Leeham News and Analysis

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There's more to real news than a news release.

Key events Dec. 10-12: Boeing, EADS, Air Canada

There are some key events to follow today through Thursday:

December 10: The Requests for Proposals for the site selection of the 777X are due into Boeing today. Media will be trying to find details, but Boeing certainly won’t be talking. Nor do we expect states to be doing much talking, either.

Boeing says there will be a decision early next year; we are hearing the end of January, but this information is very soft.

December 11: EADS, parent of Airbus, begins two days of its Global Investors Day briefings.

Air Canada’s Board of Directors is to meet to decide on replacing its large, aging fleet of Airbus A320/321s. Airbus and Boeing are bidding. Flight Global earlier reported staff had selected the Airbus, but Air Canada denied a decision had been made. But, as with all denials, this could be carefully crafted: the Board hadn’t approved a deal, so no “decision” had been made.

We understand, but are not 100% certain, that the fleet renewal for the 100-149 seat sector remains open. This means Bombardier and its CSeries could still win a deal–or Air Canada may decide to retain its Embraer E-190 fleet.

December 12: EADS’ investors day continues, with guidance and information about the next 12 months and beyond for Airbus.

Doug Harned of Bernstein Research issued a note Monday listing a series of questions for EADS’ officials; we couldn’t sum it up better:

  1. What is the A350 development and production outlook?
  2. How large are A350 losses likely to be in 2015? [NB: EADS/Airbus writes off development costs in the year incurred, unlike Boeing which uses program accounting to spread costs. Editor.]
  3. Will Airbus hit its goal of 10% margins, ex-A350, in 2015?
  4. Can Airbus grow and sustain the A380 production?
  5. When will Airbus take up rates on the A320neo?
  6. What is the outlook for A330 deliveries?

 11 Comments

 Posted on December 10, 2013 by

 Airbus, Boeing, Bombardier, CSeries, Embraer

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Embraer E-Jets in focus

Embraer reported its third quarter earnings October 31 and disappointed the market with results that missed targets, resulting in a share price decline and some downgrades by analysts. Fewer commercial E-Jets and business jets were delivered than expected by analysts. Despite assurances by the company that year-end targets would be met, market reaction was unenthusiastic.

 

Embraer’s been struggling some on E-Jet sales. The backlog of the of current E-Jet, now dubbed internally as E1 with the launch of the re-engined E-Jet, called E2, had been shrinking until EMB won key orders from SkyWest Airlines of the USA, Republic Airways Holdings (for American Airlines) and from United Airlines, all for the E175. Even so, with a production rate capacity of 17 per month, there are large gaps but also open opportunities to offer near-term slots. The current production rate is only 7.5/mo-less than three years.

 

Embraer delivered 122, 98, 105 and 106 E-Jets in 2009, 2010, 2011 and 2012. It’s forecast to deliver 90 this year and next, followed by 85, 80 and 75 through 2017, the year before the E2 enters service. This forecast, by UBS, means Embraer has to find sales to fill the slots. Embraer and Bombardier are competing for a significant order from American Airlines. This order has been stalled pending the merger with US Airways, which has been delayed by the Department of Justice lawsuit seeking to block the combination. The order is important to Bombardier and Embraer because of the thin backlogs for the CRJ and E-Jet.

 

The E2 isn’t scheduled to enter service until 1H2018, with the E190 E2 the first model. The E195 E2 and E175 E2 follow in 2019 and 2020.

 

Aircraft

E170

E175

E190

E195

Sub- 

Total

E175 E2

E190 E2

E195 E2

Sub-

Total

Total

Backlog

6

140

78

22

246

100

25

25

150

396

 

The EIS sequence for the E2 is intriguing. Although the E175 E2 has the largest backlog, it will be the last to enter service. The largest variant, the E195 E2, at 132 seats single class, is directly competitive with the Bombardier CS300 (135 seats single class) but somewhat less capable with a range of 2,000nm vs 2,950nm for the Bombardier.

 

Embraer has a large customer base for the E-Jet, 67, that gives it an advantage over Bombardier when it comes to selling the E2 vs the CSeries. Bombardier has to create a customer base for the CSeries, which is more directly competitive with Airbus and Boeing small jets than is the E2. Embraer made the conscious decision not to proceed with a brand new design in order to avoid the wrath of the Bog Two OEMs.

 

But selling the E2 also means replacing the E1, and our market intelligence tells us that placing used E-Jets is problematic. The cost of engine overhauls, a reported $3m+ on an engine that costs $4.5m at list prices, is a deterrent, one lessor tells us. Book values also tend to be higher than current market values, this lessor says, making remarketing sales and reset lease rates an issue.

