.
Summary
- The botched JV with Boeing came at the worst possible moment for Embraer, just when the COVID-19 pandemic stopped airliner deliveries.
- The planned JV had held back sales and deliveries, waiting for the JV to complete.
- In addition, it cost Embraer $200m, pushing it into the red for 2019.
- Embraer must now find another fix to the Airbus problem while wrestling with a worldwide COVID crisis.
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How much of International passenger flights can be paid by belly cargo? Part 2.
By Bjorn Fehrm
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Introduction
June 11, 2020, © Leeham News: As international passenger traffic slowly recovers, how much of the cost of flying passengers on the international routes can be paid by the freight under the floor?
We discussed the base parameters to answer this question in last week’s article. Now we calculate the revenues from passengers traffic and Cargo and compare them with the operational costs.
Summary:
- The high freight prices make it possible to resume international passenger flights without losses on routes where there is substantial freight demand.
- As belly freight capacity comes back to the market the freight prices will decline, but by then the passenger load factors should be on the way up.
France to invest 15 billion Euro in its aeronautical industry
By Bjorn Fehrm
June 10, 2020, ©. Leeham News: France presented a 15 billion Euro support plan for the French aeronautical industry yesterday, to help the industry overcome the effects of the COVID-19 pandemic.
The plan has three focus areas:
- safeguard the employment of the 300,000 employed in the French aero industry
- transform the supplier network to a more robust structure
- and perhaps most interesting, set the direction for the industries’ next aircraft projects
The French Finance Minister announces the plan. Source: France 24.
How much of International passenger flights can be paid by belly cargo ?
By Bjorn Fehrm
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Introduction
June 4, 2020, © Leeham News: Air cargo prices are at an all-time high. The air cargo demand is down 28% compared with the same time last year, but the capacity has disappeared faster. Half of the world’s cargo was flying in the bellies of passenger aircraft, and as these were grounded, 50% of the world-wide cargo capacity went missing.
Airlines have taken the seats out of passenger jets and now fly them as belly freighters with light pandemic protective gear cargo in the cabins on special authorization from the authorities. This has alleviated the capacity crunch somewhat but demand and capacity still don’t match. As a result, cargo prices stay high.
As international passenger traffic slowly recovers, how much of the cost of flying passengers on the international routes can be paid by high priced freight in the bellies of the aircraft?
Summary:
- While domestic passenger traffic shows the first signs of recovery, international traffic will take long to recover.
- At the same time, cargo prices are two to three times higher than normal for international routes within Asia and between Asia and the US or Europe.
- How much of the bills for flying international passenger traffic in the recovery period can be paid by cargo in the bellies of these jets?
Pontifications: Assessing the impact of COVID-19: today’s take
By Scott Hamilton
April 6, 2020, © Leeham News: It’s going to be quite a while before there is a clear understanding how coronavirus will change commercial aviation.
LNA already touched on impacts to Airbus, Boeing and Embraer. None of it is good. For Boeing, burdened with the additional stress of the 737 MAX, is in the worst position. Even when the MAX is recertified, there won’t be many—or any—customers in a position to take delivery of the airplane.
Bearing in mind that what’s true today will change in a day, or even an hour, let’s take a rundown of where things seem to stand now.
Coronavirus dominates sideline talk at aviation conference
By Scott Hamilton
March 2, 2020, © Leeham News, Austin (TX): The global impact of COVID-19, the coronavirus, was the dominant talk on the sidelines of an aviation conference here.
Source: KRDO.com
Industry professionals predict the reduction in airline service will only grow and could grow dramatically. Aircraft groundings could escalate sharply. Carriers are already seeking payment relief. Lessors are gearing up to repossess airplanes.
And universally, these professionals think the worst is yet to come.
Asian airline troubles could affect up to 20% of Airbus, Boeing backlogs
By Judson Rollins
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In last week’s analysis, LNA examined which airlines in greater China and the rest of Asia may be in imminent risk of financial distress due to the growing coronavirus outbreak. We found that airlines from Malaysia to Japan have significant exposure to the Chinese market. Several have shaky balance sheets and were already losing money prior to the outbreak, most notably AirAsia, AirAsiaX, Thai Airways, Nok Air, Malaysia Airlines, and Asiana.
The coronavirus outbreak has now spread to Europe and the Middle East, but we are continuing our focus on Asia as it’s been most greatly affected so far. Additional analysis focusing on Europe will follow, with particular attention to the potential for further airline consolidation on the continent.
LNA reviewed ownership and operating data on aircraft to understand top manufacturer and lessor exposure to greater China, which includes Hong Kong and Macau, and the rest of East Asia.
Summary
- Airbus has greater exposure to China and the rest of East Asia, especially in widebodies;
- Boeing’s 787, 777X difficulties will be exacerbated by Asian airline troubles;
- COMAC’s sales book is almost exclusively in China, but government support is likely;
- ATR has material exposure to Southeast Asia; other regional aircraft OEMs are largely unaffected.