Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- RTX Q1 2025 Earnings: GTF Talk Takes A Back Seat To Tariffs April 22, 2025
- Tariffs Tumult Takes Over GE Aerospace Q1 2025 Earnings Call April 22, 2025
- Boeing reports mixed results of latest employee survey, but middle management and officers remain key obstacles April 22, 2025
- Hopes for 1Q financial progress turns into bumpy ride for Boeing April 21, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 18. April 18, 2025
Odds and Ends: Boeing stock buyback; Charging suppliers for doing business; AA+US
Boeing Stock Buyback: Boeing announced a stock buyback of #3.6bn for next year. Wells Fargo has this to say in a research note issued today:
Boeing had more than $11B of cash on the balance sheet at the end of September, and after free cash flow of $5.7B in 2013 and more than $7B in 2014 (i.e., almost $10/share in free cash), we believe Boeing could have over $20B in cash available to return to shareholders over the next few years. This is why we see about a $130MM increase in dividends and a $1.5-2.0B buyback in 2013 as small steps in returning cash to shareholders.
We’re not a fan of buybacks, which serve to prop up stock prices. We believe stock should rise on its own merits, not because of some artificial prop-up. More to the point, however, is that Boeing has a hard time telling SPEEA it needs to cut costs when it is spending billions on buybacks that benefit (among others) Boeing’s largest shareholders–the McDonnell family, Harry Stonecipher and Jim McNerney.
SPEEA is preparing for a strike February 1. Talks resume January 9, but the gulf between the two sides is so great, SPEEA expects them to break down almost immediately.
With Wells Fargo estimating that Boeing might return $20bn to shareholders in the next few years, we somehow think this will be an issue when IAM contract negotiations come up in 2016 and Boeing pleads poverty again (as it inevitably will).
We’d much rather see the money invested in new airplane programs rather than derivatives like the 737 MAX and 777X.
Boeing charges royalties to suppliers: Mary Kirby has this interesting story about Boeing charging suppliers for the price of doing business with the company.
American and US Airways: The Ft. Worth Star-Telegram has this column discussing the case for a merger between American Airlines and US Airways.
Pegasus Buys Airbus: Turkey’s Pegasus Airlines ordered 75 A320neo family and optioned 25 more. The carrier was previously a Boeing 737 operator. Deliveries are from 2015, which means the Pratt & Whitney GTF has to be the engine choice, which is as yet unannounced. CFM’s LEAP-1A won’t be ready until later in 2016.
Before this order, Airbus had a 61% market share of the re-engine order race vs the 737 MAX (firm orders only).
Photo Montage: The Everett Herald has this photo montage of the Flying Heritage Museum’s aircraft. The Museum is owned by Microsoft co-founder Paul Allen.
Freighter Market Softens: Cargo Facts has this analysis of the freighter market.
Odds and Ends: Picking up an A380; testing the 787; VLA backlogs
Picking up an A380: No, it’s not about lifting one. It’s taking delivery of one. CNN International Travel has this story about the delivery process. It’s not what you’d think would be your usual story from a travel section.
Testing the 787: Since we started off with delivery of an Airbus, let’s continue with testing about the 787 with this piece from All Things 787.
A380, 747-8 backlogs soften: Well, Aviation Week says they are under siege. We wouldn’t quite go that far, but the article is more balancedthan the headline.
A320 GTF testing begins: Aviation Week has this story.
A350 first flight ‘not easy’: Fox News has this story in which Airbus acknowledges the first flight of the A350 by mid-2013 won’t be easy. Airbus is trying very hard, though: there’s a lot of pressure to have the airplane at the Paris Air Show.
A320neo vs 737 MAX: This story has a good summary of the battle between the two giant OEMs.
Boeing wants to outsource more work to Mexico; updated MAX v NEO orders
Boeing outsourcing: In an election where outsourcing is a major political campaign issue, The Seattle Times reports Boeing wants to outsource more work to Mexico. Here is Boeing’s letter, via The Times.
