Leeham News and Analysis
There's more to real news than a news release.
Embraer’s Slattery named CEO of GE Aviation
By Scott Hamilton
June 15, 2020, © Leeham News: John Slattery, the CEO of Embraer Commercial Aviation, was named CEO of GE Aviation, it was announced today.
John Slattery
Arjan Meijer is the new President and CEO succeeding Slattery. Slattery succeeds David Joyce, who is retiring. Slattery’s appointment is effective July 13.
Slattery devoted much of the last year trying to win approval of the proposed Boeing-Embraer joint venture, Boeing Brasil-Commercial. Boeing terminated the agreement April 25, claiming Embraer failed to meet all required terms and conditions. Embraer claims it met the conditions. Both took the dispute to arbitration.
Slattery had been designated CEO of Boeing Brasil. After the deal’s collapse, his departure from Embraer was expected.
Mitsubishi’s options for the SpaceJet
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By Scott Hamilton
Introduction
June 2, 2020, © Leeham News: Mitsubishi Heavy Industry (MHI) yesterday closed the acquisition of the Bombardier CRJ program.
There are 15 CRJs in backlog to complete. But the purpose of the acquisition was to give MHI a global product support system for the SpaceJet.
With the aviation world still reeling and confused by the “suspension” of the SpaceJet program, what are the options going forward?
MHI last month announced it was suspending indefinitely development of the M100 SpaceJet. MHI said it will reevaluate the market demand of the M100. It suspended further flight testing of the M90 SpaceJet. It says it will proceed with office “validation” of the M90 for certification. Facilities in the US and Canada devoted to the SpaceJet program are closing. About half the workforce devoted to SpaceJet in Nagoya, Japan, is being reduced.
Customers that signed MOUs for 495 M100s and which have firm orders for some 200 MRJ90s (the previous brand for the M90) are in limbo. Suppliers are in limbo. MHI’s failure to communicate with them leaves a planeload of questions and no answers.
MHI’s move clears the way for Embraer to have a monopoly in the regional jet space. Unless—unless MHI restarts the SpaceJet program on its own or partners with another company to make a commitment to developing a new airliner.
LNA noted when the Boeing-Embraer joint venture collapsed that this presented opportunities for MHI and Boeing to renew and expand their previous relationship for the MRJ program. Here are some possibilities facing MHI.
Summary
- Kill SpaceJet entirely.
- Restart SpaceJet.
- Resuscitate the agreement for Boeing to support the MRJ program, updating it to the SpaceJet.
- Resuscitate and expand the previous agreement, strengthening the development SpaceJet and co-marketing by Boeing.
- Create an entirely new cooperative agreement, vastly broadening and strengthening decades-long ties between MHI and Boeing. LNA sees this as including SpaceJet and an entirely new family of aircraft replacing the 737 MAX.
- An expanded, broader agreement could even include development of a new “NMA Lite.”
- Finally, buy or create a JV with Embraer Commercial Aviation.
Embraer announces a first Quarter 2020 loss of $292 million
By Bjorn Fehrm
June 1, 2020, ©. Leeham News: Embraer presented its 1Q2020 results today. It lost $292m (vs. loss of $43m 1Q2019) on revenues of $634m ($823m).
The reason is the COVID-19 crisis and halting commercial jet production during January, to prepare for the Boeing Joint Venture. It halved the 1Q2020 revenue of Commercial aircraft to $141m versus $281m last year.
The Executive jet segment is recovering, however. Its 1Q2020 revenue was $130m versus 117m 1Q2019, an 11% increase despite delivering fewer jets. The reason is high-end deliveries are now strong after several years of slump.
The separation costs for the canceled Boeing Joint Venture during 1Q2020 was $22m. The 1Q2020 results include $55m of special items due to the impacts of COVID-19. Embraer lowered the fair value of its stake in Republic Airways Holdings with $22m and made bad debt provisions for weak airliner customers of $33m.
Arbitration proceedings with Boeing have started for the canceled Comercial airplanes Joint Venture agreement and the KC-390 Contribution agreement. Embraer said in the quarterly presentation call it would be open to new cooperation agreements but had nothing new to tell on the subject.
The Company has $2,501m of Cash exiting 1Q2020 with first debt maturing in 2022. Given the present crisis for Civil aviation, guidance for 2020 is suspended.
Mitsubishi SpaceJet retreat is the best news for Embraer in months
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By Scott Hamilton
Analysis
May 25, 2020, © Leeham News: Mitsubishi Heavy Industries (MHI) surprising retreat from its SpaceJet regional airliner program is the best news in months for beleaguered Embraer.
This takes pressure off the Brazilian manufacturer and gives it time to regroup after Boeing jilted it at the alter by walking away from a proposed joint venture.
Going into storage: four Mitsubishi MRJ90s at Moses Lake (WA). Photo: Mitsubishi.
MHI’s actions leave Embraer with a monopoly in the 76-100 seat arena vs new airplanes. The M90 SpaceJet is not a viable competitor to the E175-E1 or the struggling E175-E2. Embraer’s competition will be its own used jets, plus used Bombardier CRJ-700/900s.
Summary
- Closing US operations entirely. Closing the recently opened engineering center in Montreal
- Continued operation of the CRJ product support center in Montreal or relocation to Nagoya uncertain.
- Major cost-cutting drive.
- MHI wants to certify M90, then consider whether to proceed with M100.
