Conservatives attack ExIm Bank again; Embraer v Bombardier

Conservative tax groups are once again attacking the US Export-Import Bank and its funding of US exports, including Boeing aircraft.

ExIm was created during the Great Depression to support US exports. It get attention because Boeing is the most visible beneficiary. The think tanks believe ExIm financing amounts to corporate welfare–a position that is 180 degrees from their usual approach to corporations.

Delta Air Lines is leading corporate attacks because it contends that foreign airlines get preferential financing and put it at a disadvantage.

Delta says that carriers like Emirate Airlines hardly need ExIm support, and it has a point. But less well-capitalized airlines like LionAir certainly could use it. Some further reform may be needed; international rules to bring ExIm fees and interest rates to market rates were already adopted. Tightening eligibility may be fair.

Delta had this to say in an Op-Ed piece in Forbes. You have to click past the advertising page to read it.

But eliminating ExIm? We disagree, as we have written on several occasions. The think tanks would hand this market support over to Airbus, which benefits from the European Credit Agencies export financing and this wouldn’t go away. This would put Boeing and its supply chain at a disadvantage to Airbus in international sales.

Embraer vs Bombardier: Here’s an interesting article explaining how Embraer sees the market a bit differently than Bombardier.

Tired of kerosene smell ingested into the cabin on start-up? Hope for this

In the November election, Washington State and Colorado voters approved recreational use of marijuana. As anyone who ever tried MJ knows (except a certain former President, who says he didn’t inhale), MJ has a sweet odor that is very distinctive.

Who has flown an airplane and hasn’t smelled that pungent odor of jet fuel being sucked into the cabin now and then during push-back and start-up (except maybe that former President, if he didn’t inhale then, either)?

Ballard Biofuel in Seattle may have the answer. Let’s all inhale.

Odds and Ends: Tit for Tat; Lockheed in crosshairs of—Embraer; 787 return to service

Tit for Tat: Airbus announces a big order from LionAir. The next day Boeing announces a big order from RyanAir. Airbus has a big press day for its groundbreaking at Mobile (AL). The next day Boeing announces a $1bn expansion at Charleston.

Lockheed in crosshairs: Embraer is going after Lockheed Martin. Aggressively.

787 Rescheduled: United Airlines put the 787 in its schedule from May 31. The FAA hasn’t cleared the airplane for flight yet, but Boeing has been telling customers to expect the plane’s return to service in May through June.

Special ‘task force’ studied lithium-ion batteries long before JAL 787 incident

A special task force was studying issues relating to the use of lithium-ion batteries in airliners long before the January 2013 Japan Air Lines fire. The effort began in 2008 and it met in December 2012, one month before the JAL fire.

Boeing, the FAA, Embraer, Airbus, GS Yuasa, American Airlines and ALPA are just a few who participated in these meetings, according to documents.

Randy Tinseth, VP Marketing for Boeing, referred to the group when he discussed the FAA approval to proceed with the Boeing plan to fix the 787 battery issues in his blog, here.

Tinseth writes:

The certification plan calls for a series of tests that show how the improved battery system will perform in normal and abnormal conditions. The test plans were written based on the FAA’s standards as well as applicable guidelines published by the Radio Technical Commission on Aeronautics (RTCA), an advisory committee that provides recommendations on ways to meet regulatory requirements. The RTCA guidelines were not available when the original 787 battery certification plan was developed.

We asked Boeing what the document was that Tinseth referred to above: it is a document numbered DO-311. There are a number of documents at RTCA containing the reference to DO-311.

DO-311 is described by RTCA as:

Read more

Odds and Ends: Tanker-like redux; Ryanair’s 200 737s; new use for Winglet

Tanker-like Redux: As you read this story, it sounds a lot like Boeing vs EADS, right down to the build-it-in-the-USA element.

Ryanair’s 200 737s: News emerged that Ryanair will firm up an order soon for 200 Boeing 737s. This has been hanging “out there” for some time. We learned of this likelihood a couple of months ago. It was all hush-hush while Ryanair took another run at Aer Lingus.

Pan Am landmark: For those filled with nostalgia, this news is sad: the famed Pan Am Worldport faces the wrecking ball.

New Winglet use: This is pretty cool. Via Steve Trimble of Flight Global.

PNAA conference: Embraer Enhanced E-Jet improves fuel burn by 5%; talks of re-engine

The E175 Enhanced (a step below the full re-engine) will improve fuel burn by 5%, says Tobias Caldas of Embraer at the Pacific Northwest Aerospace Alliance. This includes a redesign winglet and other fuselage/engine PIPs.

