Leeham News and Analysis
There's more to real news than a news release.
Pontifications: Aircraft values vary widely
By Scott Hamilton
Dec. 14, 2015, (c) Leeham Co: Aircraft valuations came to the forefront following comments by Richard Anderson, CEO of Delta Air Lines, over just how much a 10-year old Boeing 777-200ER was worth. He claimed the airplane was only valued at $10m. Boeing’s investor relations department immediately pushed back against this low price, circulating to the aerospace analyst community that a number of appraisers placed the value in the $50m-$60m range.
Anderson later was quoted as saying Boeing Capital Corp. offered Delta the aircraft for that price. BCC didn’t comment.
LNC wrote at the time, and later, that Anderson was correct. We noted, however, there are a lot of caveats that come with the $10m, rooted in the fundamental fact that this price had to be for a “run out” model that would require expensive airframe and engine maintenance, repair and overhaul, and interior reconfiguration. This could add as much as $30m to the price, or $40m all-in–still substantially less than the appraised figures for a “half-life” example.
Appraisals are an inexact exercise that not only depend on the maintenance condition of the airplanes, whether they are “desk-top” or inspection appraisals and the methodology of the various appraisal companies, backed by market intelligence data.
State investment in Bombardier further mockery of WTO
Nov. 24, 2015, (c) Leeham Co. With the $1bn investment by the Province of Quebec in the Bombardier 
CSeries program, another example of government funding emerges in commercial aviation development.
Setting aside whether the investment might be challenged before the World Trade Organization—and whether this makes good business sense for Quebec—the move makes a mockery of the entire concept of avoiding government support.
The turbo-prop conundrum: small market, high costs
ATR Turbo-prop. Photo via Google images.
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Introduction
ATR and Bombardier are incumbents. China has a home-market offering.
Indonesia and India want to create a product.
It’s the 60-seat and up turbo-prop market.
It’s too many companies chasing too-small a market.
Summary
- The 20-year demand for 60-99 seat turbo-props is small.
- Developing a new, clean-sheet design is costly.
- There is a solid demand for an inexpensive 19-34 seat turbo-prop—but nobody is interested.
Embraer sees broadening market in North America
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Introduction
Nov. 17, 2015, © Leeham Co. The chief commercial officer of Embraer sees US mainline carriers adding
John Slattery, Chief Commercial Officer, Embraer. Photo via Google images.
aircraft in the 100-plus seat sector that will open new opportunities for the largest E-Jets hitherto a limited interest in this region.
First among high profile possibilities: United Airlines, which was identified as a major prospect for Bombardier and its CS100. According to multiple news reports, UA is holding out an order for the CS100 as an inducement for some pilot contract revisions. According to Market Intelligence, the potential order is for an equal number of orders and options, well below 50 orders but one which would be a crucial win for struggling Bombardier.
But Embraer isn’t going to let this order go without a stiff fight. Through United Express partners, EMB has a large installed base of E-175s operating for United. This is viewed as a major advantage by EMB’s CCO, John Slattery.
Summary
- United, JetBlue, Air Canada targets for CSeries sales.
- Embraer has large, installed fleet of E-Jets at these airlines.
- Broadened market potential seen with North American carriers for 100-plus seat airplanes.
Bjorn’s Corner: MRJ90 first flight
By Bjorn Fehrm
13 November 2015, ©. Leeham Co: Mitsubishi flew their MRJ for the first time this week. I could have added “finally” because it is two years late compared to the original time plan. But who cares when the aircraft is finally ready to fly and everything goes well? (Well, the customers do, actually.)
It was a big moment for Japan, a nation with a sizable aeronautical industry. Japan has been a major partner to Boeing in their larger airplane programs over the 757/767 to the 777 and 787. For the Dreamliner, they even designed and made the hottest item, the high-tech Carbon Fibre Reinforced Plastic (CFRP) wing.
Despite having such a capable aeronautical industry, Japan has not built an own civil aircraft since it closed the production line for the YS-11 twin engined turboprop in 1973. Since then it has acted as sub-supplier and has worked on certain military programs like the Mitsubishi F-2 fighter, based on the Lockheed Martin F16.
The Mitsubishi corporation flew the MRJ90 for the first time Wednesday from the Nagoya Airport in Japan (screenshot from video from Mitsubishi). Most of the flight testing will be done in Moses Lake (WA), USA, where four test airplanes will be based.
Moses Lake is blessed with open skies, little air traffic, a long runway and good weather. It has a long history of flight testing, serving as a test-base for Japan Air Lines 747 pilot training for decades. Boeing also uses Moses Lake for flight testing.
We analyzed the MRJ90 and its main competitor the Embraer E175 in a subscriber article the 25th of January. We will revisit the main characteristics and then comment on what could be seen from the first flight. Read more
Embraer’s fundamental advantages
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Introduction
With the first Embraer E-Jet E2 under assembly, we take a look at the E1 and E2 programs in the run-up to 
roll-out of the E-190 E2 next year and projected Entry Into Service (EIS) in 2018.
Summary
- Broad customer base gives Embraer a major advantage against new competitors.
- More than 2,300 ERJs, E-Jets in service.
- More than 1,100 E-Jets in service.
- Broad product support a key advantage.
Bjorn’s Corner: Aircraft programs
By Bjorn Fehrm
30 October 2015, ©. Leeham Co: There has been dramatic news this week around Bombardier’s (BBD) CSeries program. I wrote a subscribers article about what to expect in terms of the cash flow problem that the BBD management has been wrestling with. The announcements yesterday and the following earnings call confirmed the financial modelling I did with our aircraft modelling tool.
Having watched experienced Wall Street analysts being hard pressed to understand what has happened with the CSeries, I thought I could use this week’s corner to explain the overall economical flow of an aircraft program like the CSeries (there will be details in a follow up subscriber article). I will also put it in context with how it affects a company like BBD and what one must think about when it comes to timing of such projects.
To give the timing aspect more colour, I will also compare with Embraer and their E-Jet E2 project and Boeing’s 787 program. The three programs are very different and they demonstrate in an illustrative way the challenges of making a new civil airliner and that one must adapt the project to the company’s position and its strength and weaknesses.