- M100 has MOUs for 495 aircraft.
- MRJ90 was not certifiable due to design deficiencies.
- Redesigned M90 meets certification requirements.
- M90 is economically uncompetitive with E-Jet.
- COVID-19 upends entire airline industry, casting doubt in MHI’s commitment to SpaceJet future.
Pontifications: There is no good news
May 18, 2020, © Leeham News: There simply is no good news in commercial aviation right now.
By Scott Hamilton
Yes, airport traffic is upticking in the USA (and elsewhere) slightly. But in the USA, it’s still less than 10% of last year’s totals.
There remains a tremendous amount of uncertainty.
- Airbus plans to lay off some 10,000 employees, according to press reports. Another production rate cut seems inevitable.
- Boeing’s CEO revised the forecast for air traffic recovery from 2-3 years to 3-5 years. Production recovery will take another 2-3 years after that, he said.
- Embraer’s biggest customer for the E195-E2, Azul Airlines, deferred deliveries from 2020-2023 to 2024. There haven’t been announcements about deferrals by US carriers for E175-E1s, but there is no reason to believe these won’t be deferred.
- Delta Air Lines says 7,000 of its 14,000 pilots will be surplus to its needs this fall.
- Spirit Aerosystems laid off about 1,700 employees due to Boeing’s production planning.
- Qatar Airways will retire 50 airplanes, defer new orders from Airbus and Boeing and cut the workforce by 20%.
The list goes on and on and on.
Analysis: Mitsubishi suspends development of M100, continues M90 due to COVID
By Scott Hamilton
Analysis
May 12, 2020, © Leeham News: Mitsubishi Heavy Industries (MHI) yesterday said it cut development money for the M100 SpaceJet. M100 R&D is suspended indefinitely while it continues for the M90 on half rations.
MHI will continue certification of the M90.
MHI also said it will reevaluate demand for the M100 because of COVID-19 impacts.
This immediately raised questions whether MHI may kill the M100 program.
To do so will squander MHI’s once-in-a-lifetime chance to become a real global power in commercial aviation. If this happens, “Japan Inc.” also loses a chance to be part of this.
HOTR: Mitsubishi, Bombardier set June 1 to close CRJ deal
By the Leeham News staff
May 6, 2020, © Leeham News: Mitsubishi Heavy Industries announced May 7 (Tokyo time) that it will close the acquisition of the Bombardier CRJ program June 1.
Production of the CRJ was to end this summer. The COVID crisis effectively terminates the program now. But the CRJ itself wasn’t the reason MHI 
bought the program, for US$500m. The attraction was the built-in global product support system for the CRJ that will transition to the M100 SpaceJet. It also provides a new revenue/profit stream as MHI enters the global RJ market.
Along with it, as icing on the cake, is acquisition of Bombardier’s sales team, infrastructure and other assets.
It would take years for MHI and Mitsubishi Aircraft Corp. (MITAC) to establish its own product support system.
This is a major step in development of the SpaceJet as a new global competitor.
With the collapse of the Boeing-Embraer joint venture, MITAC can reinvigorate and strengthen its relationship with Boeing.
Embraer, which said it needed the Boeing JV to compete in the future with Airbus against the A220, increasingly faces higher risks as MITAC and MHI evolve the CRJ product support system and potentially strengthens the Boeing relationship.
MHI also announced that it will immediately write down the $500m acquisition by ¥50bn- ¥ 70bn ($470m-$656m).
Collapse of Boeing-Embraer JV gives Mitsubishi Aircraft new opportunities
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By Scott Hamilton
Introduction
May 4, 2020, © Leeham News: The collapse of the Boeing-Embraer joint venture removes a major cloud over another Boeing agreement with a different airframe company.
Long ago, Boeing and Mitsubishi Aircraft Corp. (MITAC) entered into a support agreement for what was then the MRJ program.
MITAC was to receive marketing and services support from Boeing for the MRJ.
From the moment the news emerged that Embraer and Boeing were talking about a merger, acquisition or joint venture (the goal moved over time), questions arose over the future of the MITAC agreement.
Summary
- Boeing said the MITAC agreement would be honored, but skepticism remained.
- The MRJ and later the SpaceJet would compete with the former Embraer product line.
- Recovery consensus 3-5 years.
- With collapse of Boeing-Embraer JV, Mitsubishi-Boeing can reaffirm, strengthen their cooperative agreement.
Pontifications: Ugly, fundamental changes coming for airline industry
By Scott Hamilton
May 4, 2020, © Leeham News: The global airline industry is on the cusp of a fundamental restructuring that will be painful, and painfully long.
A few airlines already ceased operations.
Several others are on the brink of filing for bankruptcy—among them Lufthansa and Virgin Atlantic, brand names that aren’t normally at the top of an endangered list.
A shake-out in Europe was already underway before the COVID-19 crisis erupted. The inevitable shake-out in Asia hadn’t yet begun.
Fleet rationalization among legacy carriers will occur at rapid-fire speed. And some carriers now have the opportunity to shed unprofitable routes that were maintained for market share.
It’s going to be an ugly process, though.
HOTR: Product development another victim of virus crisis
By the Leeham News staff
April 28, 2020, © Leeham News: The Coronavirus not only decimates the airline industry.
It’s going to completely upend the product strategies of Airbus, Boeing and Embraer.
Boeing is most immediately affected.