Earnings Call Update:
Our take: The aerospace analysts were remarkably and surprisingly sanguine about the delay. Media was much sharper in its questioning. Clearly, BBD’s telegraphing of the possible delay prepared the market for this.
Bombardier today announced a six month delay in the first flight of the CSeries, which had been planned for next month. The delay had been telegraphed for months, with officials saying a three to six month delay would not be a surprise or indicative of program difficulties.
The company also acknowledged a month-for-month delay for entry-into-service from December 2013 for the CS100, the first of two models, but believes EIS of the larger CS300 by the end of 2014 is possible.
BBD identified issues in the supply chain, without specifying where or who. It’s been public that there are challenges with China’s Shenyang facility, which is building fuselage sections for the airplane. BBD began assembling the sections at its Belfast plant as a back-up.
It’s also been acknowledged by BBD that the fly-by-wire system developed by Parker Hannifin is also a challenge. But neither company was identified in the press release issued at 6am ET today.
BBD has an earnings call 10am ET. Although aerospace analysts and media have widely expected the delay, we expect the Q&A to drill down on the issue.
A350 Loans: The German government is withholding repayable loans (aka launch aid) for the Airbus A350 in another one of its regular snits over work share. Airbus ought to forget these loans and either self-fund or go to the commercial markets. The German government scuppered the merger with BAE Systems. Forgetting government loans would give Airbus more freedom to do what it wants with less government interference. It would also get the US off its back.
Speaking of Corporate Welfare: Read this article about Boeing, others and Oklahoma.
CSeries: AirInsight has a 13 minute podcast with the head of the CSeries program, talking about the assembly of Flight Test Vehicle (FTV) 1 and the program’s status.
SPEEA Update: The engineers union at Boeing seems to be gearing up for a strike, according to this article.
Speaking of Unions: The IAM is back at Boeing’s Charleston plant with a union drive.
Retrofit Interior for 737: Heath Tecna, an interiors firm, is offering a Boeing-like Sky Interior design for retrofit with a target market of more than 3,000 Boeing 737NGs. APEX magazine’s Mary Kirby (formerly of Flight Global) has this story. The photos show the Heath Tecna design is remarkably similar to the Boeing Sky Interior. The difference, Kirby quotes a company official, is this: “The biggest difference between the two interiors can be found in the bag capacity offered. With Project Amber, we can increase the amount of bags that can be stowed on a typical Boeing 737-800NG by 40%. And we’re able to do that because our patent pending design offers a little larger pivot bin in a unique configuration.”
When Boeing announced the Sky Interior in April 2009, we asked if a retrofit would be offered for the 737 fleet and the answer was that while technically it could be, there were no plans to do so. When we saw the same official at an event in August, we posed the question again and the answer was the same.
Heath Techna, a subsidiary of Zodiac, is an interior supplier. It’s also offering a modern, retro-interior for the Airbus A320.
CRJ200F: Cargo conversion company AEI Inc. is exploring a passenger-to-freight cargo conversion for the Bombardier CRJ200F. From the press release:
The CRJ200 LCD aircraft would provide operators with a freighter capable of hauling a maximum payload of 6.7 tonnes. The freighter would come equipped with an Ancra cargo loading system capable of hauling pallets, containers or bulk loaded material. The Main Deck Cargo Door will be 94” (2.39 m) wide by 77” (1.96 m) high and feature AEI’s proven hydraulic actuation and latching systems which has been installed on more than 370 freighters.
Additional features include:
CSeries Assembly: CSeries Flight Test Vehicle 1 (FTV 1) assembly has begun. The Wall Street Journal has this story about the compressed schedule. Reuters has this story. Bombardier hopes to meet its plan of first flight by the end of this year, but has been telegraphing a three-six month slip. A customer we talked with thinks first flight will be in April. Bombardier’s 3Q earnings call in November 4; we expect a schedule update then. Aviation Week has these pictures.
A350 Launch Aid: The US Trade Rep says it has the documents outlining $4.5bn in launch aid for the Airbus A350, according to a Reuters story. Predictably, Boeing and the USTR have gone in to overdrive. The A350 was excluded by the WTO from the long-running trade dispute because it wasn’t included in the original complaint filed in 2004–which is kind of obvious since the program didn’t surface until 2006. But Airbus contends that launch aid wasn’t ruled illegal in the WTO findings, just how it was implemented. Airbus contends that any launch aid for the A350 is structured in compliance with the WTO rulings of the 2004 case. The US contends launch aid itself is illegal. Whether it is or it isn’t, we don’t like launch aid or any other form of corporate welfare (see Boeing 787) and we don’t think a solvent company like Airbus (or Boeing) should be getting any.
