Embraer’s 2Q2020: Revenues more than halved, causing increasing losses

By Bjorn Fehrm

August 5, 2020, ©. Leeham News: Embraer presented its 2Q2020 results today. The revenue virtually halved for 1H2020 to $1.17bn (2.2bn 1H2019) and shrank 61% for the second quarter to $537m ($1,379m 2Q2019), after delivering only four E-Jets during the quarter (26).

Total losses were -$342m ($27m), whereof -$202 was non-operational charges. The COVID crisis hits commercial aircraft deliveries, but Embraer had no cancellation of E-Jet orders in the quarter.

The Executive jet segment is holding up comparatively well, as is Defense and Security.

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HOTR: Boeing warns of forward losses on 787, 777X programs

By the Leeham News Staff

Aug. 5, 2020, © Leeham News: In another demonstration of the negative impact of the COVID-19 crisis, Boeing warned that two flagship airplane programs could face forward losses.

Neither the 787 nor the 777X are in forward loss positions yet. A forward loss means Boeing won’t make money on the program.

Despite the 787 incurring more than $30bn in deferred costs, Boeing hasn’t taken a write down. The deferred costs have been burning off since 2015. Other programs have been subjected to forward losses, including the 747-8, VC-25 (Air Force One) and the KC-46A tanker.

But with the production reduction of the 787, down to 6/mo in 2021, Boeing now says there is a risk to a forward loss.

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Boeing’s big opportunity

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By Scott Hamilton

Analysis

Introduction

Aug. 3, 2020, © Leeham News: Boeing has one of the biggest opportunities in decades.

This is counter-intuitive, given the disaster it faces with the COVID-19 crisis.

But in chaos, there are opportunities.

There are some key assumptions that must be made. But these are not outlandish.

Summary

Assume:

  • Boeing survives the virus crisis.
  • Boeing consolidates 787 in Charleston.
  • 787 demand doesn’t return, reactivating Everett line.
  • Sharp gains in production efficiency.
  • These lead to the Big Opportunity.

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COVID production rates “firm” up

By Scott Hamilton

July 30, 2020 © Leeham News: Airbus and Boeing refined their COVID production schedules this week slightly downward in some cases.

Airbus largely held to its previously announced production schedule. It dropped the A350 rate by one, to 5/mo from six. The A320 rate remained at 40/mo, as did the A330 rate at 2/mo. The A220 rate is returning to 4/mo in Montreal and 1-2/mo in Mobile.

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Airbus 1H2020; “We have reached the right production level for the pandemic”

By Bjorn Fehrm

July 30, 2020, © Leeham News: Airbus presented its results for the first half of 2020 today. Airbus CEO, Guillaume Faury said on the analyst call “We made a large adjustment to lower production rates end April. We are there now and it seems the right level. Except for a small adjustment for A350, from six to five per month, we are happy, we have found the right level for the crisis”.

The group revenue settled at €18.9bn for the first half of 2020 compared with €30.9 a year ago, with deliveries at 196 commercial aircraft (389 1H2019). EBIT adjusted for the first half is €-0.9bn, the size of the COVID-19 extra costs charge.

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Boeing’s second quarter of 2020; cutting production as revenue halves due to MAX grounding and COVID-19

July 29, 2020, © Leeham News: Boeing presented its results for the second quarter of 2020 today. The company revenue is halved compared with the last second quarter with full 737 MAX production, 2Q2018. The reported loss was $3bn but the real loss, masked by program accounting, is close to double this number.

Boeing will now cut production of the cash cow 787 to less than half the pre-COVID rate, producing six planes per month instead of 14, and the 777/777X rate goes from five presently to two per month next year and stays there for 2022.

The 737 MAX production will stay at a very low level until the present inventory of 450 produced MAX has cleared. Present planning is a slow ramp during 2021, with a rate of 31 per month only reached at the end of 2022.

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Pontifications: The light bulb goes on

 

By Scott Hamilton

July 27, 2020, © Leeham News: Airlines across the world are pledging aircraft, slots, airport facilities and real estate to raise money.

