Pontificatons: Paris Air Show preview

By Scott Hamilton

June 13, 2023, © Leeham News: The Paris Air Show officially opens next Monday. LNA will be there, with some events scheduled as early as this Friday.

Our expectations are modest. We don’t expect any new airplane programs from Airbus, Boeing or Embraer, or ATR. These are the only remaining major aircraft companies outside China and Russia.

China’s COMAC finally saw its C919 passenger jet enter service last month after 13 years of development and seven years after entry into service was planned. There won’t be anything new this year from COMAC.

Russia, of course, is immersed in its Ukrainian war. No new civil airplane programs will come from here.

Based on the pre-air show pitches I’ve been receiving, the alternative energy sector is going to be well-represented and active at the show. Most concepts, LNA feels, have little-to-no future.

We expect the news from the Duopoly and Embraer and ATR to be pretty much all about orders. Expectations will be mixed.

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Pontifications: Lockheed confident as C-130J faces Airbus A400M and Embraer C-390

The last article in a series of interviews with Lockheed Martin.

By Scott Hamilton

June 6, 2023, © Leeham News: The Lockheed Martin C-130 cargo plane entered production in 1954. The first flight was the same year and it entered service in December 1956.

The latest version, the C-130J, is still in production. Named the Hercules, the C-130 is operated by armed services all over the world. Retired versions serve as aerial fire-fighting tankers. A small number of civilian versions, the L-100, serve as commercial freighters.

The C-130J, called the Super Hercules, extends the life of the C-130 series indefinitely. And production for its first civilian operator, a Texas cargo airline, is underway.

Attempts by Airbus with the larger A400M and Embraer with the similarly sized, jet-powered C-390 to compete with or replace the C-130 have largely failed. More than 2,600 C-130s have been produced in 69 years.

The larger A400M has been a technically challenging aircraft and a financial disaster for Airbus. Production began in 2007. The first flight was in December 2009. It entered service in 2013. Only somewhat more than 100 have been built and sales of less than 200 have been made. A host of technical problems marred performance and schedule.

Embraer’s KC-390/C-390, about the same size as the C-130, trades turboprops for jet engines. Production began in 2014. The first flight was in February 2015, and it entered service in 2019. The Brazilian Air Force was to be the largest customer and operator. But financial constraints and changing policies resulted in a reduction in the order. As of today, only about 70 have been ordered and only about a dozen are in service.

Embraer partnered with the US company L3 Harris to market the C-390, including to the US Air Force.

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Pontifications: “The need for radical fuel improvements will only increase over time.”

By Scott Hamilton

May 30, 2023, © Leeham News: “The need for radical fuel improvements will only increase over time.”

That’s the definitive conclusion of Arjan Hegeman, GE Aerospace’s general manager of advanced technology.

GE is working on Performance Improvement Packages (PIPs) of its current engine lineup used on Airbus and Boeing airliners. It’s also developing the GE9X, now in testing on the Boeing 777X, and concepts of a hybrid-electric and hydrogen-fueled engine.

But the big bet is on the Open Fan “RISE” (Revolutionary Innovation for Sustainable Engines). “The Open Fan technology—it’s a go,” Hegeman declared earlier this month at a press briefing in advance of the Paris Air Show next month.

CFM RISE Open Fan engine. Credit: CFM.

The Open Fan is an evolution of the Open Rotor engine tested in the 1980s. The concept shows a dramatic reduction in fuel consumption compared with the engines of the day. But the counter-rotating rotor design was very noisy. Coupled with other technical challenges and a sudden drop in fuel prices, GE (and rival Pratt & Whitney) dropped the concepts.

But research and development continued. Today, PW thinks its Geared Turbo Fan engine will suffice for the future. Rolls-Royce is also pursuing traditional engine designs. But GE believes the problems of the Open Rotor have been solved for the Open Fan.

How?

It comes down to supercomputing, said Mohamed Ali, GE Aerospace vice president of engineering.

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Pontifications: Looking ahead to a major Defense procurement: Boeing vs Lockheed-Airbus

By Scott Hamilton

May 23, 2023, © Leeham News: Decisions by the US Air Force in Washington (DC) on whether to require competition for its next round of aerial refueling tanker aircraft are still months away.

But so far, the USAF technical group at the Wright-Patterson Air Force Base in Dayton (OH) is proceeding as if there will be a competitive battle. At stake is an order for more than 160 tankers.

