Engine After-market: Safran, which owns 50% of CFM International with GE Aviation owning the other half, is positioned in the “sweet spot” of the engine after-market, according to a recent report by Bernstein Research.
The report further supports our own analysis posted August 25 and the growing importance of MRO support in winning engine orders.
According to Bernstein, Safran “has the best positioning in the aircraft engine after-market” in the investment bank’s coverage. This position is “driven by two engine families with strong growth ahead and low exposure to older engines that are at risk of early retirement.”
Bernstein notes that more than 95% of Safran’s after-market sales are derived from the CFM56, which powers 75% of the narrow-bodied aircraft, and the GE90, which powers the Boeing 777-200LR/LRF and 777-300ER.
Future programs include the CFM LEAP, GEnx and GP7200. Past programs, in decline, are the first generation CFM56 and the CF6 on earlier wide-bodies.
ExIm and Airbus: In a statement surely to inflame those opposed to renew ExIm Bank authority, the president of the bank said it’s possible it could back funding of the Airbus A320 family built in Mobile (AL).
Paine Field future: It’s a little parochial but The Everett Herald has an article looking at the future of Paine Field, where Boeing’s wide-body airplanes are assembled. The article necessarily looks at the future of the Boeing 747, 767 and 777 Classic production.
Congress is now talking about a nine month extension of ExIm.
What order bubble, Revisited: We recently asked the question, What order bubble?
The orders don’t stop coming. Boeing landed a big fish with a large order from BOC Aviation, bringing net orders to 918–easily on the path to 1,000. Airbus lags at just over 800 net orders through July (it only reports monthly, not weekly as does Boeing), but we see Airbus hitting 1,000 this year, too. There were 121 MOUs announced at the Farnborough Air Show for the A330neo and we expect most of these to firm up, if not all. (There will likely be some swaps by Air Asia from the A330ceo to the neo, however.) We expect more A320 orders as well.
Boeing’s BOCA order was the lessor’s largest ever and included two 777-300ERs. Boeing is attempting to combine -300ER orders with 737 and 777X deals in order to bridge the production gap between the 777 Classic and the 777X.
GE Aviation and GE Engines naturally benefited from the 737 and 777 BOCA deal, since they are the sole-source engine providers on the airplanes.
MRJ lands JAL: Japan Air Lines ordered 32 Mitsubishi MRJ90s for delivery from 2021. This is the fourth customer for MRJ. JAL’s rival, All Nippon Airways, was the launch customer for the MRJ90. JAL also ordered up to 27 Embraer E-Jets.
MH370: New information emerged this week on the flight path of Malaysian Airlines MH370, which disappeared on a flight from Kuala Lumpur to Beijing and is believed to have crashed in the south Indian Ocean.
We’ve been asked by local media if MAS can survive. We believe it can, given the government backing. It’s the flag carrier and we don’t think Malaysia will allow the airline to go out of business. Korean Air Lines survived following a series of crashes and the Soviet shootdown of KAL 007 during the 1980s. MAS may become a very different airline, but we think it will continue.
Maintenance and power-by-the-hour parts and support contracts are increasingly becoming the deciding factor in deciding which engines and which airplanes will be ordered—it’s no longer a matter of engine price or even operating costs, customers of Airbus and Boeing tell us.
Ten years ago, 30% of engine selection had power-by-the-hour (PBH) contracts attached to them. Today, 70% are connected, says one lessor that has Airbus and Boeing aircraft in its portfolio, and which has ordered new aircraft from each company.
“We’ve seen a huge move in maintenance contracts,” this lessor says.
Our wrap up of Farnborough would be incomplete without looking closer at the world’s leading engine supplier, GE Aviation, which together with partners (like SAFRAN in CFM joint venture) garnered more than $36 Billion in orders and commitments during the show. This figure was only significantly bettered by Airbus ($75 Billion) and it came close to Boeing’s $40 Billion. With such level of business the claim by GE Aviation CEO, David Joyce, that the Airbus A330neo engine business was not the right thing for GE as they have more business than then they know what to do with, was certainly no case of “sour grapes”. Read more
Hawaiian Air’s A350-800s: Hawaiian Airlines July 22 ordered six Airbus A330-800s and simultaneously dropped its order for six A350-800s. HA also took six purchase rights for the A338. Deliveries begin in 2019.