Bombardier strike at Lear Jet unit: Machinists voted to strike at Bombardier’s Lear Jet unit. BBD hardly needs this. With cash flow demands peaking as the CSeries development enters the final stretch, and with demand for regional airliners off, this is an unneeded headache.
Embraer Demand: Wall Street analysts were pretty unhappy following the Embraer investors day last week. EMB gave no signs of willingness to cut production next year. There are 100 slots and only about 75 orders, with few in sight. Backlog is shrinking. EMB is hoping to land big orders from either Delta Air Lines or American Airlines for the E-Jet, but we’re not aware of any Delta campaign (and in any event, the airline favored the CSeries in the aborted campaign of a year ago). American is in such disarray there is no telling when, or if, it will pursue an order.
EADS-BAE: Bernstein Research doesn’t think this merger should happen. The excerpt from a note issued today:
We believe that it would be best for both companies if this proposed merger does not happen. But, we see the merger as worse for EADS than for BAE. Both companies describe scale as an advantage (e.g. better leverage of R&D), but we have never seen scale in itself as an advantage. Specific issues are:
– Shareholder interests. EADS shareholders typically own the stock as a play on commercial aircraft OE growth through Airbus. Increasing the scale of defense assets, with some in particularly challenging markets, is likely to take some investors out of the stock. We find BAE Systems shareholders as generally focusing on the high dividend. The combination with EADS, which does not pay a high dividend, places the current BAE Systems dividend level at risk in 2014. The disclosure of merger discussions also raises questions about the sustainability of cash flow and the divided, as we have found investors questioning why BAE would accept the EADS offer if its cash outlook were robust. BAE Systems CEO Ian King has countered this by stating (with EADS CEO Tom Enders) that this deal is “borne out of opportunity, not necessity”.
– Synergy potential. We view the potential synergies between EADS and BAE Systems as low given very little overlap between their businesses and restrictions in technology transfer from US programs. From an EADS standpoint, we expect that this combination would result in a stronger international marketing organization, provide some limited cost savings in indirect personnel and sourcing, and provide some improvement for the defense electronics portion of EADS’ Cassidian business (only about 2 billion euros in revenue). But, given the limitations in capturing these synergies and their relatively small size, we do not see them as justifying a merger of this scale. For EADS, this is particularly true, since it would pay a premium for BAE shares and be buying into some particularly difficult market exposure (e.g. US Army equipment, defense IT/services). In addition, we see disruption as inevitable in a deal of this size, as it could lead to a loss of some key personnel, changes in government relationships, and problematic integration steps (e.g. IT Systems), even though the overlap is relatively small.
KC-46A: Aviation Week has this article on the current status of the Boeing KC-46A tanker and the management challenges. AvWeek also reports what we did earlier: the tanker gets nailed in sequestration. We have the specifications sheet here: KC46 Tanker Specifications.
US Airways without American: In case this merger doesn’t happen, US Airways is looking ahead, according to this Aviation Week article.
CSeries timeline: Aviation Week has this piece about the Bombardier CSeries timeline for first flight and EIS, comparing it with the Q400 and CRJ700 programs, which were both late.
BAE-EADS: EADS CEO Tom Enders calls this a perfect fit. The Financial Times has this story. Free registration may be required.
White Elephants: Bloomberg News doesn’t pull any punches in this article.
747 No. 1 needs help: The Seattle Times has this long story about the first 747-100 that needs restoration.
BABC Conference: The British American Business Council has a conference Sept. 27 in Seattle, with focus on the Middle East. (Go figure.) Here is the link. Tim Clark, CEO of Emirates Airlines, is a key speaker.
CSeries Customers: Here’s a complete listing from Bombardier, the most detailed we’ve seen: The CSeries aircraft order book includes firm orders for 138 CSeries airliners from Braathens Aviation (five CS100 and five CS300 aircraft), Deutsche Lufthansa AG (30 CS100 aircraft), Korean Air (10 CS300 aircraft), Lease Corporation International Group (17 CS300 and three CS100 aircraft), PrivatAir (five CS100 aircraft), Republic Airways (40 CS300 aircraft), an unidentified major network carrier (10 CS100 aircraft), an unidentified European customer (10 CS100 aircraft) and a well-established, unidentified airline (three CS100 aircraft). The CSeries aircraft program has also booked options for 124 aircraft and purchase rights for 10 aircraft from these customers. In addition, the CSeries aircraft program has also achieved a conditional order placed by an unidentified customer for five CS100 and 10 CS300 airliners, as well as three letters of intent: for up to 30 CSeries aircraft from Ilyushin Finance Co; for up to 15 CS300 aircraft from Atlasjet; and for up to 20 CS300 aircraft from airBaltic.
