Boeing Services expansion wise, necessary move

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Introduction

March 6, 2017, © Leeham Co.: Boeing CEO Dennis Muilenburg wants the company to participate in the aftermarket aircraft services business and set a goal of $50bn in revenue in the coming years.

He looks at Boeing’s current business, the former Boeing Commercial Aviation Services (CAS), and sees a single-digit market share in a worldwide trillion-dollar market potential. Muilenburg understandably wants a greater share of this.

But LNC believes there is an additional driver: the intensely competitive commercial airliner business faces even greater competition in the coming years. Prices are under pressure today. China is developing its own aerospace industry, which will eat into sales by Boeing (and Airbus) in the home market. Russia has ambitions to renew its home-market airliner industry.

Boeing’s new Global Services unit is a hedge against the prospect of falling profits at Boeing Commercial Airplanes as these factors converge.

Summary
  • Airbus, Boeing single-aisle prices under pressure.
  • A330/350 keeps 787 pricing down.
  • Boeing’s NMA business case may depend on after-delivery services contracts.

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Assessing ATR future

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Introductions

Feb. 27, 2017, © Leeham Co.: ATR today holds an almost monopolistic position in the large turbo-prop market with 87% of the backlog at YE2016. Bombardier, once the dominant turbo-prop manufacturer, has a mere 13%.

China and Russia are not included above.

ATR had a backlog of 212 aircraft vs Bombardier’s 31. In addition, ATR had options for more than 400 aircraft and LOIs for about 70 more. BBD had options for just 12 Q400s at the end of last year.

Summary
  • Low fuel prices favor regional jet, high fuel prices turbo-props.
  • No new, clean-sheet design to replace Q400 or ATR in foreseeable future.
  • Indian, Indonesia talk turbo-props but outcome unlikely.
  • China’s MA-60 feeds home market, but airplane has reliability issues.

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Assessing the SSJ100 future

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Introduction

Feb. 20, 2017, © Leeham Co.: Sukhoi is Russia’s attempt at reentering the commercial airliner business. The SSJ100 regional jet is, by most accounts, an attractive

SSJ100 in CityJet colors. CityJet is one of two Western operators for the Russian-made airplane. Photo: Superjet International.

and efficient aircraft.

But it’s hampered by erratic production and questionable product support (largely due to the overhang of the Putin politics).

The aircraft was grounded briefly in December when a fatigue issue was found in the tail section during a routine inspection.

Summary
  • Nearly 100 SSJ100s are in service.
  • Two key Western customers.
  • Small customers base.
  • Captive Russian customers.

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Brazil files WTO complaint against Canada-CSeries deals

Feb. 8, 2017: Brazil, on behalf of Embraer, filed a complaint with the World Trade Organization over Canadian government investment in Bombardier’s CSeries.

“Brazil notified the WTO Secretariat that it had requested WTO dispute consultations with Canada regarding alleged subsidies provided to Canadian aircraft manufacturer Bombardier,” the WTO announced today. Coincidentally, today it was also revealed the federal government will provide C$372m in loans to Bombardier. Most will go toward the Global 7000 corporate jet program but some will go to the CSeries, which competes with Embraer’s EJets.

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Assessing Embraer’s EJet future

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 Introduction

Feb. 2, 2017, © Leeham Co.: Embraer’s new E2 jet faces a major challenge: the US pilot Scope Clause that limits the number, seats and weight of aircraft that can by operated by regional airlines on behalf of the US legacy carriers.

The E175 E2 exceeds the 86,000 lb weight limit in the Scope Clause. Unions declined last year to adjust this limit upward. The next round of contract talks begins in 2019.

Summary
  • Trans States Airlines has options and letters of intent for 50+50 E175 E2s.
  • Skywest is listed by EMB with “firm” orders for 100 E175-E2s and options—but in reality, these are conditional orders.
  • Embraer professes confidence in building the bridge between the E1 and E2.

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Assessing Bombardier commercial programs

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Introduction

Jan. 30, 2017, © Leeham Co.: Bombardier hopes to land a major, blue-chip order for its CSeries this year but otherwise isn’t counting on significant orders for its flagship airliner.

Officials don’t have available delivery slots until 2020, bar a few here and there, to attract sizeable orders.

The future of the aging CRJ could get a boost from recalcitrant Us labor unions who refuse to alter the 86,000 lb aircraft weight limit under the Scope Clauses. These make the Embraer E175-E2 and Mitsubishi MRJ90 too heavy for the regional airlines providing contract flying for the US majors.

The future of the Q400 turboprop looks bleak.

Summary
  • The CSeries delivery stream appears sufficient to match production ramp up through 2019.
  • There is a big production gap in 2020 at the target rate of 10/mo.
  • More than 50 firm orders have indefinite deferred delivery dates.
  • The backlog for the CRJ “falls off the cliff” next year, as does the Q400.

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Pontifications: Airbus, Boeing single-aisle production rates solid

By Scott Hamilton

Jan. 23, 2017, © Leeham Co.: The global economy is softening and airlines are deferring airplanes, but we don’t see Airbus or Boeing trimming aircraft production for their single-aisle airplanes.

Over-sales and rising fuel prices support today’s A320 and 737 production rates and the increased rates previously announced by Airbus and Boeing.

While oil prices are low compared with the pre-Great Recession levels, Embraer’s John Slattery noted that fuel costs went up more than 48% last year alone. Fuel now costs more than $50/bbl. West Texas Intermediate Crude was selling at $51.08 Thursday, off $1.40. There will be ups and downs, but the trend is up.

Slattery, the president of Embraer Commercial airplanes, believes “fuel efficient fleets will become more critical in the coming years,” he wrote in a Tweet Jan. 7.

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The regional market and scope clauses

By Bjorn Fehrm

January 17, 2017, ©. Leeham Co: Union contract Scope Clauses–the provision limiting the weight, capacity or number of aircraft operated by airlines for major carriers–are unlikely to be modified any time soon, panelists at the Air Finance Journal conference in Dublin said.

The restrictive Scope Clauses are predominate in the US. These limit the ability of small airplane manufacturers to sell aircraft in the US. Most affected are Embraer, Bombardier and newcomer Mitsubishi.

Contract negotiations in December, concluded before Christmas, resulted in no changes, surprising some. This will impact planned purchases of aircraft.We sat with Bombardier’s Ross Mitchell, vice president of commercial operations, to understand why the scope clauses are so important and why they did not change. Read more

Pontifications: Planes nobody wants

By Scott Hamilton

Jan. 16, 2017, © Leeham Co.: Airbus and Boeing continue to offer planes that nobody wants.

Well, almost nobody.

The aircraft remain on the published price lists of both companies, for reasons that passeth understanding. Nobody ordered the aircraft for years.

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Aircraft list prices largely unchanged (Updated)

Update: Airbus Jan. 11 announced a 1% list price increase. The chart has been updated.

Jan. 10, 2017: Aircraft list prices are largely unchanged for 2017, the airline industry demand cools for new aircraft.

Sales in 2017 were down for the Big Two, Airbus and Boeing. Boeing announced orders for 688 aircraft, well off of last year, which also was a major decline from the year before.

Airbus announces tomorrow, with sales expected to be in a similar range.

Bombardier and Embraer announce later this month or next.

LNC compiled the current list prices from all the manufacturers, detailed in Figure 1 below.

Airbus and Boeing discounts typically range from 40% to 60%, depending on the customer, the airplane and the size of the order. BBD and EMB discounts may also be steep, depending on the campaign.

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