Pontifications: Boeing 737-9 roll-out–Nothing Special in the Air

By Scott Hamilton

March 6, 2017, © Leeham Co.: Boeing rolls out its 737-9 MAX tomorrow.

Last week, I received a call from one of the network/cable news organizations asking, What’s special about this airplane?

The answer is: Nothing.

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Is Emirates in trouble?

Introduction

Jan. 12, 2017, © Leeham Co.: There are a growing number of articles around the Emirates airline that points to recent weaknesses in the airline’s operating model. Here are just two:

We decided it was time for a deeper look at this locomotive from the Arab Emirates. Is Emirates in trouble? How solid is it?

We studied the economics for the last decade and took a deep look at the fleet needs, including, has  Emirates committed to too many aircraft being delivered over the next several years?

They have just deferred Airbus A380’s for the first time. Used to be they could not get them fast enough?

Summary:
  • Emirates has been profitable since start 1985.
  • Its unprecedented growth in revenue and passengers has slowed down.
  • The low fuel price has kept profits up for now, but yield and load factors are down.
  • With a flexible fleet structure and a strong balance sheet Emirates has a strong position to weather any storm going forward.

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Market, other factors emerging, creating Boeing 787 concern

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Introduction

Jan. 4, 2017, © Leeham Co.: Despite a rosy picture painted by Boeing about the future of the 787 and the ability to recover more than $29bn in deferred production

Boeing photo.

and tooling costs, there are signs that cause concerns over the next 3-5 years.

Summary
  • Near-term production outlook solid, weakness begins in 2020, big gap in 2021.
  • Boeing doesn’t see wide-body sales recovery until next decade.
  • Company foregoes increasing 787 accounting block; sales won’t support it.
  • Market talks about deferring 787s.

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US, EU ignore Chinese, Russian subsidies

Nov. 15, 2016, © Leeham Co.: Government subsidies to commercial aircraft companies appear to be increasing despite the 12-year disputes before the World Trade Organization between Europe and the US over Airbus and Boeing aid.

Yet the US and Europeans appear to be doing little to try and curb the subsidies to new competitors.

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Less desirable aircraft for lessors

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Introduction

Part 3: Oct. 24, 2016, © Leeham Co.: Lessors select aircraft to add to their portfolios based on several basic criteria:

  • Is it a good airplane?
  • How are the economics?
  • Is there, or will there be, a broad customer base?
  • How “liquid” is the airplane?
  • How broad is the customer base?
  • Reconfiguration costs.
  • Commercial terms of the acquisition.

Lessors often conclude that while an airplane may be good technically and perfectly acceptable for airline use, failure to meet their specialized key criteria—notably liquidity and customer base—they may pass on the aircraft.

Summary

  • A surprising number of in-production jets and those in development don’t make a lessor’s list of desirable leasing assets.
  • The planes all are technically good aircraft.
  • Markets may evolve for some of the aircraft on the list.

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Engine industry clamoring for road back

By Bjorn Fehrm

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Introduction

October 13, 2016, ©. Leeham Co: The airline engine industry is like a ticking bomb. Over the years, a business practice of selling the engines under manufacturing cost and planning to recover costs and make a profit on the aftermarket developed. This goes back decades.

The practice was fostered by fierce competition over the engine contracts for aircraft which offered alternative engines. The losses of the engine sales could be made up later by selling spare parts and services at high margins.

trent-7000

Figure 1. Trent 7000 from Rolls-Royce. Source: Rolls-Royce.

These “jam tomorrow” practices have several implications. The engine industry is now confronted with these and wonder how it could put itself in such a bind. How to handle these and what is the way back?

Summary:

  • High competition in engine sales forced ultra high discounts for the up-front engine sale.
  • Aftermarket schemes was created that should recover profits over spare parts and services.
  • But these maintenance practices create all sorts of problems in the used engine market.
  • The engine industry now wants to return to more normal business practices. But how do they find the way back?

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Management buys company, Altavair emerges

altavairOct. 4, 2016: Shifting in the aircraft leasing business continues. Guggenheim Aviation partners (GAP) has been purchased by GAP’s management, ending a relationship with the giant Guggenheim investment group that began as a joint venture in 2003.

In recent years, mega-lessor ILFC was acquired by AerCap; the Royal Bank of Scotland sold its leasing unit to a Japanese company to form SMBC Aviation Capital; Avolon, an Irish company, was purchased by China’s HNA Group which also may purchase CTI’s leasing arm, just to name.

GAP’s new name is Altavair AirFinance. There are more than 50 aircraft in the portfolio, mostly wide-bodies concentrated around the Airbus A330 and Boeing 777. There are also a number of narrow-bodies.

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Airline assets and lessor assets

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Introduction

Part 1: The Big Two OEMs

Oct. 3, 2016, © Leeham Co.: There are airline assets and there are leasing assets.

That’s a good airplane but it’s not a good leasing asset.

These are the succinct remarks of just two lessors who decide what aircraft to add to their portfolios.

What do they mean by this and why do they say this?

We’ll take a look today at the thoughts behind these positions.

Summary

  • Not all aircraft, however good operationally they may be, make a good acquisition for lessors.
  • Lessors have requirements that are beyond those for airlines.
  • Lessors play increasing important role in the airline industry.

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Nordic Aviation Capital completes second major acquistion

March 15, 2016: Nordic Aviation Capital yesterday announced it acquired regional aircraft lessor Jetscape Aviation Group. This is the second major acquisition since December. Then, NAC agreed to acquire 25 ATR turboprop aircraft from Air Lease Corp., which decided to focus entirely on jets, most of which are mainline aircraft. All but a handful of the ATRs were already leased, with the remaining still in production.

Nordic had nearly 250 aircraft from the ATR and Bombardier Dash and Q families, plus a small number of Bombardier CRJs, Airbus A320s and Boeing 737s. The Jetscape acquisition brings Embraer EJets to the Nordic portfolio.

“The deal will see Nordic Aviation Capital expand into the regional jet arena, bringing 28 owned Embraer E-Jets, commitments for 11 E-Jets and a further 18 of the type under management into its sizeable regional aircraft portfolio,” the company said in a press release.

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