The A338 is slightly smaller, nominally at 252 seats, and has somewhat less range at 7,600nm than the 276-seat, 8,250nm A358, but only Hawaiian knows how much it needed the extra range. Losing the extra seats does give HA a hit to revenue potential, however. For wide-body airplanes, Airbus says each seat has the revenue potential of $2m/yr.
Offsetting the revenue loss is a far lower capital cost for the A338 vs the A358. Our economic analysis, based on technical specifications estimated before the Farnborough Air Show and before Airbus revealed data for the A338, showed the A338 pretty close to the A358 on a pure operating cost basis, not including adjustments for capital cost.
Here are the orders we’ve seen for today (there could be more); this should pretty well do it for the show, though it does continue through Friday and there probably will be a few more deals:
Items of interest:
Fabrice Bregier, CEO of Airbus Commercial, threw cold water on the prospects of an A380neo and an A350-1100, the latter to compete with the Boeing 777-9.
Bregier’s position on the A350-1100 leaves Boeing with a monopoly at the 400-seat marker. Boeing doesn’t view the 777-9, which nominally seats 407 passengers, as part of the Very Large Aircraft sector which begins at 400 seats. Rather, Boeing lumps the -9 into the medium-twin aisle sector (300-400 seats).
While Airbus continues to struggle with sales for the A380, Boeing doesn’t much talk about the 747-8I anymore, focusing primarily on the future potential of the 747-8F. Boeing bravely talks about the prospect of four or five customer sales for the 747-8I this year, including a strong wishful-thinking of an order from Emirates Airlines (president Tim Clark says he’s not interested).
Here are orders that were announced on the first official day of the Farnborough Air Show (at least the ones we’ve seen from Seattle–feel free to add to the list if we’ve missed any):
Things of note:
The sniping between Airbus and Boeing continues:
The Airbus A330neo program has come a long way since our 29th of December article “A330neo prospect gains traction.” With the Farnborough Air Show days away, we understand there are now Airbus internal job postings for engineers to join the program. The speculation then reduces to “when” the program will be announced, not “if.” Another would be what improvements are foreseen for the Boeing 787-derived engines that may power the neo.
Rolls Royce reportedly gains exclusivity
Reuters recently reported that Rolls Royce might get an exclusive engine deal for the A330neo. There are many reasons Airbus might give Rolls Royce or General Electric exclusivity on an engine for the A330neo, especially if Airbus sees the likely sales of the updated aircraft to stay below 500 units. The reasons can range from how much of the $2B estimated program cost the engine manufacturer would pay to what efficiency improvements they would undertake on top of what is already on the way for their 787 engines. There is every reason to believe the GEnx-1B can match the fuel consumption performance of a further developed Trent T1000-TEN. We understand Rolls Royce will leverage developments from the A350 TXWB engines but GE can just as easily leverage developments from the LEAP program.
The picture shows the Rolls Royce Trent 1000 carbon fibre fan demonstrator engine from the companies ALPS (Advanced Low Pressure System) program. Is this also the looks of the Rolls Royce A330neo engine?
The Farnborough Air Show is just around the corner, and we don’t expect the event to be especially newsworthy.
Here are our expectations for the show:
Market expectations are that Airbus will launch the A330neo at the air show, and we know John Leahy, COO of Customers, would like to do so at this event. His bosses, Fabrice Bregier and Tom Enders, have been less than encouraging that this announcement could come at the show.
Although news stories last week indicated Airbus’ board may green light the program in advance of the FAS, it was nonetheless reported that a formal public launch may not be made at the show. So what might happen? An “Authority to Offer,” or ATO, might be how Airbus proceeds. We don’t think there will be firm orders ready to go when the FAS begins July 14—although certainly Airbus could also take Boeing’s 777X approach and announce “commitments” as was done at the Dubai Air Show.
We are skeptical whether there might be any A330 Classic orders announced, as customers await the neo. We certainly expect the usual orders for the A320 Family. We expect A350 orders. We’re doubtful of A380 orders.