Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- RTX Q1 2025 Earnings: GTF Talk Takes A Back Seat To Tariffs April 22, 2025
- Tariffs Tumult Takes Over GE Aerospace Q1 2025 Earnings Call April 22, 2025
- Boeing reports mixed results of latest employee survey, but middle management and officers remain key obstacles April 22, 2025
- Hopes for 1Q financial progress turns into bumpy ride for Boeing April 21, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 18. April 18, 2025
Odds and Ends: EMB, BBD split AA order; WTO on Airbus subsidies; IAM, Boeing bargaining; KC-46A
EMB, BBD split American order: Embraer took the lion’s share of the long-awaited order from American Airlines for regional jets. EMB won 60 firm orders and 90 options for the E-175 and Bombardier won 30+40 CRJ-900s. Flight Global points out that none seem to be going to American Eagle.
The order is welcome by both OEMs, which had gaps in their respective production lines.
WTO on Airbus subsidies: Bloomberg News reports that the World Trade Organization won’t rule until the end of next year on a US complaint that Airbus failed to comply with WTO findings that it received illegal subsidies. (No link available).
Bloomberg writes, The EU says it had secured repayment of some $2.3 billion in launch-aid loans and terminated the launch-aid loan agreements in question, while also addressing subsidies given in the form of capital contributions, infrastructure support and regional aid.(Emphasis added.)
The U.S. counters that the largest launch-aid subsidies—for the A380, Airbus’s super jumbo jet—remain in place and that the actions the EU claims to have taken with respect to earlier subsidies “appear to do nothing to withdraw them, or to remove their adverse effects.”
As we’ve written, Boeing is now requesting essentially the same thing in its Request for Proposals for the 777X site selection.
IAM, Boeing bargaining: It’s a relief to see Boeing and the International Association of Machinists District 751 bargaining for a new contract amendment for the 777X site selection, but no deal is imminent. The Seattle Times reports things could move quickly, however.
First KC-46A airframe, wings joined: Aviation Week has this story about the progress of Boeing’s KC-46A tanker program.
Posted on December 12, 2013 by Scott Hamilton
Assessing the Air Canada 737 order: factors that likely played a role
How did Boeing win the Air Canada mainline 150-200 seat jet order when only a couple of weeks ago Flight Global reported the Airbus won the deal?
We, too, heard that Airbus seemed to be the favorite, but the information was soft. We’re not rapping Flight Global—undoubtedly it was confident in its sourcing, but this just shows that a situation can change dramatically and quickly.
We’ve been following the competition for months, behind the scenes, and here are factors we understood that were involved.
Posted on December 11, 2013 by Scott Hamilton
Air Canada snubs Airbus, orders 737s; keeps some of Embraer portion open
Air Canada snubbed Airbus with its mainline jet fleet renewal and ordered up to 109 Boeing 737 MAXes. The initial order is for the 8 and 8 MAX, with the ability to swap for the 7 MAX. The deal includes the provision for Boeing to purchase up to 20 Embraer E-190s, which would be replaced by the 7 MAX, apparently.
But Air Canada is keeping open the prospect of replacing the other 25 E-190s with a new jet or to keep operating them. Bombardier hopes to win this segment of the order.
This is a big win for Boeing and one of the rare times Boeing has displaced Airbus in the MAX v NEO competition of an incumbent Airbus operator.
The Air Canada press release is below the jump.
Posted on December 11, 2013 by Scott Hamilton
Odds and Ends: From EADS’ Investors’ Day; Illinois and 777X; Air Canada; LOT gets $33m from Boeing
From EADS’ Investors Day 1: Airbus parent EADS is having two days worth of briefings for aerospace analysts. Here’s initial news coverage from Day 1:
Reuters: EADS strategy stresses Airbus
Reuters: EADS IDs new dividend policy, A350 target
Illinois and 777X: Add the Prairie State to those submitting bids to Boeing for the 777X assembly site. Illinois was previously not included in any list that we saw.
Air Canada: The airline’s Board of Directors meets today to ratify staff recommendations to replace the Airbus A319/320/321 fleet. Airbus and Boeing are competing with their A320neo and 737 MAX families. This competition is said to be only for the 150-200 seat sector. A separate decision for the 100-149 seat sector is expected to come next year. Bombardier hopes to win that part of the deal.
Update, 10:30 PST: The Wall Street Journal says Air Canada and Boeing are negotiating a deal for 50 737 MAXes.
Update, 11:15am PST:
LOT gets $33m from Boeing: Reuters reports that LOT Polish Airlines will receive $33m from Boeing for the 787 problems. Payments will be in cash, the news agency says.
Posted on December 11, 2013 by Scott Hamilton
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:
- What is the A350 development and production outlook?
- 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.]
- Will Airbus hit its goal of 10% margins, ex-A350, in 2015?
- Can Airbus grow and sustain the A380 production?
- When will Airbus take up rates on the A320neo?
- What is the outlook for A330 deliveries?
Posted on December 10, 2013 by Scott Hamilton
Airbus, Boeing, Bombardier, CSeries, Embraer
737 MAX, A320NEO, A330, A350, A380, Air Canada, Airbus, Bernstein Research, Bombardier, CSeries, E-190, EADS, Embraer
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.
Posted on November 15, 2013 by Scott Hamilton
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.
Posted on November 12, 2013 by Scott Hamilton
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.
Posted on November 7, 2013 by Scott Hamilton
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]
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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.
Posted on November 1, 2013 by Scott Hamilton
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.
- Separately, Flight Global reports BBD is preparing to offer a higher capacity version of the Q400 turbo-prop and that it has an unidentified launch customer.
Posted on October 31, 2013 by Scott Hamilton