Some US airlines recently pledged frequent flyer programs to raise billions of dollars in debt to help carry them through the COVID-19 crisis.

Airfinance Journal last week had a podcast with United Airlines and Goldman Sachs to discuss UAL’s doing this and the larger picture.

The rush to pledge virtually everything to raise money is déjà vu all over again.

I’ve been in this business since 1979. I’ve been through the 1991 Persian Gulf War, SARS, downturns, 9/11 and the Great Recession. The impact to the airline and aerospace industry from the virus crisis is by far the worst.

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As federal aid comes to end, small suppliers see “blood bath”

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By Scott Hamilton

Introduction

July 20, 2020, © Leeham News: As the Payroll Protection Plan of the US government nears expiration, a blood bath among small suppliers is all but certain unless an extension is approved by Congress.

This is the dire forecast by William Alderman of Alderman & Co. Alderman specializes in representing small suppliers and aftermarket companies wanting to exit the business. Small, in this case, is defined as revenues up to $100m.

Alderman told LNA that some of his clients don’t see business recovery for 10 years. This is a different metric than the one most often cited: air traffic returning to pre-COVID levels in 2023-24, by most accounts.

Summary

  • Small companies need PPP extension.
  • Small companies need working capital, fast.
  • If neither is forthcoming, exiting the business in the other alternative.

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Bjorn’s Corner: Do I get COVID in airline cabins? Part 11. Wrapup.

By Bjorn Fehrm

July 18, 2020, ©. Leeham News: It’s time to wrap our Corner series about flying during the COVID-19 pandemic.

We started the series on the 8th of May. A lot of knowledge has been gained since, about COVID-19 in general and when taking a scheduled flight.

Figure 1. The difference of coughing without and with a mask. Source: Simulations by Florida Atlantic University, composited and annotated by LNA.

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An economic crisis on top of a medical one: Why airline traffic won’t fully recover until the mid-late 2020s

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By Judson Rollins

Introduction

July 13, 2020, © Leeham News: As the world waits for the COVID-19 storm to abate, questions are growing over the duration of a demand downturn for airlines.

Many journalists and industry observers have been obsessively searching for “green shoots” indicating the beginning of a recovery, but much of this commentary misses the mark. For instance, much attention has been focused on capacity restoration in the US and China. However, little is known about the percentage of seats filled by Chinese carriers – and last week United Airlines told employees in an internal presentation that while US carrier capacity in July is back to 47% of 2019’s level, it believes industry traffic has only reached 28% and revenue just 19%.

Last month, investment research firm Bernstein published an analysis calling for narrowbody traffic to recover by 2023 and widebody traffic by 2025. This is consistent with most public forecasts from airlines, banks, and industry observers. The firm’s analysts said that single-aisle concentration in short-haul and domestic routes should see them returned to 2019 utilization sooner than twin-aisles due to reduced long-haul demand and lower demand in short-haul markets previously served by widebodies (e.g., in most of Asia).

LNA believes that 2024 is the earliest possible date for a return to 2019 global passenger traffic – and it could conceivably take until 2028. Many obstacles lie between the present situation and a full recovery: deployment of a successful vaccine (or vaccines), rollback of border restrictions, passenger confidence in the medical safety of air travel, and most importantly, restored willingness to pay by business and leisure travelers. Specific countries or regions – especially those with local vaccine production – may recover sooner, but a global recovery to pre-COVID traffic levels requires all these to happen at a global scale.

To be clear, LNA’s definition of “herd immunity” is that of the global medical community: population-level resistance to virus transmission that occurs because a large majority have been vaccinated or previously infected. This differs from an increasingly popular usage of the term in reference to the passive infection-oriented virus management approach taken by Sweden and other countries.

Summary
  • Widespread uncertainty means downturn likely to outstrip previous ones in duration, magnitude
  • Vaccine development may be expedited; global distribution will take longer
  • Herd immunity to COVID-19 is a prerequisite to confidence in travel safety, reopening of borders
  • Open borders, restored economic activity are keys to any rebound in business travel
  • Consumer travel requires confidence in personal income, availability of lower fares

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