Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Bjorn’s Corner: Air Transport’s route to 2050. Part 5. January 17, 2025
- What’s the future of the Boeing 787-8? January 16, 2025
- FAA understaffing affects air operations oversight; NTSB falls short, too January 13, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 4. January 10, 2025
- The market is ready for a 787F. But is Boeing? January 9, 2025
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.
Posted on January 8, 2013 by Scott Hamilton
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.
Posted on December 26, 2012 by Scott Hamilton
Some retrospective thoughts of 2012
As the year winds down, we look back and view the year as somewhat anti-climatic.
We thought Boeing would make a decision on what to do about the 777X. Hasn’t happened.
We thought there would be a formal launch of the 787-10. This didn’t happen, either, though there has been a “soft” Authority to Offer.
Bombardier won’t fly its CSeries this month, which was no surprise.
Embraer still hasn’t decided about its re-engining of the E-Jet.
Airbus’ order book will be quite respectable but a new bar had been set last year and the company is well short of matching that. (Wags will suggest that the famed Airbus “fifth quarter” has yet to occur. This refers to the seeming ability of John Leahy, COO-Customers, to announce hundreds of orders in January.)
Farnborough was expected to be so boring that we didn’t bother to go. The only surprise was Mitsubishi’s left-field announcement of an MOU for 100 MRJs with SkyWest Airlines of the USA. (This deal was firmed up this week.) This truly gives the MRJ program the boost it needs.
Boeing did come roaring back with around 1,000 orders for the 737 MAX, but this was also expected. This will return Boeing to the No. 1 spot after years of trailing Airbus.
The 787 program still has its challenges, with rework now said to extend into 2015 and a couple of in-flight interruptions that are more embarrassing to Boeing than substantive issues.
Airbus announced another delay to the A350 and skepticism still swirls around the -800’s future. The A380 remains a financial drag.
Most entertaining, and entirely irrelevant, are the ad wars that broke out between Airbus and Boeing. The churlish bickering is beneath both companies, whose public claims of efficiency for the A380 v 747-8 and A320neo v 737 MAX don’t match the data they show the airlines. We’ve been reduced to cross-checking claims by both companies with customers for reality checks.
EADS-Airbus underwent one of its required changes in leadership. Government interference continued.
Jim Albaugh shocked the industry by stepping down as CEO of Boeing Commercial Airplanes with no advance notice.
Next year will be a lot more interesting. We’ll have our 2013 preview in a few weeks.
A story of interest today:
Posted on December 14, 2012 by Scott Hamilton
Odds and Ends: Bombardier lands Delta’s RJ deal; 787 events in perspective; Airbus/China; Enders victory
Delta Air Lines: Bombardier, in a welcome development, landed a major order with Delta for 40+30 CRJ900s, beating out Embraer’s E-Jet proposal. Delta has a large, installed base of CRJs and EMB wasn’t too optimistic, in management-analysts meetings last week, according to research notes. But BBD liked its odds, considering the CRJ is more fuel efficient than the E-Jet (being a small airplane), even if the E-Jet is far more comfortable.
For BBD, the order is important for two reasons. First, the CRJ backlog is shrinking. Deliveries begin 2H2013, and this illustrates the point. Second, with BBD sucking up cash in advance of CSeries first flight in 1H2013, the deposits, progress payments and delivery payments are welcome, indeed.
The next face-off between the two OEMs is American Airlines, where both have large installed RJ fleets of aging aircraft.
Boeing 787 events: Airworthiness Directive. “Emergency” landing. AirInsight puts things into perspective.
Airbus lands China orders: Hmm. EU suspends plans to impose ETS tax. Airbus lands orders for 60 A320s and 10 A330s. What do you make of that…
Enders now 1-1, sort of: Tom Enders, CEO of EADS, lost his bid to acquire BAE Systems due to German government interference. The merger would have reduced government meddling, balanced EADS commercial and military business, put EADS on a more equal footing with Boeing and positioned EADS better for US DOD contract bids. But Enders has now won a corporate governance restructuring that ends government meddling in daily operations. He still hasn’t achieved his other goals, but this one is so huge that we rate Enders’ won-lost record 1-1.