AirAsia and CSeries: CAPA (Centre for Asia Pacific Aerospace) writes what we also figured: the buzz from the Farnborough Air Show about AirAsia and the CSeries seems to be more a ploy than a serious effort. Setting that aside, the CAPA piece is a pretty good analysis of the CSeries potential for low cost carriers.
The Sporty Game: AirInsight has an analysis on Boeing’s product strategy.
We’re feeling irreverent today….
Comment: We remember when Boeing said Alabamans couldn’t build a tricycle (during the bitter competition for the KC-X tanker).
Hunker Down: We’re going into the bunker on this one–Washington should become a right-to-work state. In 2008, IAM 751 (during its strike) boasted WA is the fourth most-unionized state in the country. We know this inhibits expanding aerospace here. We’ve heard it from companies. We’ve heard it from the head of one of the Economic Development Commissions here that unions are the first topic to come up when he is recruiting companies to expand here. We don’t object to unions per se but we don’t think someone should be forced to join one. (That’s how we feel about Republicans, too….)
Take two Viagra and try again: The refueling boom was being extended when it fell off an Airbus KC-30 during a test flight.
Thank you for smoking: Airbus is really pushing Europe to delay implementation of its emissions trading scheme, which jeaopardizes orders from China. Despite the sarcasm, we agree with Airbus–any regulations through be through ICAO, not on Europe’s own, ill-advised hook.
Macht nichts: No AirAsia order at the Berlin Air Show after all. The airline will be the first to operate the A320neo and the airplane with sharklets.
Macht nichts, II: MTU is a partner with Pratt & Whitney on the Geared Turbo Fan for the Mistubishi MRJ, the Bombardier CSeries, Irkut MS-21 and the A320neo but looks to join GE for the new engine for the Boeing 777X.
Why Aircraft Are Late: Boeing 747-8, 787, Airbus A380, A400M, A350, Mitsubishi MRJ, Comac ARJ-21, Sukhoi Superjet and probably Comac C919, Bombardier CSeries and Irkut MS-21–all late. It’s the new normal. Ernie Arvai at AirInsight takes a look at why.
Catching Boeing: Airbus may well have trailed Boeing through the Farnborough Air Show in terms of orders, but it may also be on the way toward catching up. The big PAL order for 54 aircraft was announced this week. A 100-airplane order out of China is due to be announced shortly. Another 100 airplane order from AirAsia appears to be pending. Year-to-date, Boeing has 701 net orders and Airbus has 270 net orders. These three orders still leaves Airbus well short of Boeing, and Boeing has more 737 MAX commitments to convert this year. We expect Boeing to finish the year in first place. It will be interesting to see how close Airbus can come.
NEO firm order wrap: Aviation Week has this detailed recap of NEO firm orders. We expect some of the A320neos to be converted to A321neos as time goes on, just as we expect 737-8 MAX orders to be swapped with 737-9 MAX positions.
100-149 Seat Market: AirInsight has more on its study of the 100-149 Seat Market analysis and why it will be turbulent in the next five years.
Cost Comparisons: Aspire Aviation has a long article on the Cathay Pacific Airways earnings but to us the most interesting parts are the operating cost comparisons between various CX fleet types. It’s all buried in the article.
Super-Guppy: The Puget Sound Business Journal has a video from inside the NASA Boeing Super Guppy. Based on the old Boeing Stratocruiser, the Super Guppy is a specialty airplane originally designed to transport Atlas rockets. Later, Airbus used them to transport fuselage sections around Europe to final assembly in Toulouse. This is probably the last operating variant of any B-377/C-97/KC-97. It’s the last of the Super Guppies. With the retirement of the NASA Shuttle fleet, we wonder what will become of this airplane.
Bombardier: On its earnings call. the company is preparing the market for a 3-5 month delay on the first flight of the CSeries. We’ve been estimating 3-6 months.
Air Canada: Here’s an interesting item. Air Canada is pondering major fleet changes that might see the removal of the Embraer E-190 as too big yet it is considering adding the CRJ-900, which is nominally just a little smaller.
AirAsia X: This LCC for long-haul is adding six Airbus A330s to its fleet, to bring the total to 26 when all aircraft on order are delivered. AirAsiaX considers the airplane ideal for flights of six to eight hours.