Boeing thinks this will be a sole-source, follow-on order for its KC-46A, based on the commercial 767-200ER. Lockheed Martin Co (LMCO), partnering with Airbus, wants to see a version of the Multi Role Tanker Transport (MRTT), based on the commercial A330-200.

So far, the secretary of the Air Force publicly said he is leaning toward a sole-source follow-on order.

I visited LMCO last month to talk about the tanker competition. We also talked about the C-130J and its new commercial model, as well as other defense programs.

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Pontifications: Union hypocrisy over Skywest, JSX airlines

By Scott Hamilton

May 16, 2023, © Leeham News: “We are also concerned about elevated emissions and increased airspace congestion. To fit into the regulatory gap it occupies, the aircraft are reconfigured to seat no more than 30 passengers, on regional jets designed originally to hold up to 50 passengers. This model generates more intensive emissions per passenger and in busy markets with congested airspace, the model further strains the already challenged and under-staffed air traffic control system.”

So says the US Air Line Pilots Association and a bunch of other unions in a May 5 letter to the Department of Transportation, the US Department of Labor, the Federal Aviation Administration and the Transportation Security Administration.

The group wrote a three page letter pissing on plans by Skywest Airlines to launch a small charter airline under Part 135 of the FAA rules that allows pilots with fewer than 1,500 hours to carry passengers. Skywest is pursuing this because of the nationwide pilot shortage. Indeed, the shortage is global, but it’s especially acute with US regional airlines—which ALPA has been trying to diminish for decades Skywest wants to reconfigure Mitsubishi CRJ200s, a 50-passenger airplanes, into a 30-seat aircraft.

Part 135 carriers are limited to 30 passengers and provide what essentially is scheduled airline service but which are technically charter operations.

The unions spend much of their three page letter taking on JSX Airlines, which has a successful Part 135 operation using 45-seat Embraer E145s configured for 30 passengers. Its operations are migrating across the southern US.

The paragraph cited above is full of union hypocrisy, especially that of ALPA. Here’s why.

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Pontifications: Selling engines for profit, not as loss leaders

By Scott Hamilton

May 9, 2023, © Leeham News: Last week, I provided an overarching view of the business model the engine makers used for decades to sell their engines and services to the airlines and leasing companies. Today, we discuss this in more detail and move to other issues facing engine makers as well.

Aviation Week’s MRO Americas last month was the venue for the engine panel.


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The panelists include two from the manufacturers, Becky Johnson, I’m the Director of Marketing for CFM commercial programs at GE Aerospace, and Sam Raby, who is Associate Director at Pratt & Whitney for aftermarket marketing and strategy. Two other panelists were from the MRO sector: Russ Shelton, president of GA Telesis Engine Services, and Sebastian Torhorst, Head of Sales for Energy Services for the Americas for Lufthansa Technik.

As LNA wrote last week, the business model relies on selling engines at a steep, steep discount—sometimes up to 80%, and in rare instances, the engine maker gave (as in free) engines to customers. In either case, the quid pro quo was to enter into long-term service contracts for parts and maintenance, repair and overhaul (MRO). Deeply discounted sales meant it could take 10-15 years for the engine makers to recover development costs.

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Pontifications: Engine makers’ business model needs overhaul

By Scott Hamilton

May 2, 2023, © Leeham News: The business models for engine makers for decades have been simple: deeply, deeply discount the engines on the sale and make up the revenue and profits on the maintenance, overhaul, and repair (MRO) contracts.

It’s a model that’s served engine makers and customers alike well. Customers save millions of dollars on the upfront purchase of airplanes. The engine companies win market share.

There are downsides for the Original Equipment Manufacturers (OEMs), though. The discounts typically are steeper than those offered by Airbus and Boeing (and Embraer and ATR). LNA has seen deals with discounts as steep as 80% on the sales price. We’ve even seen one deal in which the OEM gave (as in free) the engines in exchange for the MRO contract.

The big downside to this is that it can take 10-12 years, or more, for the OEMs to recover their research and development and production ramp/learning curve costs. Then as the CFM 56 matured into perhaps the most reliable jet engine ever, with more than 25,000 hours on-wing, followed by the IAE V2500, MRO services contracts didn’t return the revenue and profits as quickly as before.