Enhancements include new avionics, interior improvements, maintenance cost reductions and noise reductions. Aerodynamic improvements will be forthcoming on the E-190/195. The E1`70 will have a 5% improvement, the E175 will have 5.5%, the E190 3.5% and the E195 4%.

Republic Airways is the launch customer for E-Jet “E” and will operate the plane for American Airlines’ Eagle unit. The order brings the current backlog for the E-Jet to about 150. (Aerospace analysts have been concerned for some time about the shrinking backlog, with production rates exceeding a 1:1 book-to-bill.)

Embraer continues to promote the E_Jet as a right-sizing mainline aircraft in the 90-125 seat segment, with 3,765 forecast as a requirement in the next 20 years in this segment.

The re-engined E-Jet includes a new wing and the Pratt & Whitney GTF engines. EMB is calling the revised airplane the E-Jet Second Generation (E-Jet SG). EMB to formally launch the program this year, with EIS in 2018. The models and size are being defined (though our market sourcing says there will be an eight passenger stretch). EMB says there will be “double digit” fuel burn improvment.

PNAA Conference: Aboulafia on CSeries, 777X, 787-10 and A350

Bombardier has an uphill battle selling CSeries in part because of the production might of Airbus and Boeing, says Richard Aboulafia of the Teal Group. With the two big OEMs each producing the single-aisle airplanes at rates of 42 a month, Bombardier faces the ability of the two simply offering an incremental airplane for huge discounts.

Aboulafia also said BBD had a lack of “commercial aggression.”

He made the remarks at the 12th annual conference of the Pacific Northwest Aerospace Alliance.

Aboulafia also criticized Boeing for apparently “pushing to the right” development of the 787-10 and 777X as a result of the current 787 battery issues and grounding.

He praised Airbus for its pursuit of the A350-1000 and the advantage it will give Airbus if Boeing continues to delay the 777X.

Embraer selects PW GTF for E-Jet RE; concept clarity comes at last

It’s official: Embraer selected the PW GTF to re-engine the E-175, E-190 and E-195.

In doing so, it looks like the E-170 will be allowed to wither on the vine.

This is a huge win for PW and setbacks for Rolls-Royce, which sorely wanted to win the E-Jet RE for its Advance 2 RR development; and for GE, the incumbent supplier of the CF34 and which was developing the Next Generation variant for the E-Jet.

EMB EJet RE

It’s yet another validation for the GTF. Versions of this engine will power the Mitsubishi MRJ, the Bombardier CSeries, the Irkut MS-21, the Airbus A320neo family and now the E-Jet RE.

It’s a huge comeback for PW, which made a major strategic error in not competing to power the Boeing 737 300/400/500. Boeing continues to use the GE/CFM LEAP engine as its sole-source supply for the 737 MAX, though Boeing seriously evaluated the GTF as well.

Below is EMB’s press release:

Embraer Selects Pratt & Whitney’s PurePower Engines for Second Generation of E-Jets

São José dos Campos, January 8, 2013 – Embraer SA (NYSE: ERJ; BM&FBOVESPA: EMBR3) announced today that Pratt & Whitney´s PurePower® Geared TurbofanTM engines have been selected for its future, second generation of E-Jets, with entry into service planned for 2018. The decision is an important milestone in the program, which is expected to be officially launched later this year.

The new engines – the PW1700G and PW1900G – range in thrust from 15,000 to 22,000 pounds. In combination with new aerodynamically advanced wings, state-of-the-art full fly-by-wire flight controls and other systems evolutions, they will result in double digit improvements in fuel burn, maintenance costs, emissions and external noise.

“We are very happy to expand our partnership with Pratt & Whitney, keeping the E-Jets family as the best solution for our customers, today and in the future”, said Frederico Fleury Curado, President & CEO of Embraer. “The PurePower GTF engines are a great fit to the next generation of our E-Jets and we look forward to another long lasting and successful program with Pratt & Whitney”.

“We are proud that Embraer has recognized the unmatched value of the PurePower engine, and we are committed to supporting a successful launch of the new E-Jet aircraft family,” said Pratt & Whitney President David Hess. “To date, Pratt & Whitney has completed more than 4,200 hours and 12,400 cycles of full engine testing for the PurePower engine family, demonstrating the benefits and reliability of the engine architecture.” Pratt & Whitney is a division of United Technologies Corp. (NYSE: UTX).

