Odds and Ends: Price vs Price in Indian contest; China theat; 787 financial impact on Boeing

Price vs Price: More on the price war between Airbus and Boeing in the A320 v 737 contest. Dominic Gates of The Seattle Times has this analysis of hot contest to win an order from India’s Jet Airways, hitherto an exclusive Boeing customer. He takes a larger look at the troubled Indian airline industry.

Finalizing Orders: Norwegian Air Shuttle finalized its order for 100 Airbus A320neos, breaking Boeing’s monopoly here. NAS was also a launch customer of the 737 MAX.

China threat: Maybe, maybe not. Jim Albaugh, CEO of Boeing Commercial Airplanes, cites China as the biggest emerging threat to Boeing and Airbus. Reuters, in Beijing for the IATA AGM, has this article saying, not so fast. The article takes a close look at the ARJ-21, China’s first effort at a modern jet. Although this is a regional jet and not competitive with Airbus or Boeing, it’s a “makee-learn” effort that leads the way to the Comac C919, which is directly competitive with the A320 and 737 class. Implications of the ARJ-21 are also discussed in the article.

LionAir and the 787: Confirming news reports this week, LionAir announced it has committed to the Boeing 787, agreeing to buy five. We’re told these are from the so-called “terrible teens,” those early 787s that required an enormous amount of rework and which were rejected by the original customers. Transaero and Rwanda Air are said to also be taking some of these early aircraft.

EADS Bank: More information on the reports EADS is considering getting a banking license.

Boeing economics and the 787: Jon Ostrower at The Wall Street Journal has an excellent piece today talking about the milestone of 787 #66 and the implications for cost reduction. Unfortunately, the full article is available only for paid subscribers. Contained within the article is this key data:

The losses don’t show up on Boeing’s bottom line, because accounting rules let the company spread the Dreamliner’s costs over years—effectively booking earnings now from future Dreamliners that it expects to produce more profitably. With previous models, Boeing initially spread its costs over 400 planes, but with the Dreamliner it is distributing the costs over 1,100 planes—a number it says reflects unprecedented demand. Boeing already has 854 Dreamliner orders from 57 customers.

Boeing reported that first-quarter profit at its Commercial Airplanes division more than doubled to $1.08 billion from a year earlier. But the company acknowledges that accounting for the costs of each individual plane would have resulted in a first-quarter loss of $138 million—a drop UBS analyst David Strauss says is almost entirely attributable to the Dreamliner.

The Dreamliner’s drain on cash is balanced by strong sales of the profitable single-aisle 737 and long-range 777 models. And analysts estimate Boeing is reducing the losses per Dreamliner by about $10 million each quarter. But maintaining the pace of cost reduction gets harder as the simplest problems are solved. Meanwhile, Boeing aims to increase production of Dreamliners to 10 per month at the end of 2013, up from 3.5 per month today—meaning the losses per plane will be magnified, but will also be tempered by the decreasing cost of each jet.

Some analysts believe Boeing’s target for cost reduction on the Dreamliner could be too optimistic. Mr. Strauss of UBS says the company appears to be assuming it can reduce its cost 50% faster than it did with the 777. If instead the pace of cost reduction matches the 777, says one of UBS’s models, the estimated $20 billion hole could double.

Odds and Ends: China trojans; China is the biggest threat; EADS ponders own bank

China trojans: we’re not talking about condoms, either. This item from Defense Tech is pretty alarming. And while this piece is also pretty alarming, though it isn’t about China. Or maybe it is. The chips are made by the same company, sourcing them in China.

China is the biggest threat: So says Jim Albaugh, CEO of Boeing Commercial Airplanes. Aviation Week has this article about an Albaugh appearance in the UK.

EADS ponders its own bank: This would give it access to low-cost funds and protect against the Euro, officials say. Here’s an article. Our first thought: since the WTO ruled Airbus launch aid was illegally structured because of below market rates (but did not rule the aid itself illegal), this returns EADS/Airbus to the low-cost funding access. Clever. Wonder what Boeing thinks about this?

Airbus Innovation Days: synopsis of a lot of stuff

We’ve been at the Airbus Innovation Days in Toulouse, with about 200 others from around the globe. Here are some highlights:

A380 wing rib issues: As reported previously in various media, Tom Williams, EVP-programs, outlined the issues with the wing rib cracks. A new metal alloy was used, intended to save weight, that cracked in operations despite fatigue testing failing to discover the issue on a test airplane. Williams attributed the failure to detect the cracks to inadequate instrumentation on the test plane. The new alloy saved about 300kg. There are 60 L-brackets out of 4,000 that require inspection and only 20 are affected. The issue does not affect flight safety and the ribs can be replaced either during a C Check or during a nose-to-tail maintenance check. The “Type 2” cracks, the most serious of two types found, have to be replaced by 1,300 cycles.

A350-800/1000 sales: Boeing has been aggressively casting doubts on these two sub-types, pointing out that there have been no sales since 2008. John Leahy, COO Customers, said there haven’t been sales because he doesn’t have any delivery slots available until the end of the decade. He’s been switching some customers from the 800 to the 900, which is more profitable to Airbus. Where did he get the slots? He won’t say but in a press gaggle after his presentation, he acknowledged to an Indian journalist that Kingfisher Airlines—an A350, A320 and A380 customer—deferred all its deliveries to relieve the need for pre-delivery payments. We asked Leahy if he was re-selling the Kingfisher slots and he demurred, saying that was “confidential.”