 

Bombardier’s CRJ700 and CRJ900 have lower operating costs than the E1, but Embraer has the advantage on passenger comfort. Recognizing the cost disadvantage, Embraer announced modifications to the E1 to improve fuel performance to a point where it believes the E1 will be competitive with the CRJ economics.

 

Major carriers in the US also have labor issues to consider when it comes to evaluating the E1 or E2 vs the CSeries. Embraer’s E175, at 70 seats remains below the Scope Clause threshold of 76 seats in many US airline labor contracts. The E190 in dual class also falls just below this threshold. The CS100 seats 100 passengers in dual class and 110 in single class, eliminating it from Scope Clause-driven competition. The decision between BBD and EMB in this case may come down to whether a carrier wants the greater economics of the CRJ or the comfort of the E190 E1 and comfort and economy of the E2.

 

Embraer faces several years of soft sales in advance of the E2.

 6 Comments

 Posted on November 15, 2013 by

 Bombardier, Embraer

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The implications of the American-US Airways merger for OEMs

The agreement between American Airlines, US Airways, the US Department of Justice and the states suing to block the merger to settle their lawsuits clears the way for AA-US to merge.

This has implications for the Big Four airframe and the engine manufacturers who have been living in some uncertainty. Here’s the rundown:

Airbus

American and US Airways have large orders with Airbus: American for the A320ceo and neo family and US Airways for the A320ceo family and A350-800/900.

American is taking delivery of the A319ceo and A321ceo. The neo comes several years into the future. American has been taking a large number of A319s, while US Airways have been up-gauging its Airbus single aisle orders, passing on the A319 in favor of the A320ceo or A321ceo. US Airways management, which will take over the New American Airlines, may elect to change the mix within the 18 month lead time limitations.

The more interesting question is what US Airways will do with its A350-800 order. US Airways, along with Hawaiian Airlines, is now the largest customer for the -800. Airbus has been shifting customers from the -800 to the -900 and the -1000, in part to de-risk the program and in part because the larger models are more profitable for Airbus. But some customers elected to switch because the economics of the larger capacity -900 are better than the smaller -800 while operating costs are about the same.

Now that AA and US will combined, the -800 seems surplus when the large order held by American for the Boeing 787-8/9 is considered. The US Airways management could elect to drop the -800 in favor of the 787. Such would unlikely be a total loss for Airbus, however: New American would likely up-gauge to the A350-900 or even the A350-1000, or order more A320neos to keep Airbus “whole.”

Boeing

US Airways hasn’t ordered a Boeing airplane since the days of the 737 Classic or 757/767, and the current management has been retiring all of them as fast as they could. Now they’re solidly back in Boeing territory. “Old” American has a large order of 737NGs and 737 MAXes in addition to the 787 orders. Old American is only taking the 737-800 and the New American will continue this type and probably select only the 737-8 MAX to fulfill that commitment. But we don’t look for any burst of new orders.

Read more

 15 Comments

 Posted on November 12, 2013 by

 Airbus, Boeing, Bombardier, Embraer

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Odds and Ends: Boeing Everett; SkyWest raises doubts about MRJ; Boeing and Charleston on 777X

Boeing’s Everett Footprint: With the news that Boeing will build 1.5m sf of space for a new 777X Final Assembly Line and wing production facility if the IAM 751 members ratify the new contract and Washington State ponies up on incentives, the obvious question is: what happens with the current Everett plant?

It had been assumed the 777X would be built in the current facility, integrating with and ultimately replacing the current 777 line; or starting off in the space now occupied by the 747-8, which is struggling to stay alive and which many–ourselves included–believe will die off with the advent of the 777-9.

Let’s consider this latest twist.

