Leeham News and Analysis
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Leeham News and Analysis
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Pontifications: Airlines, OEMs step up in virus crisis
By Scott Hamilton
April 13, 2020, © Leeham News: There are plenty of stories and photos floating around the Internet about airlines flying empty or nearly so.
Schedules have been pared back up to 95% across the globe.
Spot-check Flightradar24 at any given moment and there are a lot air freighters flying.
But the passenger airlines are also flying some airliners dedicated to cargo. Some are flying cargo in the below-deck holds only. Others installed plastic protection over the passenger seats and loaded box after box after box of protective masks for shipment. Still others removed the passenger seats entirely and loaded the main deck with lighter-weight cargo.
This article summarizes many airlines that stepped up to fly supplies throughout the world.
Is COVID-19 a Force Majeure event?
Editor’s Note: Airbus, Boeing and Embraer and other OEMs face requests for deferrals and perhaps cancellations of orders as a result of COVID-19. In addition, Boeing now faces cancellation requests for the 737 MAX grounding, now in its 13th month. While Boeing’s contracts generally allow Boeing or the customer to cancel the order after the 12th month, the COVID crisis raises a new element: canceling by Force Majeure and something called the Doctrine of Frustration.
The following analysis appeared March 12, 2020, on the website of the law firm Shearman & Sterling law firm. The authors are listed at the end of this article. It is reprinted here with permission.
Following the rapid spread of the novel coronavirus (“COVID-19”) that was first reported in Wuhan, China at the end of 2019, the World Health Organization declared COVID-19 to be a pandemic on March 11, 2020.
In this note, we consider how force majeure provisions in commercial contracts and the related common law doctrine of frustration may be engaged in the context of the COVID-19 outbreak. While this analysis focuses primarily on the position under English law, we have included a PRC law perspective because of the significant impact COVID-19 has had on business in China. We also suggest steps that parties may take to safeguard their positions in view of the evolving situation.
Pontifications: Critical step in Boeing MAX recertification target: May
By Scott Hamilton
March 30, 2020, © Leeham News: Barring further issues, the FAA Type Inspection Authorization for the MAX is targeted for the second half of May, LNA learned.
This is a critical step in recertifying the airplane.
Also barring more unexpected events in a year filled with them, Boeing should resume production of the 737 MAX in May, LNA confirmed.
Embraer had a better 2019 than 2018
By Bjorn Fehrm
March 26, 2020, ©. Leeham News: Embraer presented its full-year 2019 results today and held an analyst call with the CEO, Francisco Gomes Neto, and the CFO, Antonio Carlos Garcia. The company posted a loss, but the underlying operational performance was a definite improvement over 2018.
The major part of the loss came from extra costs for the formation of a separate Commercial Aircraft division for the joint venture with Boeing. To understand Embraer’s position in these difficult times, we will separate the analysis of the 2019 results in three parts:
- The operational results for 2019
- The costs and effects of the carve-out for the Boeing joint-venture
- The actions by management to work through the Covid-19 crisis
HOTR: Boeing has options to federal bailout, CEO says
By the Leeham News Staff
March 25, 2020: First, Boeing CEO David Calhoun said he wasn’t an insider (after 10 years on the Board of Directors, and as lead director for many of them). No, he merely had a front row seat in the movie theatre.
Then he trashed his predecessor, Dennis Muilenburg, for stock buyback and dividend policies (that the Board approved).
Next, Boeing said it needs a portion of the $60bn in federal aid it requested for the aerospace industry.
Now, Calhoun appears to have put his foot in his mouth again. Or did he?
When asked about the possibility of the government taking an equity position in Boeing as a condition to a bailout, Calhoun said Boeing has options to federal money.
The Wall Street Journal wrote yesterday, “I don’t have a need for an equity stake,” Boeing CEO Calhoun said Tuesday on Fox Business Network. “If they forced it, we’d just look at all the other options, and we have got plenty.”
There’s a very practical reason for Boeing to object to government taking an equity stake. It would effectively shut down bidding on some key defense contracts.
But wait a minute: if you’ve got all these other options, why ask for a federal bailout for Boeing?
Or was this a message to the street that Boeing is OK?
Still, on CNBC’s Squawk Box, Calhoun said if the credit markets stayed closed for eight months, it would be tough for Boeing to remain healthy.
Boeing suspends production of wide-bodies
March 23, 2020, (c) Leeham News: Boeing today announced it will suspend production of its wide-bodies for 14 days, beginning Wednesday. 
Production slowdown begins today.
The move is in response to the COVID-19 crisis. Boeing is the last of the Big Three aircraft manufacturers to do so. Airbus last week suspended production in France and Germany, restarting slowly today. Embraer suspended production last week.
Coronavirus upends Airbus, Embraer in addition to Boeing woes
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By Scott Hamilton
Introduction
March 23, 2020, © Leeham News: The dramatically and continuously worsening impact of coronavirus worldwide is upending Boeing—more than it has been—and Airbus.
