Leeham News and Analysis
There's more to real news than a news release.
Prices set for years, Boeing cost-cutting goes straight to bottom line
April 12, 2016: Prices for Boeing and Airbus planes are set through the remaining decade, meaning any cost-cutting being pursued by Boeing will flow straight to the
bottom line, a new note issued yesterday from Bernstein Research concludes.
“Pricing on more than 80% of deliveries is already set through the decade,” the note says. “Despite the competitive pressures, however, the reality is that most of the competitive situations are about deliveries in the next decade. This creates a situation in which most of every dollar of cost savings will flow to margin during this decade because most of the planed deliveries are already priced. The same is true for Airbus.
“This has not been the case in prior cycles because backlogs then tended to be only about three years of production, rather than the eight years that we see today. In those cycles, Airbus and Boeing would cut costs, but then compete away the value. That price competition will now be happening primarily on deals for delivery after 2020,” Bernstein says.
Middle of the Market or Mirage of the Market: Boeing’s lose-lose situation
Enthusiast concept of Boeing Middle of the Market airplane. via Google images.
March 30, 2016, © Leeham Co.: Boeing is unlikely to develop a Middle of the Market airplane for a sector that could be a “mirage,” write two aerospace analysts.
Buckingham Research, in a note issued yesterday, did a “deep dive” into the MOM potential and concluded there isn’t a big enough market to support development of a new airplane. Buckingham recently upgraded Boeing stock to Neutral (Hold) from a Sell.
Bernstein Research, in a note published March 15, ventured that the MOM demand could be a “Mirage of the Market.” Bernstein is a Buy on the stock.
Goldman Sachs remains in the camp that Boeing may well proceed with development of a MOM airplane, at the cost of billions of dollars. Goldman concludes Boeing is in a lose-lose situation with the MOM. Goldman is a Sell.
Pontifications: Airbus USA321 a milestone for US aerospace
By Scott Hamilton
March 28, 2016, © Leeham Co.: The first US-built A320ceo family member took to the skies for its first flight last week. The A321ceo, destined for JetBlue, is the first assembled at the new Airbus A320 plant in Mobile (AL).
This is a milestone for Airbus, obviously. The Mobile plant was first proposed as the assembly site for the KC-330 MRTT (Multi-Role Tanker Transport) proposed for the US Air Force to replace the aging Boeing KC-135s. Northrop Grumman, which paired with Airbus parent EADS (as it was then known) to offer the KC-330, won the contract. The celebration was short-lived. The Government Accountability Office overturned the award. Northrop bowed out of the next round of competition, which Boeing won.
Airbus subsequently decided to create an A320 assembly site at the same Mobile location planned for the KC-330. (I visited the site for grand opening last September.)
This is the fourth A320 assembly site, after Toulouse, Hamburg and Tianjin. Airbus hopes the Mobile site will help spur sales in the US, where it still trails Boeing in market share.
Milestone for US Aerospace
While this plant is a milestone for Airbus, it’s a milestone on a much more macro level, too. This is the first commercial airplane assembly site by a second airplane manufacturer since Boeing closed the McDonnell Douglas MD-11 and MD-95 (aka Boeing 717) assembly lines in Long Beach (CA) in 2000 and 2006, respectively. The last legacy MDC assembly site, for the military C-17, closed early this year.
Pontifications: Airbus’ new edginess
By Scott Hamilton
March 14, 2016, © Leeham Co.: Airbus is presenting a new edginess in the long-running war of words with Boeing, adopting a tactic Boeing has used for years to make its case.
The European manufacturer has never been shy about getting in its digs at Boeing, but generally Boeing’s messaging—years in the making and steadfastly adhered to—has had more sticking power than Airbus’.
MOMentum appears to be slowing for new Boeing airplane
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Introduction
Model design and paint by Camil Valiquette. Photo via Google.
March 10, 2016, © Leeham Co.: MOMentum for the Middle of the Market aircraft seems to be slowing from last year, as potential buyers and Boeing struggle to define an aircraft that would be affordable to build, affordable to buy and fulfill different mission requirements for capacity or range.
Meantime, Airbus is content to watch Boeing’s predicament, secure in what it believes is the winning strategy.
Summary
- Attendees at the ISTAT conference last week had no consensus about what the airplane should be, when or even if Boeing should launch the airplane.
- Some customers want range, others want capacity.
- “757 replacement?” Not really.
