Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Bjorn’s Corner: New engine development. Part 5. Turbofan design problems April 26, 2024
- Airbus 1Q2024 results: Airbus CEO: “A350 in-service experience drives positive reputation and orders” April 25, 2024
- A350-1000 or 777-9? Part 3 April 25, 2024
- Boeing CEO promises company is turning around…again April 24, 2024
- Solid start for stand-alone GE Aerospace despite cuts to LEAP output April 23, 2024
A320 build rate, Alabama presents proposal to Airbus
Airbus won’t increase the production rate on the A320 family until introduction of the NEO and it’s now become public that Alabama has presented a proposal to Airbus for an assembly plant there.
Airbus disclosed the plan to freeze the build rate at the previously announced 42/mo during the Airbus Innovation Days we attended last week. Aviation Week has this detailed story.
We alluded to the prospect of a decision by Airbus by year end for an assembly site in Alabama in one of our reports of the Innovation Days. Yesterday, it became public that Alabama has presented a proposal to EADS, parent of Airbus.
Accordingly, here is our take: we think Airbus (EADS) will eventually make the decision to open an A320neo assembly site in Mobile. Here’s why:
- Going beyond rate 42 probably means Hamburg, Toulouse and Tianjin are out of room;
- Airbus wants to increase its US dollar-based footprint to reduce exposure to the volatility of the Euro;
- A US site might help US sales but would make it easier to sell a “Made in America” campaign to the Defense Department for future contracts (expanding Mobile into DOD work); and
- Opening Mobile in connection with neo would open nearer-term delivery slots to compete with the 737 MAX and help worldwide sales availability.
We think the odds are better than 50-50 but it’s tough to handicap this.
Republicans in Congress out to lunch on Ex-Im Bank funding
The politically-focused publication The Hill has an article that describes a Republican Party that is completely out of touch with reality on the Ex-Im Bank funding of exports.
Ex-Im supports a broad spectrum of industries, but is especially important to Boeing–so much so that Ex-Im is sometimes derisively called Boeing’s Bank due to the dominance of Boeing airplanes funded by Ex-Im.
Ex-Im reaches its $100bn cap this month, according to The Hill, much earlier than the previously anticipated May. Boeing and GE–which supplies engines for 92% of Boeing’s airplanes–are lobbying Congress to increase the cap to $140bn. This might sound like lunacy in the budget crisis, but according to Boeing, Ex-Im actually contributed more than $1bn through fees to the US Treasury in recent times. And fees are going up as a result of international changes last year to Ex-Im and Europe’s similar credit agencies.
According to The Hill, some Republicans characterized Ex-Im as providing subsidies to US corporations. As readers of this column know, we dislike corporate subsidies of any kind (see also below), but Ex-Im is not subsidies (and neither are the European Credit Agencies’ support for Airbus airplanes). This are funding mechanisms to support exports. In Boeing’s case, the company is the USA’s largest exporter that helps the balance of trade.
So let’s see: Ex-Im is a net contributor to the US Treasury. It helps exports. It helps the USA’s largest exporter, which helps the balance of trade. What’s not to like about this program?
About the only thing not to like with respect to Boeing is Ex-Im lends to airlines that compete with US international carriers. But this complaint largely revolves around cheaper financing, and last year’s agreement took care of this. The other complaint is that Ex-Im also supports financially troubled carriers like Air India. But the airline complaining the loudest on this is a product of two bankruptcies (Delta Air Lines and its merger partner Northwest Airlines), and there now isn’t a US legacy carrier that hasn’t been “supported” through the bankruptcy process. We could write a whole new post about how the legacies, including the “old” Delta, complained that bankruptcy unfairly supported weak carriers.
The Republicans opposing Ex-Im funding are out to lunch, and this time with the business community they profess to support. No wonder the Republican brand is in so much trouble.
Odds and Ends: Boeing market share; Airbus to Mobile, 777X v A350 and more
Boeing to gain market share: Richard Aboulafia, aerospace analyst for The Teal Group, forecast at the annual conference last week of the Pacific Northwest Aerospace Alliance that Boeing will achieve a 56% market share in the coming years. Here is the story in the Puget Sound Business Journal.