MAX v NEO: Here is an excellent set of tables updating the orders between the 737 MAX and the A320 NEO. According to the analysis, Airbus right now has a 63% market share for the airframe. On the NEO, where two engines are offered, CFM has a 41% share vs PW’s 39% share with the remainder undecided.
Boeing rolls out Ray Conner to analysts
Boeing rolled out Ray Conner, the new CEO of Boeing Commercial Airplanes, to analysts in New York yesterday. The first research note we’ve received, from Imperial Capital’s Ken Herbert, portrayed a positive meeting. Below is a synopsis. As we receive more notes, we’ll add those comments.
We don’t like the resumed policy of using cash to repurchase stock, instead of putting it into new airplane programs (something Richard Aboulafia of the Teal Group, normally a pro-Boeing consultant, has roundly criticized for years).
Imperial Capital
We believe BA is benefitting from several tailwinds, and is demonstrating increased confidence regarding its 787 execution and the ability to take further costs out of the supply chain. However, we believe much of the good news is reflected in BA stock, and we see slowingorders in 2013 as limiting the multiple; therefore, we are maintaining our In-Line rating. Investors areexpecting a significant dividend increase or share repurchase program, which could be a positive catalyst, but we see the new program developments, which include the 737MAX, the 777X and 787-10, as potential competing cash pulls.
Regarding the 787, Boeing confirmed that Charleston is ahead of plan, but that it has been staffed to over deliver. Boeing also made a point of stressing that its movement down the cost curveon the 787 will be similar to that of the 777. We believe that there is an opportunity for Boeing toexceed expectations on the 787.
We continue to believe, however, the much of the execution upside is priced into Boeing stock. We believe that in order for the stock to see material upside, Boeing needs to demonstrate a very bold use of the expected free cash flow, in the form of both increased dividend and share repurchases, that will attract new investor interest and accelerate the EPS growth. However, this will limit the new product development options, considering the potentially competing development requirements of the 737MAX, the 787-10, and the 777X. We believe current BCA leadership wants to do both the 777X and the 787-10, and believes that there is significant pent-up order demand for both new aircraft, but we believe the focus on share repurchases and/or the dividend, reiterated at the 8/28/12 reception, could push some development effort to the right.
Separately:
- A reader posted this link on NEO vs MAX orders and options and we think it so good we’re elevating it to a primary post. This website also recaps which airlines have switched allegiance. Thanks to Dave O’Flynn for the link.
- China ordered 50 A320s instead of the expected 100.
Odds and Ends: Designing 737 MAX; RR & PW; CFM
737 MAX: Boeing Frontiers Magazine has a long article with lots of pictures describing the designing process of the Advanced Technology Winglets.
RR-PW on big engines: Aviation Week has this article speculating on the prospect of Rolls-Royce and Pratt & Whitney teaming to offer an engine for the Boeing 777X.
CFM says the use of advanced materials will reduce fuel consumption in the LEAP-1A (Airbus) engine by 1.5%, which happens to be the amount John Leahy of Airbus said that PW’s GTF has an advantage over LEAP.
Farnborough, Day 1: Orders, Price Calculator and other stuff
McNerney rejects “price war.” A quote from a Financial Times story (see below).
He rejected suggestions that a price war had broken out between Airbus and Boeing over the A320 Neo and 737 Max but confirmed the US manufacturer would woo some airline customers of its European rival.