PW’s Geared Turbo Fan was catalyst for MRJ90 order
March 8, 2016, © Leeham Co.: Pratt & Whitney’s Geared Turbo Fan technology was what prompted a used airplane lessor to place its first new airplane order,
Pratt & Whitney’s Geared Turbo Fan was the key reason lessor Aerolease decided to order the MRJ90. Photo via Google images.
selecting the Mitsubishi MRJ90 in the process.
Jep Thornton is a partner with the small lessor Aerolease, a 20-year old company that has up to now concentrated on acquiring McDonnell Douglas DC-8s, Airbus A300s and Boeing 757s for conversion to cargo aircraft. Aerolease has about 40 aircraft under management and ownership.
Thornton and Mitsubishi announced at the Singapore Air Show last month a Letter of Intent to order for 10 MRJ90s and options for 10 more. Deliveries begin in three years.
ISTAT Day 2: MOM business case remains a challenge
March 1, 2016, (c) Leeham Co.: The manufacturers and their customers remain unclear
about the need and design of the so-called Middle of the Market aircraft, their representatives said at the ISTAT AGM today in Phoenix. The business case has yet to be proved.
Participants in the Middle of the Market Panel are:
Ron Baur, VP Fleet, United Airlines
Robert Lange, SVP Market and Product Strategy, Airbus
Randy Tinseth, VP-Marketing, Boeing
Bert van Leeuwen, Managing Director, DVB Bank
- We’re at the 2016 ISTAT AGM in Phoenix and will be reporting on presentations and news from the sidelines.
Van Leeuwen, the banker, said financiers would need to see at least 1,000 MOMs in the market with a broad customer base to feel comfortable financing the airplanes.
ISTAT Day 1: Leahy’s biggest fear: producing enough planes to meet demand
Feb. 29, 2016, (c) Leeham Co: Aircraft lessors financed 48% of the Airbus deliveries in 2015, with direct sales and sale-leasebacks, says John Leahy, chief operating officer customers for Airbus.
- We’re at the 2016 ISTAT AGM in Phoenix and will be reporting today and tomorrow on presentations and news from the sidelines.
“Lessors are a key and integral part of our strategy,” Leahy said. Airbus only financed 2% of its own products last year. Export Credit Agencies financed only half the numbers of Boeing, he said.
Leahy does not see a downturn any time soon.
737 MAX to roll out to Boeing product strategy challenges
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Introduction
The Boeing 737-8 rolls out tomorrow to challenges to Boeing’s product strategy. Image via Google images.
Dec. 7, 2015, © Leeham Co: Boeing rolls out its first 737 MAX tomorrow to no press fanfare. Today there is a limited press tour of the assembly line, but, according to reporters who were invited, there will be no press briefings.
It’s an inexplicably low-key event for what Boeing otherwise touts as a major evolution of the venerable 737 line.
As good as Boeing claims the airplane will be, and as much spin as Boeing’s marketing department tries to put on the rivalry vs the Airbus A320neo, the 737 MAX clearly is second fiddle—and it’s not going to get better.
Summary
- Airbus holds a commanding market share: 60% to 40% of the family comparisons.
- Airbus holds about a 55% share of the A320neo vs 737-8 comparison.
- The A321neo outsells the 737-9 by about 4:1.
- Boeing faces cash flow challenges in 2020 decade.
Boeing’s 767 revitalized as a MOM stop gap, Part 3
By Bjorn Fehrm
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Introduction
Aug. 31 2015, ©. Leeham Co: After examining the characteristics of the Boeing 767 to serve the market segment that Boeing is studying for its Middle of the Market (MOM) requirement, the 225 passenger/5000nm sector, we will now finish the series by looking at how the 767 can be made economically more competitive.
We will study the influence of improved aerodynamics like Aviation Partners Boeing’s Split Scimitar Winglet for the 767. We will also look at what engine PIPs can provide and also look at what a re-engine could bring.
Finally we examine at what happens when we add crew costs, underway/landing fees and maintenance costs to form Cash Operating Costs (COC) followed by capital costs to form Direct Operating Costs (DOC).
Summary:
- Boeing’s 767 has the right cross section for passenger transportation in the 225 passenger/5000nm segment.
- Its wings and empennage are too large, however. We make them work harder by transporting the 767-300ER fuselage and passengers.
- We also introduce aerodynamic and engine improvements. Still, the fuel consumption per seat mile is considerably higher than modern alternatives.
- At a Cash Operating Cost and Direct Operating Cost level, the higher fuel consumption has less influence in today’s fuel prices. The result is that the 767-300ER becomes an interesting alternative as long as the fuel price stays low.