HOTR: Don’t get over-optimistic on COVID-19 vaccine news

By the Leeham News team

Nov. 10, 2020, © Leeham News: Pfizer yesterday announced it’s on track to produce a COVID-19 vaccine that appears to be 90% effective in trials. The company is one of the world’s leading drug makers.

This is good news.

But before jumping to the old cliché about a light at the end of the tunnel, LNA’s Judson Rollins cautions, do the math.

“Read the fine print at the end of the press release,” Rollins says.

“Based on current projections, we expect to produce globally up to 50m vaccine doses in 2020 and up to 1.3b doses in 2021,” the press release says.

“It’s a two-dose vaccine, so divide by two to figure the number of people who could be immunized,” Rollins says. “Even if a second candidate is approved and can be produced in the same quantity next year, that means just 17% of the world’s population will be vaccinated. And that assumes everything goes according to plan.”

Rollins did an extensive analysis of how quickly global air traffic would return to normal. In his July 13 post, Rollins projected that traffic won’t fully recover until 2024 at the earliest or 2028 at the latest. It all depends on how quickly a vaccine was developed, how quickly it could be distributed globally and how quickly people had confidence in it.

“We’re in only the second or maybe third inning of a very long ball game,” Rollins says. “Vaccines kill off a virus by denying it bodies in which to reproduce. If you don’t innoculate enough of the population while immunity lasts, you’re back to square one.”

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Boeing needs 737 replacement launch by 2026 if not sooner

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By Scott Hamilton

Introduction

Nov. 9, 2020, © Leeham News: Boeing needs hundreds of new orders for the 737 MAX and/or a new replacement program launch by 2026, if not sooner.

An analysis shows that 737 deliveries tank by 2028.

This isn’t just about the 737-10 and 737-9, which don’t fare well against the Airbus A321neo. The shrinking backlog is the problem.

Ryanair’s CEO, Michael O’Leary, said last week Boeing will delay delivery/entry into service of the 737-10 MAX by up to two years.

This largely stated the obvious.

The first 10 MAX rolled out of the factory Nov. 22 last year. It could not enter flight testing because the MAX family was grounded March 13. The MAX remains grounded. Recertification may come this month, but it appears more likely next month.

Boeing 737-10. Source: Boeing.

This delays the start of flight testing until probably January. This is a 14-month delay.

Flight testing will take a year to 15 months, or to January to March 2022—about two years after the planned EIS. Boeing’s production ramp up will further impact delivery of the 10 MAX.

Although some recent new focus was on the 10 MAX, the larger issue is the entire 737 family.

Summary
  • Production ramp up will be slow.
  • Inventory will take two years to clear.
  • Airline demand is poor the next 2-3 years.
  • Boeing’s breadwinner sees major delivery drop from 2026.
  • A further drop by 2028 demonstrates need for a 737 replacement—not just an A321 competitor.

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HOTR: Airbus, Boeing R&D spending continues decline

By the Leeham News Team

Nov. 5, 2020, © Leeham News: Research and Development spending by the Airbus and Boeing commercial units declined year-over-year.

The movement is in keeping with cost-cutting by the Big Two OEMs. For Airbus, the reduction is due to the coronavirus pandemic. For Boeing, it’s due to the 737 MAX grounding and the pandemic.

Boeing’s spending typically lags Airbus. Richard Aboulafia, a consultant with Teal Group, for years criticized Boeing over its smaller spending, favoring instead shareholder value. Airbus overtook Boeing is innovative single-aisle airplane development years ago. Boeing’s choice of creating a 777 derivative instead of a new design to compete with the A350-1000 proved to be a weak move. There are only a handful of customers and the skyline is weak.

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Pontifications: Certification timing may push EIS for 777X

Nov. 2, 2020, © Leeham News: Throughout the 737 MAX investigations and recertification process, former Boeing CEO Dennis Muilenburg said there would be no delay on 777X certification.

By Scott Hamilton

On Boeing’s earnings call last week, Muilenburg’s successor, David Calhoun, said there could be.

“On the 777X, we continue to work with the regulators on certification work scope, including reflecting the learnings from the 737 cert process,” Calhoun said. “As with any development program, there are inherent risks that can affect schedule. And while we continue to drive toward entry into service in 2022, this timing will ultimately be influenced by certification requirements defined by the regulators.”

