A lost decade for aircraft manufacturers, suppliers

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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 short-term cost to safeguard their futures

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Looking ahead for 2020 and 2030 decades: UAC

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Fifth in a series.

By Bjorn Fehrm

Introduction

July 15, 2020, © Leeham News: UAC stands for United Aircraft Corporation, and is the name of the group owning the Russian aircraft industry.

After the fall of the Soviet Union, the multitude of individual companies and design bureaus could no longer survive on their own. The Russian state, therefore, gathered them all in UAC to introduce necessary consolidation and reform.

While UAC has done much with the support of the Ministries of Industry and Defense, the changing political situation for Russia has made it harder for the Civilian aircraft side to achieve sales outside captive Russian markets for its jets.

Summary
  • UAC is the holding company of the Russian aircraft industry since 2006. The UAC management has stopped pointless infighting and consolidated the industry, latest to a civilian and military side.
  • But it’s ambitions on the civil side outside Russia is at mercy to state politics and the Kremlin has shown that world politics is more important than the development of its industries.
  • This, and the rise of arch-rival and cooperation partner China, clouds the future for UAC civil aircraft.

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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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The future of regional jets is limited by choices, Scope Clause

By Judson Rollins
Introduction 

July 6, 2020, © Leeham News: The fallout from COVID-19 is beginning to intersect with the beginning of a wave of regional jet retirements globally. However, the market for smaller commercial jets today stretches the meaning of “regional” as most aircraft still in production have 100+ seats and can fly more than 2,500nm.

In the critical US market, both Embraer’s E175-E2 and Mitsubishi’s remaining M90 are too heavy to comply with the Scope Clause limits imposed by pilot labor agreements. These clauses restrict regional carrier flying to 76 seats and 86,000 lbs MTOW, while also capping the number of regional jets that can be flown by each carrier.

Delta Air Lines is limited to a total regional fleet of 450 aircraft, while American Airlines is capped at 75% of its single-aisle fleet and United Airlines is limited to 255 aircraft plus 90% of single-aisles in service. Earlier this year, American accelerated the retirement of some EMB-140s to maintain compliance with its limit.

Summary

  • Regional jet utilization will be lower in the near term due to higher unit costs and US Scope Clause fleet limits.
  • There will still be some replacement demand for regional jets over the next decade.
  • Scope Clause relief is unlikely to happen in the coming round of US pilot contract negotiations.
  • Lack of Scope relief will extend the life of Embraer’s E175-E1 through the 2020s.

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Looking ahead for 2020 and 2030 decades: COMAC

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Third in a series.

By Bjorn Fehrm

Introduction

July 1, 2020, © Leeham News: COMAC stands for Commercial Aircraft Corporation of China, Ltd. It was spun off from the equally state-owned military and civil aeronautical giant AVIC in 2008. COMAC’s charter is designing, producing, and supporting civil airliners for China and, ultimately, world markets.

It presently runs three airliner programs, the 90 seat ARJ21, the 160 seat COMAC 919, and the Chinese part of the Joint Venture 280 seat CR929 widebody. Russia is the Joint venture partner for the CR929.

Summary
  • COMAC’s strength is a large captive home market and unwavering support from its owner, the state.
  • Its weakness is lack of experience in designing, certifying, producing, and supporting airliners.
  • It will learn in all these areas when delivering to its captive market, China’s state airlines.
  • When ready and with a next generation of aircraft, it will become a force to reckon with on the world market.

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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.

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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.

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European airline struggles add risk to 15% of Airbus, Boeing orders

By Judson Rollins

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Introduction

Earlier this week, LNA examined the potential for a shakeout among European carriers as the coronavirus outbreak spreads to the continent.

Five European countries now rank among the ten hardest hit – travel demand is plummeting nearly as rapidly as after the September 11 attacks in the US.

On Thursday, UK-based Flybe went into bankruptcy after long-time financial struggles. The airline had 54 De Havilland Canada Dash-8-400s and nine Embraer E175-E1s in its fleet, more than half of which were leased from Nordic Aviation Capital and HEH Aviation Management.

LNA reviewed aircraft ownership data to understand top manufacturer and lessor exposure to European carriers, particularly those with known profitability issues and high debt loads.

Source: Twitter / @AirportWebcams

Summary
  • Airbus’s exposure to Europe is 16% on single-aisles and 19% on twin-aisles;
  • Boeing has just under 15% of its single- and twin-aisle orders from Europe;
  • Embraer’s E2 jet program has 27% exposure to the region;
  • ATR, De Havilland Canada, COMAC face little to no threat from European airline woes;
  • Norwegian, TAP, SAS, TUI are likely the most imminent threats to manufacturers and lessors.

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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.

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2020 Outlook for Airbus, Boeing, et al

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Introduction

By the  Leeham News team.

Jan. 2, 2020, © Leeham News: This will be a pivotal year for Boeing.

It will be a year of challenges for Airbus.

Embraer Commercial Aviation should disappear.

Mitsubishi Heavy Industries faces final decisions for the SpaceJet.

Overhanging international trade is the US presidential election.

These are just some of the headlines to look for in 2020.

Leeham News and Analysis provides its annual outlook as the new year, and the new decade, begins.

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