Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Dissecting Boeing CEO’s statement next new airplane will cost $50bn April 15, 2024
- Bjorn’s Corner: New engine development. Part 3. Propulsive efficiency April 12, 2024
- A350-1000 or 777-9? Part 2 April 11, 2024
- Pontifications: Boeing “transparency”–not so much. April 9, 2024
- Airbus charges and write-offs since 1999: more than €33bn April 8, 2024
Will United’s new president open door for Airbus?
Scott Kirby moves from president of American Airlines to president of United Airlines. Photo via Google images.
Aug. 30, 2016, © Leeham Co.: Will Scott Kirby’s move from president of American Airlines to the same position at United Airlines lead to a major shift in fleet acquisition at the Chicago-based carrier?
This is an intriguing question that may take some time to answer.
Kirby spent 20 years with American CEO Doug Parker through their careers at America West Airlines, US Airways and American.
Boeing 787: Stable Rate, Hike Rate or Cut Rate
Aug. 2, 2016, © Leeham Co.: Boeing officials increasingly downplay the prospect of the 787 production rate increasing to 14/mo by the end of the decade from the current 12/mo, reflecting uncertainty over the strength of the wide-body market in the near-to-medium term.
Dennis Muilenburg, CEO of The Boeing Co., said during the company’s 2Q2016 earnings call July 27 that “we haven’t pinned down a specific decision point [on ramping up to 14/mo] yet because we’re going to keep a close eye on the market. The signals from our customers, we’ve got time to do our due diligence here.
Figure 1. Boeing 787 Orders and Deliveries. Click on image to enlarge.
“Our principle here is to keep wide body supply and demand in balance. And we’re confident in the 787 program across that span of scenarios, and we’re going to continue to work campaigns to fill out to the 14 a month rate step-up, and we’ll evaluate timelines and decisions around that. But you can be very confident that whatever we decide, we’re going to keep supply and demand in balance. We’re going to do it efficiently and productively, and all of this again is enveloped by our expectation of a year-over-year cash growth business.”
Boeing noted that the program is sold out in 2018 and has some slots available in 2019. At rate 12, the likelihood of these slots being filled may be challenging. Although the number itself isn’t great—27, according to Ascend—finding enough customers for delivery in 2019 could be challenging in the current soft environment, and with competition from a much lower priced Airbus A330, whether a CEO or NEO. The challenge becomes greater the farther out in the future.
If Boeing went to rate 14, this is another 24 airplanes per year that have to be sold. (Figure 1.)
Interview with Rob Dewar: CSeries in service reliability
By Bjorn Fehrm
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Introduction
21July 2016, ©. Leeham Co: Bombardier”s CSeries project has passed one hurdle after another during its development. The last one was the lack of Marquee customers on top of launch customer SWISS. This has now been solved with large orders from Air Canada and Delta Air Lines.
There is one hurdle remaining: what will be the aircraft’s reliability when it enters into service (EIS)?. We did the EIS interview with CSeries VP and program manager Rob Dewar only two days before the CS100 aircraft would fly its first operational sectors with Swiss last Friday. This autumn, airBaltic will put the larger CS300 into service.
Figure 1. Bombardier’s program manager for the CSeries, Rob Dewar. Source: Bombardier
Summary
- The CSeries has been designed for in service reliability from the outset of the project.
- Systems and solutions have been primarily chosen for the in-service maturity on other platforms.
- Any deviation from this philosophy, like for Fly-By-Wire, Geared Turbo Fan or Electrical brakes, requires that the technology earn its place in the project by bringing unique advantages.
Bombardier sees more C Series orders this year
Our coverage of the Farnborough Air Show begins today with an interview with Fred Comer, president of Bombardier Commercial Aircraft. There will be paywall and freewall posts throughout the FIA16 this week.
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Introduction
July 10, 2016, © Leeham Co., Farnborough Air Show: Winning major orders from Air
Fred Comer, president of Bombardier Commercial Aircraft.
Canada and Delta Air Lines earlier this year and the entry into service of the CS100 this Friday with launch customer Swiss International Air should give Bombardier’s bet-the-company gamble a boost for more orders this year.
This is the prediction by Fred Comer, president of Bombardier Commercial Aircraft.
During an interview with LNC on a media demo flight of the CS100 at the Farnborough Air Show, Comer said the smaller BBD can compete with the behemoths Airbus and Boeing for orders in the 125-150 seat sector.
Summary
Comer says:
- Boeing’s prospective 737-7.5 still won’t be competitive.
- The CS100 is better than the Embraer EJet-E2.
- Embraer’s complaints of unfair competition because of Canadian government investment are unfounded.
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Slowing economies begin to impact Airbus, Boeing
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Introduction
LatAm Airbus A350. LatAm may defer some A350s and/or Boeing 787s. Photo: Flickr via Google images.
June 13, 2016, © Leeham Co.: Signs are becoming more frequent that airlines are facing slowing economies around the globe, with impacts on existing orders in the backlog.
Last week JetBlue said it is trimming growth on rising fuel costs and softening revenue. LatAm also said last week that it plans to trim some Airbus A350 and Boeing 787 orders amid slumping traffic in Brazil. Delta Air Lines previously said it will defer four A350s and trimming growth due to slowing economy.
Summary
- Wide-body sales slowing this year.
- 787 Surplus developed.
- A330neo sales stall.
- A350-2000 on hold.
- 777 Classic sales stall.
- Cargo demand still anemic, says IATA.
Pontifications: The Bottom Line isn’t always about The Bottom Line
By Scott Hamilton
June 6, 2016, © Leeham Co.: Sweetheart deals to win strategic aircraft orders are nothing new in commercial aviation.