The second generation of E-Jets will be a significant step in Embraer´s commitment to continuously invest in this line of commercial jets, complementing a series of ongoing improvements currently being implemented in the existing family, with great benefits to its customers. Embraer´s objective is to offer the best product and maintain its leadership in the 70 to 120 seat market.

Embraer facing slack years: JP Morgan

Update: Even as we posted this, Jon Ostrower Tweeted PW has been selected to re-engine the E-Jet. We’re trying to confirm.

Embraer faces declining deliveries this year and next due to declining orders and a declining backlog, reports JP Morgan in a research note issued January 8.

JP Morgan writes:

We are downgrading Embraer…because we believe the stock does not fully account for a decline in commercial deliveries. We are lowering our 2014 E-Jet delivery estimate to 60 from 80, and we see potential for both upside and downside to this estimate.

  • We forecast 85 E-Jet deliveries in 2013 and 60 in 2014, down from 105 in 2012. Our 2013 outlook is based on our view that the company has filled ~75 slots this year, reinforced by indications from management, and the trickle of orders since then. Visibility into 2014 volume is much lower. We estimate that only 21 slots are filled (using data from Ascend), and even if we allow for some reshuffling from other years, Embraer still has a decent number of orders to gather just to reach our estimate. Embraer has taken ~306 E-Jet orders the past five years, or 61/year on average, and our delivery estimates for 2014 and beyond are in line with this.
  • E-Jet backlog was likely down to ~162 aircraft at year end. This represents only 1.5x 2012 deliveries vs an average of 3.2x historically. The backlog is only 1.9x our 2013 delivery estimate of 85 E-Jets, indicating that without an order pickup, the lower rates we are assuming will not be sustainable. The estimated E-Jet backlog in units is down ~65% from its 1Q08 peak of 466 and has declined in 15 of the 19 subsequent quarters.
  • Opportunities still lie in the US. Embraer does have opportunities to rebuild the backlog, the most prominent of which are in the US. Last year, management indicated it would compete for 300-500 US replacement orders in the coming years. Embraer failed to capture the first of these as Delta ordered from Bombardier, but there are other opportunities, such as a potential order from American for up to 200 76-seaters. This order could take place in the coming months if American exits bankruptcy independently, but a merger with US Airways (as our airline analyst Jamie Baker believes is likely) could push this out to 2014. We expect a resolution on the merger question in the coming weeks. Either way, Bombardier will surely provide stiff competition, and we see it as at least a mild favorite. Embraer has also pegged a ~150 aircraft opportunity from United. Large US orders would clearly benefit Embraer but even with 20-30 deliveries into the US annually, production should remain below last year’s 100+.

Our take:

We think EMB has seen a drop in orders because, at the end of 2011, officials announced they will re-engine the E-Jet. But throughout 2012, the market has waited for information about what the E-Jet RE will look like. The engine hasn’t been selected yet, as far as we know. A new wing is assumed, as are upgrades to the systems–which we hear will be borrowed from the KC-390 military aircraft.

As a result of the ambiguity, we think customers have been holding off ordering aircraft.

Furthermore, Bombardier has won some key competitions: Garuda and Delta Air Lines, where the CRJ proved to have lower operating costs and pricing considerations also favored BBD. The E-Jet is superior in passenger comfort to the CRJ, but for cost-driven airlines who don’t really care about passenger comfort, the lower operating costs of the CRJ may prove the winning combination with a more aggressive pricing and deal from BBD.

Embraer needs to make its RE decisions soon to regain momentum.

Odds and Ends: E-190 v Superjet v BBD in Russia; China’s aviation; WestJet’s speed dating; Crandall speaks

E-190 v Superjet v Bombardier: With the finding that the pilot of the demo flight of the Sukhoi SSJ 100 Superjet simply flew into a mountain in Indonesia, rather than there being a problem with the airplane, the cloud has been lifted from the aircraft. So the direct match-up of the SSJ vs the Embraer E-190 can now be compared and this article does so. Bombardier’s CRJ-900 and CRJ-1000 also compete.

China’s Aviation: Airbus and Boeing think China pose the greatest threat in the future, but this analyst is less enthusiastic.

WestJet of Canada: The low cost carrier took a bold step to order up to 45 Bombardier Q400s to feed itself. Now it’s using speed dating to decide where to fly the airplanes.

Crandall speaks on AA-US merger: Former American Airlines CEO Robert Crandall weighs in on the merger between American Airlines and US Airways.