  • The 787 Line 1 is assumed to eventually reach a production rate of 7/mo, with Charleston also target for 7/mo, with the goal of the combined lines going to the announced rate of 14/mo by 2018/19.
  • The KC-46A tanker, which occupies half of one bay, goes to two a month in a few years, though it has capacity to go to three. The other half of this bay is currently occupied by the 787 surge line, but in theory this is supposed to go away once Charleston is up to rate 3. Boeing now says this will happen in the first quarter (it was supposed to by year end) but this may not be achieved by then, according to some. But one has to believe Charleston will be ready to rock by 2016, when the 777X is gearing up.
  • The current 777 line, now at 8.3/mo rate, is assumed to have a two year overlap from 777X EIS, or around 2022, when it’s been assumed the current generation 777 would be discontinued. But the 777-200LRF may live on, both in its current form and as a replacement for the KC-10 tanker. Although the USAF is reportedly looking at a 2040 procurement date for the KC-10 replacement, some believe this is too far out into the future and this date will be brought forward.
  • Then there is the 747-8 production space. It’s also assumed this airplane is living on borrowed time. The USAF says it wants to replace the Air Force One fleet in 2021, and this is a long time to keep this line alive. Boeing is counting on the cargo market to return in 2014 to spur demand of the 747-8F, but some believe main-deck freighters of this size will have a very tough time when cheap 747-400 conversions can be had for a fraction of the cost.
  • If space at the primary Everett plant does open up, what is there to fill it if not the 777X? Any number of potentials: the Y-1 737 replacement, closing the Renton factory in the process and splitting the Y-1 between Washington and South Carolina (or Texas, or some off-shore location). A maintenance, repair and overhaul operation: Boeing wants to dramatically increase this service business. Component production.

Over to Readers for your thoughts.

Meanwhile, The Puget Sound Business Journal has this long story on the expected use of robots in building the 777X.

Read more

 18 Comments

 Posted on November 7, 2013 by

 Airlines, Boeing, Bombardier, Embraer, Mitsubishi

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Odds and Ends: Boeing to hike 737 rate; Passenger comfort, fees and PEDs

You read it here first: In June, we reported Boeing planned to take the 737 production rate to 47/mo by 2017 (and to 52 in 2019). Boeing announced on Halloween that it is taking the 737 rate to 47/mo in 2017.

Passenger fees and experience: We recently appeared on China’s CCTV, talking about passenger fees and seating comfort. Here’s the video:

[youtube=http://www.youtube.com/watch?v=adZHJTYpNIs&w=420&h=315]

,

Speaking of passenger experience, Personal Electronic Devices, or PEDs, will be allowed to operate on airplanes gate-to-gate (though no cell phone calls), under a new FAA rule. Airlines have to create new policies and submit them for FAA approval. This article provides a good summary of the status of US carriers. Alec Baldwin should be pleased.

 35 Comments

 Posted on November 1, 2013 by

 Airbus, Airlines, Boeing, Bombardier, CSeries, Embraer

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Odds and Ends: Air France may cut A380 orders; Boeing Everett history; BBD, EMB miss targets

Air France May Drop A380s: Bloomberg reports that Air France may cut back its orders for the Airbus A380s. This continues the challenge of Very Large Aircraft sector sales. Boeing has cut production rates twice for its 747-8. The Los Angeles Times has this story about the eventual demise of the 747-8.

Boeing Everett History: Airchive has Part 3 of its history of Boeing’s Everett plant here. This covers the 777 and what especially caught our eye was the photo of the model of the 777-200 with folding wings, a concept that didn’t go into production. The new 777X will have folding wings. The difference is that the 777-200 concept included the outboard control surfaces, which highly complicated the matter. The 777X folding wings are beyond the control surfaces.

BBD, EMB miss targets: Bombardier missed its earnings estimates on fewer deliveries than analysts expected for the third quarter. Here is the press release.

On the Bombardier earnings call, officials didn’t address whether there will be a delay in the entry-into-service, planned for about 12 months after the September 16 first flight. Only four test flights have occurred, and UBS aerospace analyst David Strauss estimates that the program needs to fly an average of 1.8 hours a day to meet this timeline. Flight Test Vehicle #2 is “weeks away” from entering service.

Pierre Beaudoin, president and CEO, says that some customers are considering swapping the CS100 for the larger CS300, which could influence EIS. He added that discussions with customers about schedules, and the pace of ramp-up of production, are factors to be considered for EIS. “We will answer this question in the next few months.”

He said the flight test results so far are “exactly” as planned, but data won’t be shared with customers for some time. Beaudoin said that the pace of the flight tests are also as planned, and that there hasn’t been a delay despite the perception.

Embraer also missed its 3Q targets and likewise reported lower earnings. Here is its press release.

 32 Comments

 Posted on October 31, 2013 by

 Airbus, Boeing, Bombardier, CSeries, Embraer

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CFM LEAP accelerating in test program; Airbus and the A350-800

Aviation Week has a long, detailed story about the test program for the CFM LEAP engine, which is accelerating rapidly.