Courtesy of Aspire Aviation, here is a summary of orders through Day 1:
Airbus
|
Date |
Customer |
Quantity |
Model |
Remarks |
|
9th July |
Arkia Israel Airlines |
4 |
A321neo |
Agreement |
Boeing
|
Date |
Customer |
Quantity |
Model |
Remarks |
|
9th July |
Air Lease Corp (ALC) |
60 |
737 MAX 8 |
Reconfirmation rights for 25 more |
|
9th July |
Air Lease Corp (ALC) |
15 |
737 MAX 9 |
|
Pratt & Whitney
|
Date |
Customer |
Quantity |
Model |
Remarks |
|
9th July |
IndiGo |
300 |
PW1100G-JM |
|
|
9th July |
CIT |
60 |
PW1100G-JM |
|
|
9th July |
Cebu Pacific |
60 |
PW1100G-JM |
For 30 firm A321neos |
|
9th July |
Norwegian Air Shuttle (NAS) |
100 |
PW1100G-JM |
MoU |
CFM
|
Date |
Customer |
Quantity |
Model |
Remarks |
|
9th July |
Air Lease Corp (ALC) |
150 |
CFM Leap-1B |
|
Embraer
|
Date |
Customer |
Quantity |
Model |
Remarks |
|
9th July |
Hebei Airlines |
5 |
E-190s |
Booked in Q2 backlog |
Reuters put together a handy-dandy thing to calculate airplane prices easily. These are list prices, of course.
Some stories of note:
United to announce big MAX order July 12
AirInsight is posting daily news and videos.
The Financial Times of London has a piece with Boeing’s Jim McNerney. (Free but limited registration required.) Here’s a relevant quote.
Boeing announced the 737 Max in August last year and Mr McNerney said that “in retrospect” the US manufacturer should have made its decision to proceed with a revamped version of its narrow-body workhorse, rather than a brand new aircraft, “six to nine months” earlier.
Farnborough: CFM, PW engage in hand-to-hand combat
We’re all used to Airbus and Boeing engaging in hand-to-hand combat. The war has now spilled over to CFM and Pratt & Whitney and the LEAP engine vs the GTF.
There have always been some sharp words. But according to these two stories from Guy Norris at Aviation Week, the tone has now gotten even sharper.
CFM claims big advantage over GTF.
We’re puzzled by CFM’s claim (in the first story) that the LEAP will have a 2%-2.5% advantage in fuel burn over the GTF. Airbus gives a 1.5% advantage to GTF because of the larger fan (John Leahy, Credit Suisse conference Nov. 30, 2011). CFM claims a 15% SFC gain over today’s engines; PW claims 16% SFC gains (pre-installation) for its GTF and flying test results bear this out, PW says.
CFM has a larger market share of aircraft over 100 seats, because of its exclusivity on the 737 MAX. CFM also has a larger share of the A320neo family, the only airplane where there is head-to-head competition, bolstered by the policy of sister company, lessor GECAS, of buying only GE engines; and a financial rescue of Frontier Airlines, which has a CFM-powered A320 fleet and which ordered the A319neo/320neo at the Paris Air Show last year with LEAP engines.
It’s noteworthy in the first article that the LEAP-1B for the 737 MAX shares little commonality with the LEAP-1A and LEAP-1C. This reflects the challenges of fitting a LEAP under the wings of the physically-constrained 737, which basically required another core design.
Separately, here is a story about the materials and process used for the LEAP.
Farnborough Air Show preview
Overview
This is really expected to be a boring show from the perspective of orders. Airbus has been downplaying expectations following last year’s Paris Air Show blow-out of more than 1,200 A320neo orders. How can you match that? The answer is, Airbus can’t.
Boeing will certainly firm up hundreds of 737 MAX commitments, so this will be Boeing’s show. And there is the buzz that Boeing is partnering with Lockheed Martin and NASA (oh, another government subsidy?) to produce a 2,500 mph SST, with details supposed to come at the Air Show. Then there is the leak that the 787 will fly there, the first time in 28 years Boeing has an aerial flying display.
We’ve talked with several journalists and industry personnel who are skipping the Air Show this year. So are we, and we’ve been at the Farnborough and Paris air shows since 2008. We just don’t expect enough news this year that we can’t get from the press releases.
So here are our expectations for the show: