Pontifications: The risk of closing China to aerospace suppliers

By Scott Hamilton

Nov. 30, 2020, © Leeham News: The Trump Administration this month indicated it might expand its ban on doing business with certain Chinese companies.

The Administration says the additional companies have ties to the military. Included in the listing is COMAC.

Reuters reported the move Nov. 13.

If the Administration follows through during its remaining lame-duck time in power, and if the new Biden Administration doesn’t reverse or modify the plan, the long-term effect could hurt the US aerospace supply chain.

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2024 will be key year for Boeing in Washington

This is the second in a series of articles examining how labor, Boeing and Washington state could move forward following the COVID pandemic. The first article is here.

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By Bryan Corliss

Analysis

Introduction

Nov. 30, 2020, © Leeham News — You might want to set yourself an Outlook calendar reminder for January 2024.

It’s going to be a pivotal year for Boeing, its home state and its workforce. By then, the company’s recovery from the current Covid-caused crisis should be underway, with the order book refilling.

The countdown should be on for the long-delayed roll-out of the reconceived NMA, at long last giving Boeing a real counter to the Airbus A321. And — barring a surge in 737 MAX orders after its return to service — Boeing could be close to making some tough decisions about the future of the 737 program, thinking hard about whether after 60 years it’s finally time to design and build a clean-sheet replacement.

Also by then, the 787 program will have fully consolidated into Charleston, and the last 747 will have departed the Paine Field flight line, leaving The World’s Largest Building (By Volume) half-empty.

Then, in January 2024, Boeing’s contract with its touch-labor union – IAM District 751 – will expire, after a 10-year extension that was part of the price Machinists paid to ensure the 777X would be assembled in Everett. For the first time since the summer of 2008, the two sides will sit down at a bargaining table with the union having the ability to call for a strike.

What happens between now and January 2024 will pretty much decide the future of Boeing in Washington state. If the players are clear-eyed and rational, we could see a return to the days when high-skilled workers built high-quality planes that created handsome profits for Boeing shareholders and family-wage jobs for Boeing workers.

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HOTR: With MAX nearing recertification, Boeing has bigger problem

By the Leeham News team

Oct. 27, 2020, © Leeham News: Boeing’s 737 MAX may be nearing recertification and airlines worry about passenger acceptance.

But Boeing’s larger MAX problem is its general product line-up.

LNA pointed out the poor sales of the 7 MAX in the past. We’ve also compared the lagging sales of the 9 MAX and 10 MAX compared with the A321neo.

As a result of the MAX grounding and now COVID-19’s disastrous financial impact on airlines around the world, more than 1,000 orders have been canceled or reclassified as iffy under the ASC 606 accounting rule.

Airbus doesn’t publicly reclassify the European equivalent of ASC 606. But LNA in July estimated how many A320s would be similarly classified. At that time, about 425 appeared to be similarly subject to ASC 606 if this accounting rule was applied to Airbus.

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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?

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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.

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Pontifications: Boeing’s latest forecast raises more doubt than hope

By Judson Rollins

Oct. 12, 2020, © Leeham News: Every year, like clockwork, when Boeing publishes its 20-year Current Market Outlook, there is always another upward revision in forecast demand for new aircraft.

So, when the Chicago-based OEM admits that demand has taken a long-term hit, you know the situation must be dire.

Last week, Boeing belatedly published its annual CMO forecast for global commercial jet production and services. The forecast was quite a comedown as it marked a 2% fall from Boeing’s previous expectations for aircraft demand, with a whopping 10% drop for widebodies and freighters.

Airbus has withheld its 2020 Global Market Forecast while it continues to assess the impact of COVID-19. Read more

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

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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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