Posted on December 6, 2012 by Scott Hamilton
Odds and Ends: A350 launch aid; strike at Bombardier biz jets; Embraer demand off; EADS-BAE
A350 Launch Aid: The US Trade Rep says it has the documents outlining $4.5bn in launch aid for the Airbus A350, according to a Reuters story. Predictably, Boeing and the USTR have gone in to overdrive. The A350 was excluded by the WTO from the long-running trade dispute because it wasn’t included in the original complaint filed in 2004–which is kind of obvious since the program didn’t surface until 2006. But Airbus contends that launch aid wasn’t ruled illegal in the WTO findings, just how it was implemented. Airbus contends that any launch aid for the A350 is structured in compliance with the WTO rulings of the 2004 case. The US contends launch aid itself is illegal. Whether it is or it isn’t, we don’t like launch aid or any other form of corporate welfare (see Boeing 787) and we don’t think a solvent company like Airbus (or Boeing) should be getting any.
Bombardier strike at Lear Jet unit: Machinists voted to strike at Bombardier’s Lear Jet unit. BBD hardly needs this. With cash flow demands peaking as the CSeries development enters the final stretch, and with demand for regional airliners off, this is an unneeded headache.
Embraer Demand: Wall Street analysts were pretty unhappy following the Embraer investors day last week. EMB gave no signs of willingness to cut production next year. There are 100 slots and only about 75 orders, with few in sight. Backlog is shrinking. EMB is hoping to land big orders from either Delta Air Lines or American Airlines for the E-Jet, but we’re not aware of any Delta campaign (and in any event, the airline favored the CSeries in the aborted campaign of a year ago). American is in such disarray there is no telling when, or if, it will pursue an order.
EADS-BAE: Bernstein Research doesn’t think this merger should happen. The excerpt from a note issued today:
We believe that it would be best for both companies if this proposed merger does not happen. But, we see the merger as worse for EADS than for BAE. Both companies describe scale as an advantage (e.g. better leverage of R&D), but we have never seen scale in itself as an advantage. Specific issues are:
– Shareholder interests. EADS shareholders typically own the stock as a play on commercial aircraft OE growth through Airbus. Increasing the scale of defense assets, with some in particularly challenging markets, is likely to take some investors out of the stock. We find BAE Systems shareholders as generally focusing on the high dividend. The combination with EADS, which does not pay a high dividend, places the current BAE Systems dividend level at risk in 2014. The disclosure of merger discussions also raises questions about the sustainability of cash flow and the divided, as we have found investors questioning why BAE would accept the EADS offer if its cash outlook were robust. BAE Systems CEO Ian King has countered this by stating (with EADS CEO Tom Enders) that this deal is “borne out of opportunity, not necessity”.
– Synergy potential. We view the potential synergies between EADS and BAE Systems as low given very little overlap between their businesses and restrictions in technology transfer from US programs. From an EADS standpoint, we expect that this combination would result in a stronger international marketing organization, provide some limited cost savings in indirect personnel and sourcing, and provide some improvement for the defense electronics portion of EADS’ Cassidian business (only about 2 billion euros in revenue). But, given the limitations in capturing these synergies and their relatively small size, we do not see them as justifying a merger of this scale. For EADS, this is particularly true, since it would pay a premium for BAE shares and be buying into some particularly difficult market exposure (e.g. US Army equipment, defense IT/services). In addition, we see disruption as inevitable in a deal of this size, as it could lead to a loss of some key personnel, changes in government relationships, and problematic integration steps (e.g. IT Systems), even though the overlap is relatively small.
Posted on October 8, 2012 by Scott Hamilton
Hypocrisy and Aerospace Industries Assoc.