Boeing is considering shutting the wide-body production lines, The Seattle Times reported. It also wants US government aid.
Source: CDC.
Airbus shut its assembly lines in France and Spain for four days in response to federal restrictions.
LNA previously wrote about the impact it sees on Boeing and, to a degree, on Airbus.
These analyses are updated to the latest circumstances.
We also add a look at Embraer delivery stream for March-December.
Summary
- Even if Boeing recertifies the 737 MAX by mid-year, deliveries now in doubt.
- Customers can cancel MAXes without penalty.
- Airbus faces massive deferrals under the circumstances. Penalties apply.
- Embraer’s customer concentration is in USA.
European airline struggles add risk to 15% of Airbus, Boeing orders
By Judson Rollins
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Introduction
Earlier this week, LNA examined the potential for a shakeout among European carriers as the coronavirus outbreak spreads to the continent.
Five European countries now rank among the ten hardest hit – travel demand is plummeting nearly as rapidly as after the September 11 attacks in the US.
On Thursday, UK-based Flybe went into bankruptcy after long-time financial struggles. The airline had 54 De Havilland Canada Dash-8-400s and nine Embraer E175-E1s in its fleet, more than half of which were leased from Nordic Aviation Capital and HEH Aviation Management.
LNA reviewed aircraft ownership data to understand top manufacturer and lessor exposure to European carriers, particularly those with known profitability issues and high debt loads.
Source: Twitter / @AirportWebcams
Summary
- Airbus’s exposure to Europe is 16% on single-aisles and 19% on twin-aisles;
- Boeing has just under 15% of its single- and twin-aisle orders from Europe;
- Embraer’s E2 jet program has 27% exposure to the region;
- ATR, De Havilland Canada, COMAC face little to no threat from European airline woes;
- Norwegian, TAP, SAS, TUI are likely the most imminent threats to manufacturers and lessors.
An upcoming shakeup in European skies
By Vincent Valery
Introduction
Mar. 3, 2020, © Leeham News: After the 2012-2014 European sovereign debt crisis, passenger traffic grew briskly in Europe. The expansion of low-cost airlines, combined with increasing passenger traffic from Asia, contributed to this passenger boom on the old continent.
Despite the passenger traffic boom, the last few years have been challenging for most European airlines. Apart from a few notable exceptions, profitability is materially lower than at US carriers. There were several high-profile bankruptcies, notably Air Berlin, Alitalia, and Monarch, in 2017, followed by Thomas Cook last year.
LNA wrote a series last year on the struggling European carriers.
After starting in mainland China, there have been significant COVID-19 outbreaks in South Korea, Iran, and Italy. The number of diagnosed cases is increasing rapidly around the world, and notably in Europe.
Until two weeks ago, European airlines canceled most of their services to mainland China and reduced frequencies to other Asian destinations. However, with the outbreak intensifying in Europe, numerous carriers took emergency measures to reduce service on intra-Europe services.
European airlines are facing the COVID-19 disruptions with weakened balance sheets. To make matters worse, they have become the target of numerous environmental groups in Western Europe. The ongoing slump in passenger traffic will stretch some carriers’ finances beyond recovery. The much-discussed consolidation wave seems a matter of when, not if.
The financial challenges will undoubtedly affect OEMs, notably Airbus and Boeing.
In this article, LNA lists the scheduled OEM deliveries in countries affected by the COVID-19 outbreak, then assesses the financial vulnerability of major European airline groups.
Summary
- A global COVID-19 outbreak;
- Emergency airline measures to reduce capacity;
- Almost all OEM 2020 scheduled deliveries affected;
- Financial vulnerability at European airlines.
Asian airline troubles could affect up to 20% of Airbus, Boeing backlogs
By Judson Rollins
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In last week’s analysis, LNA examined which airlines in greater China and the rest of Asia may be in imminent risk of financial distress due to the growing coronavirus outbreak. We found that airlines from Malaysia to Japan have significant exposure to the Chinese market. Several have shaky balance sheets and were already losing money prior to the outbreak, most notably AirAsia, AirAsiaX, Thai Airways, Nok Air, Malaysia Airlines, and Asiana.
The coronavirus outbreak has now spread to Europe and the Middle East, but we are continuing our focus on Asia as it’s been most greatly affected so far. Additional analysis focusing on Europe will follow, with particular attention to the potential for further airline consolidation on the continent.
LNA reviewed ownership and operating data on aircraft to understand top manufacturer and lessor exposure to greater China, which includes Hong Kong and Macau, and the rest of East Asia.
Summary
- Airbus has greater exposure to China and the rest of East Asia, especially in widebodies;
- Boeing’s 787, 777X difficulties will be exacerbated by Asian airline troubles;
- COMAC’s sales book is almost exclusively in China, but government support is likely;
- ATR has material exposure to Southeast Asia; other regional aircraft OEMs are largely unaffected.