(We note that Boeing had a long dry spell in sales of the 787 during the depths of the problems with the airplane and the backlog stretching to late this decade.)

Leahy also said Boeing’s claims that he, Leahy, doesn’t know what the -1000 “is” are false.

A320 v 737: If the war of words over the A350 wasn’t enough, Leahy—and to a lesser extent, Williams, whose focus was principally the A380—repeated the Airbus messaging begun last November at the Credit Suisse conference in New York that fan size does matter and the 737 MAX comes up short. Airbus figures the MAX at best (pre-dating the recent Boeing changes) will gain 8% over the 737NG. We asked Leahy later about the move by Boeing to take the CFM LEAP-1B fan size to 69.4 inches and to add the “Boeing Advanced Technology Winglets” (BATW) to the MAX. Boeing now claims the MAX will be a 13% improvement over the NG. Leahy, who compared the BATW with the MD-11 winglets, said Boeing will get only about one-half percent improvement from this. The 69.4 inch fan still falls short, he said.

Williams, a former engine engineer, said the hotter temperatures and ceramics technology required of the LEAP-1B, will present maintenance challenges.

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Lessor worries about Airbus, Boeing production rates

Here is an expanded version of a story we did last week for Flight Global Pro.

The refrain that Airbus and Boeing are over-producing the core-A320 and 737 programmes resurfaced with lessor AerCap in an interview with The Wall Street Journal.

Aengus Kelly, CEO, chastised the Big Two OEMs for production plans announced so far. Airbus will go to a rate of 42 per month by the end of this year and is considering 44. Boeing plans to hit rate 42 by 2014. Both companies are considering rates as high as 60 per month.

Airbus produces airplanes only 11 months of the year while Boeing is on a 12 month production schedule.

In its 2011 20-year forecast, Boeing predicts there is a need for 23,370 single aisle aircraft in the 90-210 seat category. Airbus predicts 19,165 in the 100-210 seat market.

Based on the announced production rates, and assuming no changes through the 2030 forecast period in production—or for adjustments in the forecasts—Airbus and Boeing will produce 18,551 single-aisle airplanes.

If both OEMs go to rate 60 by 2016, their combined production exceeds their own single-aisle forecasts.

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More Odds and Ends: Aircraft list prices, airline break-even

Aircraft List Prices: It took some doing, but we’ve collected the list prices of all the major commercial airplanes. The comparisons are interesting. We’ve tabulated these into seat categories.

List prices, of course, have no relationship to what customers actually pay. Discounts of 25%-30% are common and really good customers–like Southwest Airlines for Boeing–have been known to get discounts of up to 60%.

There are several notables in this list:

  • Compare the pricing of the C919 and the MS-21 to the Airbus and Boeing products;
  • Compare the Q400NG to the ATR-72-600;
  • Compare Airbus to Boeing; and
  • Compare CSeries to 737-600/700 and there isn’t that much difference; the gap is wider compared with Airbus.

Is there any particular point to this? Not really–it’s just one of those facts that intrigue us and a host of aviation geeks.

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C919 gains but loses advantages

Here is an article we did for FlightGlobal Pro.

After a slow and disappointing start compared with expectations that had been set in advance of the Zhuhai Air Show in November 2010, Commercial Aircraft Corporation of China’s (Comac) C919 has picked up steam.

Prior to Zhuhai, Chinese authorities forecast “hundreds” of orders would be announced for China’s first indigenously built mainline jet since the reverse-engineered Boeing 707 copy that never entered commercial service. Instead, a disappointing 55 firm orders and 50 options were announced.

Since then, there are about 250 orders and options now on the books. According to Flightglobal’s Ascend Online database, 160 of these are firm orders from nine Chinese customers, including four lessors. China’s “big three” airlines, Air China, China Eastern and China Southern, ordered a disappointing five aircraft each. Hainan ordered 20. Some of the announced orders have yet to be firmed up as contracts.

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China won’t be competitor for 20 years: Leahy

China’s emerging commercial aerospace industry won’t be a viable competitor to Airbus and Boeing for 20 years, predicts John Leahy, COO Customers of Airbus.

Speaking at the Credit Suisse Aerospace conference in New York, Leahy noted the challenges COMAC has with the ARJ21 regional jet; and the development of the C919 mainline aircraft, neither will commercially be an effective aircraft compared with today’s aircraft from Western companies.

Boeing’s Jim Albaugh, CEO of Commercial Airplanes, speaking separately at the same event, agreed. He also said Boeing has erected “high walls” around its technology, and will maintain its lead over China by building “tomorrow’s airplane” while China is building “today’s airplane.”

Albaugh acknowledged there is some technology transfer of today’s generation.

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.

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Paris Air Show outlook

There are several items looking at the Paris Air Show outlook:

AirInsight had a live discussion Friday with Addison Schonland, Richard Aboulafia and Ernie Arvai hosting it. The transcript is here.

AirInsight also published a lengthy written preview of what to expect from all the major airframe and engine OEMs here.

Here’s a short-take on Airbus at the show.