On Twitter:
ReutersAerospaceNews @ReutersAero
Alabama move won’t open door to Airbus in US lobby group: We dont want foreign govts to use AIA to lobby ours, CEO Blakey tells #ReutersA&D
This is hypocrisy. The UK’s BAE System is a member of AIA. Rolls-Royce (North America) is a member. Brazil’s Embraer Aircraft Holdings is a member. France’s Dassault Systems is an associate member. Safran USA (obviously part of France’s Safran) is an associate member. And these are just the ones we immediately recognize from the AIA member list.
There key issues that Airbus and Boeing have in common: flight safety, air traffic management, environment, bio-fuel. There is no reason why Airbus Americas shouldn’t be a part of this group to participate in lobbying Congress for these kinds of issues. EADS North America, which already has major Defense contracts, could help on something like sequestration.
Airbus buys $12bn worth of supplies from the US and plans to double this. Even Washington State, Boeing’s home, is a top supplier to Airbus.
Who or what is black-balling Airbus?
Shame on AIA on this one. The reason given is transparently bull[stuff].
Posted on September 4, 2012 by Scott Hamilton
Odds and Ends: More on 100-149 seat jet market; aircraft op cost comparisons; Super Guppy
100-149 Seat Market: AirInsight has more on its study of the 100-149 Seat Market analysis and why it will be turbulent in the next five years.
Cost Comparisons: Aspire Aviation has a long article on the Cathay Pacific Airways earnings but to us the most interesting parts are the operating cost comparisons between various CX fleet types. It’s all buried in the article.
Super-Guppy: The Puget Sound Business Journal has a video from inside the NASA Boeing Super Guppy. 
Based on the old Boeing Stratocruiser, the Super Guppy is a specialty airplane originally designed to transport Atlas rockets. Later, Airbus used them to transport fuselage sections around Europe to final assembly in Toulouse. This is probably the last operating variant of any B-377/C-97/KC-97. It’s the last of the Super Guppies. With the retirement of the NASA Shuttle fleet, we wonder what will become of this airplane.
Posted on August 13, 2012 by Scott Hamilton
Odds and Ends: Preparing market for 3-5 mo delay on CSeries; Air Canada fleet plans
Bombardier: On its earnings call. the company is preparing the market for a 3-5 month delay on the first flight of the CSeries. We’ve been estimating 3-6 months.
Air Canada: Here’s an interesting item. Air Canada is pondering major fleet changes that might see the removal of the Embraer E-190 as too big yet it is considering adding the CRJ-900, which is nominally just a little smaller.
AirAsia X: This LCC for long-haul is adding six Airbus A330s to its fleet, to bring the total to 26 when all aircraft on order are delivered. AirAsiaX considers the airplane ideal for flights of six to eight hours.
Posted on August 10, 2012 by Scott Hamilton
100-149 seat market isn’t ‘Bermuda Triangle’ for the right airplanes
A new study released today by AirInsight concludes the oft-maligned 100-149 seat market is viable, and not a ‘Bermuda Triangle,’ if the right airplane is developed to compete within it.
We’re a co-author of the study, Market Analysis of the 100-149 Seat Segment.
Some aerospace consultants, analysts and observers–as well as Boeing’s Randy Tinseth, VP-Marketing–term the segment a Bermuda Triangle because of airplane “failures” in the market. But the fact is that except for Embraer’s E-Jet, the poorly-conceived British Aerospace/Avro Jets and Bombardier’s pending CSeries, there hasn’t been a clean-sheet design since the 1960s. All other aircraft have been derivatives of older designs and offerings of weak and dying manufacturers.
We need to add the Sukhoi Superjet SSJ100 to the clean-sheet design list, but this falls into the weak OEM category.
Today there are six aircraft types and 15 sub-types from five OEMs. (There were seven and 16 until Tuesday, when Boeing finally dropped the 737-600.)
AirInsight has an analysis of the future of the A319/A319neo and 737-700/737-7 Max here.
Here is a run-down.
Posted on August 10, 2012 by Scott Hamilton
Post-Farnborough thoughts: why so few orders, PR overkill and more
The Farnborough Air Show is over. Here are our thoughts:
For all the pre-show buzz about expected orders, with names and quantities identified, this show was a bust.