In its 737 MAX program update yesterday, Boeing said the LEAP-1B has begun testing and it will benefit from the testing already underway for the LEAP-1A, the version that is designed for the Airbus A320neo family. The LEAP-1C for the COMAC C919 is on its original schedule for certification in 2015, despite the fact the C919 has slipped to at least 2017, reports AvWeek.

The 737 MAX is exclusively powered by the LEAP, as is the C919. The former has more than 1,600 firm orders and the latter just hit its 400th order/commitment. CFM faces competition on the A320neo family from Pratt & Whitney’s P1000G Geared Turbo Fan, where PW holds a 49% market share against CFM, which previously held a larger, more dominate position in the A320ceo competition. A large number of orders don’t yet have an engine selection.

PW is the sole-source engine provider for the Bombardier CSeries, the Mitsubishi MRJ and the Embraer E-Jet E2. PW splits the engine choice on the Irkut MC-21 (soon to be renamed the YAK 242) with a Russian engine.

Just as Boeing’s LEAP-1B will benefit from the experience of the LEAP-1A now in testing for Airbus, Airbus will benefit from the testing and experience of PW’s testing of the GTF on the Bombardier CSeries.

Aviation Week also has a story about the Airbus A350-800 with the blunt headline, The airplane Airbus doesn’t want to build. This refers to the A350-800. AvWeek muses that the outcome of the merger between US Airways, now the largest customer for the airplane, and American Airlines, may be the deciding factor for the airplane. We agree. With American’s large order for the Boeing 787-9, the A350-800 would be unnecessary.

That would then leave Hawaiian Airlines as a key decision-maker. We hear in the market that Hawaiian is just sitting back and waiting to see what kind of incentives Airbus will offer to entice a switch to the larger A350-900.

 24 Comments

 Posted on October 30, 2013 by

 Airbus, American Airlines, Boeing, CFM, Comac, CSeries, Embraer, Irkut, US Airways, YAK

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Aerospace Supply Chain challenges for planned production rates

Airbus and Boeing have announced production rates for their single-aisle airplanes of 42/mo each and are thinking of going as high as 52/mo. Boeing last week announced a planned rate of 14/mo for the 787. Airbus has plans for 10/mo for the A350 XWB, and is considering a second final assembly line.

Bombardier, Embraer, COMAC, Irkut, and Mitsubishi each have new airplanes coming on line soon. There are more than 22 new and derivative airplanes planned to enter service between now and 2022.

How will the supply chain meet the demands of the OEMs?

It will be tough, says J. C. Hall, the chairman of the Pacific Northwest Aerospace Alliance, headquartered in the Seattle area. PNAA represents small-to-medium suppliers.

We sat down with Hall to get his take on the challenges ahead for the supply chain.

[youtube=http://www.youtube.com/watch?v=YdB2i97XsM0&w=560&h=315]

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 Posted on October 28, 2013 by

 Airbus, Boeing, Bombardier, Comac, Embraer, Irkut, Mitsubishi, Pacific Northwest Aerospace Alliance

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Odds and Ends: MC-21 to be renamed; Boeing buys land; seat wars ahead?

MC-21 to be renamed: After creating a brand for the Russian Irkut MC-21, authorities have decided to rename the airplane the Yak 242, according to this article in Flight International.

The article is too brief to explain the reasons behind this, other than to indicate the MC-21 evolved out of a design that was designated Yak-242. The MC-21 is somewhat larger than the 242 and it is a direct challenger to Airbus and Boeing in the 150-210 seat sector.

Among our activities, we engage in branding. We don’t think this is a particularly smart move on Russia’s part. Returning to the Yak name is a throwback to the old Soviet Union and the history of Soviet airliners that left a lot to be desired. The “Irkut MC-21” name creates some distance to this history in the effort to sell the airplane outside the old Soviet political sphere.

The Sukhoi Superjet SSJ100, which has had some success selling beyond the sphere, nonetheless reinforces the history of troubled Soviet airliners. Production has been painfully slow and in-service reliability difficult.

We think the Irkut name should be retained, a move toward the future, not one toward the past.

Boeing buys more Charleston land: The US government shutdown delayed the land purchased by Boeing of federally property around the Charleston (SC) airport. Now that the government is open again, the purchase has moved forward, according to the Charleston Post and Courier. According to reports, Boeing now owns or has under contract slightly more land at Charleston than it owns at Everett.

Boeing has been shifting work from Washington to Charleston, and the trend toward purchasing land means this will continue. We continue to believe that when clean-sheet airplanes come out of the Boeing shop to replace the 737 and 777, production of these will be at Charleston. Hopefully the demand for the 737 replacement will be high enough that production will be split between Washington and Charleston. We can foresee a scenario where Boeing has a more equal split between the two locations, such as Airbus has with Hamburg and Toulouse.