Airbus to Mobile after all? Dominic Gates reports what has been circulating for months: Airbus may open a Monile (AL) production line after all.
777X vs A350: Aspire Aviation has a long piece about Boeing’s plan for development of the 777X to meet the forthcoming competition of the Airbus A350.
Oil prices this summer: This won’t be good news for the airlines, though it should spur sales for Airbus, Boeing and Bombardier. The former CEO of Shell predicts oil will hit $120bbl this summer.
787-9 advances: Boeing is proceeding toward design definition of the 787-9, applying lessons learned from the 787-8 program.
320 Pax 787-10: Randy Tinseth, Boeing’s VP Marketing, said at the Singapore Air Show that Boeing could launch the 320-passenger 787-10 soon.
A380 cracks: Aviation Week has a close-up of the A380 cracks, with artwork that illustrates just what is what. The ever-candid Tom Enders, now the CEO of Airbus parent EADS, admitted Airbus “screwed up.”
EADS-Airbus investors forum
EADS and Airbus wrapped a two-day investors forum today. The PDF slide presentations are up on the web; the actual webcasts apparently won’t be posted until next week.
There is a enormous amount of information to slog through, even without hearing the webcasts.
Airbus repays launch aid on WTO complaint but has drawn aid for A350
Airbus has repaid nearly 2bn Euros in launch aid associated with the findings of the WTO complaint filed in 2004 by the US Trade Representative, an amount far less than the American agency alleged as US$25bn in illegal aid, but this isn’t likely to be the last word by any stretch.
Airbus parent EADS in 2010 has already drawn down “reimburseable launch aid,” according to the 2010 EADS annual report. The A350 funding was not part of the original US complaint, and is the only commercial model Airbus has produced not covered by the final report of the 2004 complaint. The USTR has threatened to launch a new complaint over the A350 launch aid. Airbus previously said launch aid for the A350 would comply with the findings of the 2004 complaint.
Airbus said after the WTO case was over that the WTO did not find reimburseable launch aid was illegal, only that the terms and conditions provided in the A-Series programs had been. This opened the door, Airbus said, for allowing launch aid for the A350 provided the terms and conditions complied with WTO findings. Commercially-based terms and conditions were at the heart of the illegalities.
The EADS financial statesments do not disclose the terms and conditions.
A spokesman for Airbus told us that the aid for the A350 complies with the terms and conditions findings of the WTO ruling, though most likely Boeing and the USTR will argue differently. The Airbus spokesman did not know the amount of the launch aid and the EADS 2010 annual financial statements (Page 63) does not disclose it: “European Governments refundable advances (incl. A350 XWB) net of reimbursements have increased in 2010.” The financial statements (select “Financial Statements 2010”) show the 2010 liability to be 5.968bn Euros vs 4.882bn Euros at Dec. 31, 2009. It is not disclosed how much of this is associated with the A350 or how much is associated with other programs, such as the A400M. However, military programs are not subject to WTO rules. The A320neo program was subject to research and development costs in 2010, which have been ruled illegal under WTO findings, but the program wasn’t launched until December 2010 and while it is theoretically possible some launch aid could have been drawn for neo, we think it more likely the spike in liabilities is largely associated with the A350.
The nine month interim financial reports do not discuss launch aid.
How will Boeing profit from tanker contract?
Just whenever you think there’s nothing more to write about the air force aerial tanker, more news pops up.
The news that Boeing would first lose $300m on the initial KC-46A tanker contract, and now perhaps another $400m (will there be still more to come?), isn’t particularly surprising.This is on top of the $600m the USAF (read that “taxpayers” agreed to absorb of the first $1bn in excess program costs.
In fact, when the first loss projection was announced, Wall Street aerospace analysts noted the news but shrugged it off as falling under the “what did you expect?” category. We didn’t even both to write about it, except in passing.
Airbus parent skeptical of composites for A320 class airplane
Paris Air Show: The chief technology officer for Airbus parent EADS is skeptical of composites for the A320 class of airplane while Boeing considers the material to be the “baseline preference” for what officials call the New Small Airplane (NSA).
The emerging new metal alloys seem to attract more favor at EADS while Boeing officials are intrigued but still leaning toward the bet they made with the composite 787, which structurally is 52% composite with the fuselage and wings made of the substance.