Airbus was said to be shooting for 250-300 orders; it finished with 115 (including orders, commitments, MOUs and so on). Just two of the talked-about orders would have brought Airbus close to the 250 mark. An A380 was also anticipated. But no-go.
Boeing also failed to meet pre-show expectations that revolved around converting about 75% of the then-remaining 550 737 MAX commitments to firm orders. In the end, only Air Lease Corp did so, for 75, while GECAS and Avolon were revealed as being among those Unidentified customers who “committed” to the MAX. We fully anticipate these, and the other MAX commitments, to convert but expectations were…expectations and in this, Boeing fell short. But the company was still the undisputed star of the show. Kuwait’s ALAFCO, a lessor, became a new MAX customer and so did United Airlines. United gave not only the MAX program in general a boost but the -9 MAX in particular a major shot in the arm with an order for 100. The airline also ordered 50 737-900ERs, a boost for this slow-selling airplane as well. Virgin Australian became another new MAX customer, albeit in the week preceding the show but this is a bit of a technicality.
Bombardier announced two new commitments for the CSeries, one from an Unidentified customer and one from Air Baltic. We view the Air Baltic order as significant, for this is the first time the CSeries competed against the A319neo and the 737-7 MAX. Previous competitions were vs the A319ceo, the A319neo and perhaps the 737–700. BBD continues to make slow progress with the CSeries, with orders and options in the 10-20 range. This pace is similar to Embraer, Airbus and Boeing at this stage of the game (i.e., 18 months before EIS, six months before first flight) for the E-Jet, 737-700 and A319.
The news that BBD is talking with AirAsia about a 160-seat CS300 (28 inch pitch with new slim line seats) was a surprise. We’ll wait with great interest whether the airline’s CEO, Tony Fernandes will be enticed away from his exclusivity with Airbus for the A320/320neo. If Airbus’ John Leahy was motivated to “kill” the CSeries before, these talks are sure to start a war–and Leahy takes no prisoners.
Embraer, a star at the Paris Air Show, only announced a handful of orders.
ATR had a reasonable show with its turbo-prop. Bombardier brought up the rear with an order for six Q400s.
Pratt & Whitney bested CFM International in those A320 deals where they compete. CFM, of course, recorded far more orders since it is the exclusive supplier on the 737NG and MAX.
Mitubishi surprised everyone with an MOU for 100 MRJs from SkyWest Airlines of the USA. But commentary that this is a “blow” to Bombardier is over-stating.
Why so few orders?
Because the global economy still pretty much sucks. The backlogs are up to seven years out. Customers don’t want to pay escalation costs this far out. No need to hurry.
PR Overkill
A few years ago Boeing roundly criticized Airbus for announcing MOUs, LOIs and “commitments” while Boeing confined its announcements to firm orders. This changed at the Paris Air Show when Boeing announced commitments for 20 747-8Is from an unidentified customer. (It was the Hong Kong Airline Group.) Since then, all the airframe OEMs are busting their backs to throw every number they can out at an air show.
We roundly criticize this practice, whether it comes from Airbus, Boeing, Bombardier, Embraer or anyone else. An order isn’t an order until it is. The Hong Kong 748 “commitment” is still pending, and this was one of those anticipated to be firmed up at Farnborough. Instead, it became one of those no-gos. The same goes for other “commitments” from other OEMs. That’s why we have been so harsh on the practice. A commitment isn’t really worth the paper it’s written on. A commitment isn’t booked as an order on the tally sheet. This PR charade should be dropped. Of course, it won’t be.
The absence of product news (other than some detail of the 737 MAX and formalizing the A330-300 HGW), the failure to meet even low expectations in terms of orders and the crappy weather combined to make for a dull show from a news standpoint.
It was nice to see Boeing return to the aerial displays with the Qatar 787. Boeing certainly has a point: aerial displays haven’t sold an airplane (probably since Tex Johnston did the barrel role with the Dash 80). But it’s always been cool to see the A380, A340-600 or even the Lockheed Constellation do some aerobatics. We hope Boeing continues the practice.
Posted on July 12, 2012 by Scott Hamilton