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Pontifications: A contrarian view of Stock Buybacks

By the Leeham News Team

April 25, 2023, © Leeham News: Airbus and Boeing last week held their annual shareholders’ meetings. Boeing continues to suspend dividends and stock buybacks as it struggles to recover from the grounding of the 737 MAX and delivery suspensions of the 767/KC-46A, 787, and 737 (again); and the years-delayed certification of the 777X. Losses and charges at its defense unit mount as well, hurting profits and cash flow.

Before the MAX grounding in March 2019, Boeing spent more than $60bn in stock buybacks since the 1997 merger with McDonnell Douglas. “Shareholder value” became a priority—and dirty words to those who long for the days of a Boeing based on engineering excellence vs focus on Wall Street and the stock price.

Airbus has taken over the lead in airplane engineering and innovation. Boeing in November deemphasized new product development and pointed to its guidance of $10bn in free cash flow by 2025. However, Airbus now puts shareholder value as an important business goal. At its annual meeting, Airbus continues its dividend and stock buyback programs. But Airbus buybacks and dividends are a fraction of what Boeing has spent and Airbus committed to a €10bn war chest for future contingencies.

Stock buybacks remain a target of criticism. While our view of over-emphasis on shareholder value is well known—we favor a balance on free cash flow expenditures between shareholder value and new product development—there is another side to stock buybacks that haven’t been discussed.

Leeham News is going to take a step back and dig into the details of the buybacks, analyzing the numbers behind the repurchase program, its results, and possibilities for the future.

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Pontifications: Skyline backlog suggests higher production rate than Boeing targets for 777X

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By Scott Hamilton

By Scott Hamilton

April 17, 2023, © Leeham News: Boeing’s skyline for the 777X, reported by Cirium, suggests there will be a need to boost production higher than the company’s target of 4/mo by 2025/2026. The delivery stream data is good news for Boeing, which doesn’t detail this information. Boeing took a billion-plus dollar write-off on the program, which has been marred by delays, engine issues, and certification questions.

Boosting the production rate beyond 4/mo will be an important contributor to Boeing’s financial recovery in the second half of this decade. At its peak, Boeing produced 8.3 777s a month, or 100 a year.

The current production rate of the program is two per month, for the 777-200LRF. Boeing’s website says the combined rate for the 777 Classic and the 777X is three per month. But a year ago, Boeing said it was suspending production of the X through 2023. Corporate communications would not comment on the contradiction, citing the quiet period before the 1Q earnings call on April 26.

Air India’s order for 10 Boeing 777Xs in February (among more than 200 other Boeing aircraft) is welcome news for the slow-selling airliner.

The airline’s orders haven’t been listed yet in Boeing’s running tally of orders, meaning the firm contract hasn’t been signed.

Summary
  • Data shows deliveries of 777-200LRF drops dramatically in 2025.
  • Production rate goal of 4/mo by 2025/26.
  • Backlog shows demand for higher production rate.

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Pontifications: Airbus grows in China while Boeing remains on the sidelines

By Scott Hamilton

April 11, 2023, © Leeham News: Airbus last week firmed up an order for 150 A320neos and 10 A350-900s with China. The deal was announced last year.

Additionally, Airbus and the Chinese government agreed to add to the A320 family assembly site in Tianjin, increasing the capacity of the plant. This will be another step in Airbus’ goal to achieve a production rate of 75 per month by 2026 for the A320 family.

And that’s not all. Airbus and the China National Aviation Fuel Group (CNAF) signed a Memorandum of Understanding to increase the development of Sustainable Aviation Fuel.

Meanwhile, Boeing remains essentially frozen out of China. Deliveries of the 737 MAX remain stalled. Although China Southern Airlines outlined expected deliveries this year and through the next few years, we’ve seen this sort of thing before. Until an official announcement comes from Beijing authorizing deliveries, or some of the stored airplanes are delivered, words are just words.

That said, there are some solid indications we’re seeing that Boeing deliveries to China may well resume in the not-too-distant future, but on a glacial pace. The financial viability of some airlines within China, while opaque to outsiders, is monitored by the CAAC, China’s regulator. Some airlines are deemed too financially risky now to accept delivery of any new aircraft, whether the OEM is Boeing or Airbus.

While Boeing’s 140 MAXes originally ordered by China remained in a Twilight Zone of sorts, delivery of some Airbus A320neos also has been blocked. Generally, though, Airbus continues to tender airplanes and win orders while Boeing sits on the sidelines.

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