John Leahy, COO-Customers for Airbus, last week poked Bombardier for its order from Delta Air Lines. Citing a reported airplane sales price of $22m, which Leahy estimated cost BBD $7m per airplane, Airbus’ chief salesman—known for his barbs and quips—said if BBD sold more C Series faster, the company would go out of business quicker.
Set aside for the moment the numbers he cited as unknown quantities. LNC has different figures we’ve reported and in two posts on my column at Forbes, here and here, there are other aspects to the Delta deal that affect economics.
It’s undisputed that BBD took a US$500m charge against the Delta, Air Canada and AirBaltic deals. The second Forbes post explains why. It’s all about the learning curve. Airbus and Boeing know about this: the first A350s are being chalked up to big losses and the 787 has $29bn in production costs. But it’s not to their benefit to acknowledge this when criticizing the C Series deals.
All this is neither here nor there, however. Airbus, Boeing and McDonnell Douglas all have (had) done deals that don’t seem to make commercial sense when key, strategic transactions were necessary.
Pontifications: The crystal ball
By Scott Hamilton
May 30, 2016, © Leeham Co.: We at Leeham Co. and Leeham News and Comment take some risk when we make analyses, forecasts, projections and predictions. These often put us out on a limb, open us to criticism and even ridicule and as often as not really pisses off those companies that are the target of such predictions.
Some recent events and news stories caught my eye that validated something I predicted eleven years ago.
First, the set up.
Dissecting Wide-Body deliveries through 2030
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Introduction
May 26, 2016, © Leeham Co.: A softening of trans-Atlantic air traffic, with declining yields and passenger demand, raises anew concerns that there is an oversupply and over-ordering of twin-aisle aircraft.
Air Lease Corp. addressed this concern at its May 19 investors day, arguing that growth plus retirements over the next 25 years more than supports the orders.
ALC, which is headed by Steve Udvar-Hazy and John Plueger, considered two of the leaders of the lessor industry, note that there is an average of about 150 wide-bodies approaching 25 years in age each year for the next 20 years. Coupled with long-haul traffic growth, ALC—which has a modest number of wide-body orders—is comfortable with the future supply-demand.
We’ve dissected the known delivery dates of wide-bodies at Airbus and Boeing, using the Ascend data base as of January. Wide-body orders have been announced subsequently, but not all have been firmed up and the total number won’t materially affect the trend lines.
Figure 1. Source: Air Lease Corp. Click on image to enlarge.
Summary
- We look at announced production rates by 2020 of Airbus and Boeing. We don’t include our own forecasts.
- We look at the defined delivery dates of the A330, A350, A380, 747-8, 777 and 787. These are all models, including ceo/neo and Classic/X.
- We look at factors that indicate a softening of wide-body demand across the Atlantic.
C Series charge spotlights 787 deferred costs
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May 4, 2016: (c) Leeham Co.: The $500m charge reported last week by Bombardier for 127 recent orders for its C Series resulted in shining the spotlight on Boeing’s deferred production costs for the 787.
As LNC wrote this week, interpretation of the BBD charge was misunderstood. Some press reports yesterday demonstrate it continues to be. We won’t restate what we’ve already written about the true nature of the charge and how it differs from program accounting used by Boeing–this has been well covered by now. The Seattle Times suggested that the per-plane profit required to pay off the $29bn in deferred production and $3bn in tooling costs for the Boeing 787 was greater than
generally recognized. The average figure is about 20% higher than the number widely cited by Wall Street.
The most commonly accepted figure to recapture the record-setting deferred production costs and tooling has been $30m per airplane, a figure most Wall Street analysts believe is too high to achieve. But this number appears understated, according to an analysis by The Seattle Times in the wake of Boeing’s first quarter earnings call.
Boeing’s 10Q contains language that appears to confuse the issue somewhat.
“At March 31, 2016, $23,661 [million] of 787 deferred production costs, unamortized tooling and other non- recurring costs are expected to be recovered from units included in the program accounting quantity that have firm orders and $8,757 [million] is expected to be recovered from units included in the program accounting quantity that represent expected future orders.”
This appears to suggest the first tranche of these airplanes results in a need for a $36m per-plane profit and the second tranche requires a per-plane profit of $54m. Charles Bickers, a spokesman for Boeing’s corporate headquarters in Chicago, told LNC that segmenting out the ordered but undelivered aircraft from orders yet to be received but assumed is not the way to look at the issue.
Dearth of wide-body order hang over Airbus, Boeing
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Introduction
July 25, 2016, © Leeham Co.: It wasn’t a good two weeks for wide-body airplanes.
Airbus, responding to a leak to the Paris newspaper La Tribune, confirmed it will reduce production for the A380 from 20/yr in 2017 to 12/yr in 2018—returning the program to a loss.
Boeing firmed up an MOU announced at the Paris Air Show with Volga Dnepr for 20 747-8Fs, but wouldn’t say how many are firm orders and how many are options.
Week 2: Boeing took nearly $1.7bn in after-tax write downs for the 787 and 747-8 programs.
And, while not directly tied to wide-bodies per se, Delta Air Lines announced it will reduce its trans-Atlantic services for a variety of reasons. Most of these services are performed with wide-body aircraft.
Summary
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Posted on July 25, 2016 by Scott Hamilton
Airbus, Airlines, American Airlines, Boeing, Delta Air Lines, Leeham News and Comment, Premium
747-8, 787-10, 787-9, A350-900, A380, Airbus, American Airlines, Boeing, Delta Air Lines, Emirates Airline, Volga-Dnepr