But the immediate question is whether the 777X derivative will be built in Washington or Charleston. We’ve heard both scenarios but don’t have enough information to know which is correct.

Seats Wars pending? Airbus has called for an industry standard for 18-inch wide seats in coach. Plane Talking has an analysis of this. We’ll point out that Embraer already has 18-inch seats as standard in its E-Jets and Bombardier has 18-inch window-and-aisle seats plus a 19-inch middle seat for its CSeries. This makes the E-Jet and the CSeries the most comfortable domestic airplanes available, with the middle-seat bonus for the CSeries.

We haven’t flown coach internationally for years, but we do so domestically and have been crabbing about the 17 inch seat on the Boeing 737 for a long time. With the Airbus A330 and Boeing 777 nine-abreast essentially the same width, we believe airlines and their drive toward cramming as many seats in as possible to the total disregard of passenger comfort certainly merits international standards at 18 inches.

But we’re not deceived that this proposal is altruistic on the part of Airbus. Boeing’s ability to accommodate one more row of seats with a slightly wider standard than Airbus, reducing CASM in the process, is clearly the motive. When Boeing compares today’s 777 against the A350 in sales campaigns, it uses 10 abreast in coach vs nine abreast for the A350 and argues superior CASM costs. Customers tell us this indeed reduces the CASM advantage the A350 has at an apples-to-apples 9 v 9 (the A350 continues to maintain a trip cost advantage).

We agree with Airbus on the principal. But far chance it will happen.

 50 Comments

 Posted on October 28, 2013 by

 Airbus, Boeing, Bombardier, Embraer, Irkut, Sukhoi

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Is tide ready to turn for CSeries?

CS100 first flight, September 16, 2013. Photo via Seattle Times.

Is the tide ready to turn for the Bombardier CSeries?

Following a nine month delay, the CS100 Flight Test Vehicle #1 took to the air September 16. It’s flown only twice since and has been undergoing ground vibration tests and more software upgrades. BBD is pretty mum about the testing program, which causes speculation about whether some issue emerged during the three flight tests. But we’re told by a source familiar with the program, but who is not with BBD, that BBD is being conservative in its pace, counting on the fact that it will eventually have seven FTVs to bring entry-into-service on time. A few Canadian aerospace analysts think EIS will slip to 1Q2015.

Then there are the orders, just 177 firm, which is more than those for the Airbus A319neo and the Boeing 737-7 MAX combined, but which the market perceives as low and a slow-selling program. Bombardier points out that the firm sales are about on par with other new airplane programs at this stage, but the market–dazzled by the thousands of orders placed for the NEO and MAX–won’t make these distinctions.

But it’s possible the tide is ready to turn for the CSeries. Here’s why.

  • Potential customers have been waiting for the first flight and to see whether the program will be more or less on time with the new, implied schedule emanating from first flight. We believe a few more months have to pass before any conclusions are drawn on this score.
  • Likewise, a few months have to pass before Bombardier and Pratt & Whitney will know whether the economic promises will in fact be achieved.
  • There are some key sales campaigns for which decisions should be made in the coming months, both this year and into next, that if BBD wins will serve to build significant momentum.
  • Airbus is running out of delivery slots for the entire A320 family.  The VivaAerobus order announced October 21 includes deliveries beginning next year. The backlog goes to 2019-2020, and while John Leahy, COO-Customers, is adept at finding slots through juggling the skyline, there simply aren’t too many left mid-term. Bombardier is sold out into 2016 and is a better position to offer deliveries in quantity. This makes it difficult for Leahy to “buy” a deal, which he has done on several occasions, to under-price CSeries to a point where BBD can’t play in the sandbox.
  • Boeing remains more focused on the 737-8/9 than on the 737-7, leaving BBD to largely fight its war against the diminishing Airbus and the forthcoming Embraer E-190/195 E2, the latter with a planned EIS of 2018, a good three years after CS100 enters service.

It will likely be next year before solid trends are noticeable. BBD retains its goal of reaching 300 firm orders and 20-30 customers by EIS, at least a year from now. We think this is easily achievable.

Update, Oct. 22: The Iraq-Business News reports that the government has approved the purchase of five CS300s at $40m each.

 11 Comments

 Posted on October 21, 2013 by

 Airbus, Boeing, Bombardier, CSeries, Embraer, Pratt & Whitney

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