Boeing is certifying the 777X under the Changed Product Rule, the same process used for the MAX. Certification is being pursued as a derivative of the 777, a point of scrutiny on the MAX.

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Airbus stopped consuming cash in 3Q2020

October 29, 2020, © Leeham News: Airbus announced its third-quarter 2020 financial results today. It has achieved convergence of production and deliveries by delivering 145 aircraft in the quarter and 341 since the start of the year. It will keep its present production rates until next summer when A320neo rates are expected to increase.

The convergence of production and delivery rates combined with other measures has stopped the outflow of cash and Free Cash Flow from operations was positive in the quarter and is expected to stay positive until the end of 2020.

 

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Update 2: (adds earnings call information): Update 1: (adds Calhoun on CNBC): Boeing cites grounding, COVID, 787 quality issues in 3Q/9 month loss

Oct. 28, 2020, © Leeham News: Boeing released its 3Q2020 and nine months financial report this morning and, as expected, it wasn’t pretty.

  • Boeing burned through more than $4.8bn in cash during the quarter from losses. Another $262m in cash was used on building additions.
  • For nine months, Boeing reported an operating loss of nearly $6.2bn.
  • Debt remains at $61bn.
  • “Commercial Airplanes third-quarter revenue decreased to $3.6bn, reflecting lower delivery volume primarily due to COVID-19 impacts as well as 787 quality issues and associated rework. [Emphasis added.] Third-quarter operating margin decreased to (38.1) percent, primarily driven by lower delivery volume, as well as $590m of abnormal production costs related to the 737 program,” Boeing reported.
  • Boeing Global Services revenue declined by nearly $1bn and earnings fell by slightly more than $400m, impacted by the decline in commercial aviation because of COVID.
  • The value of the commercial airplanes backlog at Sept. 30 was $312.68bn vs $376.59bn. Boeing delivered 98 airliners in the nine months compared with 301 in 2019. The MAX was grounded March 13, 2019, with deliveries halted then.

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Key Airbus, Boeing supplier sees recovery in 2022

By Scott Hamilton

Oct. 28, 2020, © Leeham News: A key supplier to Airbus and Boeing believes there will be a “significant upturn” in passenger traffic and aircraft demand in 2022, well before consensus.

Hexcel provides composites and other materials for the Airbus A320 and A350 and Boeing 737 MAX.

And Raytheon Technologies sees passenger traffic returning to pre-COVID levels in 2023, depending on widespread use of vaccines.

Consensus is a return to pre-COVID levels in 2024.

In its 3Q2020 earnings press release Oct. 20, Hexcel’s CEO, Nick Stanage said, “The overall long-term demand for aircraft and our advanced composites technology remains robust, and the potential for a significant upturn in 2022 and beyond looks positive.”

The actions we are taking will ensure that Hexcel emerges from the effects of this pandemic stronger than ever. As we do, our liquidity will have been strengthened, our cost structure will be reset, and we will be well positioned to deliver strong shareholder returns.”

Quizzed on the earnings call, Stanage elaborated:

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Public data doesn’t support Airbus A320 production rate hike

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Introduction

By Scott Hamilton

Oct. 26, 2020, © Leeham News: Airbus’ 3Q2020 earnings call is Wednesday. News emerged last week the OEM is notifying supplies that they should be prepared to increase production of the A320 from 40/mo to 47/mo in the second half of next year.

It is worthwhile looking at the delivery skyline as it currently exists.

Summary

  • Forecasted delivery stream doesn’t support rat 47/mo until 2024.
  • Airbus appears to be banking on faster recovery from COVID—or
  • Picking up market share from Boeing.

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Twin Aisle Deliveries: The Good, the Bad, and the Ugly

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By Vincent Valery

Introduction  

Oct. 19, 2020, © Leeham News: LNA published last week an update on the latest 737 MAX production and delivery plans. This week, we turn our attention to the twin-aisle programs at Airbus and Boeing.

Both OEMs announced significant monthly production rate reductions earlier this year: the Dreamliner will go to six next year. The Airbus A350 is at five per month, while the A330 and Boeing 777 are at two. Airbus and Boeing will publish their third-quarter earnings later this month, which could include updated production rates.

LNA investigates the implications of the updated production and delivery plans for twin-aisle programs at Airbus and Boeing.

Summary
  • Two programs in acceptable shape;
  • Awaiting an elusive return to favor later this decade;
  • A lack of healthy customers make the situation critical;
  • Summing it all up with one metric.

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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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