Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Bjorn’s Corner: Analysing the Lion Air JT610 crash, Part 3. November 15, 2019
- Can the DHC 8-400 compete with a CRJ550 for the 50 seat Scope Clause market? November 14, 2019
- Embraer presents 3Q2019 results. November 12, 2019
- Wall Street rewards Boeing with December MAX delivery forecast November 12, 2019
- Airlines look toward another peak season without the MAX November 11, 2019
A tangled web at the HNA Group
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By Vincent Valery
Introduction
Nov. 18, 2019, © Leeham News: The HNA Group, a Chinese conglomerate with a heavy focus on aviation, has been in the spotlight for a few years as its financial condition deteriorated.
Its current state came from its debt-fueled global acquisition spree, then the challenges in deleveraging.
At some point, the group owned stakes in 20 airlines in Mainland China and abroad. Other notable acquisitions include lessor Avolon, Swissport, Servair, SR Technics, and stakes in two foreign airports.
The HNA Group does not publish accounts. LNA went through the financial statements of its flagship subsidiary Hainan Airlines, since 2000, with the goal of better understanding the group structure and assess the airline business profitability.
Summary
- HNA’s relentless growth;
- A buying spree bites back;
- Domestic and foreign airline ownership model;
- Hainan Airlines accounting.
Can the DHC 8-400 compete with a CRJ550 for the 50 seat Scope Clause market?
By Bjorn Fehrm
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Introduction
November 14, 2019, © Leeham News: The US mainline airlines have large fleets of 50-seater regional jets that are getting old. The present Scope Clause limits on the number of aircraft with seating over 50 seats stop the mainlines from replacing these aircraft with larger aircraft. So there is a real need for an efficient 50 seater regional aircraft for the US market.
As there are no 50 seater jets in production, United is converting its 70 seater CRJ700s to 50 seaters to fill the gap and calls them the CRJ550. This is where de Havilland Canada sees a change for an adapted DHC 8-400 turboprop. It’s more efficient than a CRJ550 while offering the same comfort, says de Havilland. We check if this is correct and what chances a DHC 8-“550” have in this market.
Summary:
- The US Scope Clauses allow the three mainlines to have more 1,000 50 seater jets, yet no new ones are available to replace the more than 600 in the market.
- The in-production DHC 8-400 would be an alternative when looking at cabin size and dimensions.
Airlines look toward another peak season without the MAX
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Introduction
Nov. 11, 2019, © Leeham News: Airlines are beginning to make plans for another peak summer season either without the Boeing 737 MAX in their fleets, or a reduced number.
With the recertification of the MAX continually sliding, like an airline’s creeping delay at the airport, this is stating the obvious. Airlines keep shifting the true return to service (RTS) (not recertification) from 2019 into 1Q2020.
Source: Boeing.
American and Southwest airlines, the two carriers with more MAXes grounded than any other airline, now target RTS March 5 next year—just a week short of the global grounding of the airplane.
Boeing’s chairman, David Calhoun, acknowledged in an interview with CNBC Nov. 5 RTS will now fall into 2021.
This was two days before the Federal Aviation Administration and EASA rejected Boeing’s documentation that is required before recertification is granted. According to media reports, this could add an inconsequential number of days to the process or a significant number of weeks.
Concerns are beginning to emerge that recertification may not come until after the first of the year.
All this increases the uncertainty for the airlines.
Summary
- Creating Plan B—no MAX in the peak season.
- Stored MAXes may face a “calendar” deadline, requiring C Checks before RTS.
- Lessors offering new, year-long leases on A320s and 737 NGs.
Air France-KLM wants to simplify the fleet
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Nov. 7, 2019, © Leeham News: Air France-KLM will strive to greatly simplify its fleet by early next decade, the group outlined in an investors day presentation Nov. 5.
The Group includes Air France, KLM and Transavia. The low-cost carriers Joon and Hop! are discontinued.
Fleet simplification
KLM
The company wants to reduce today’s fleet types at KLM from six to four, dropping the Airbus A330 and Boeing 747s.
The Future Fleet concentrates around the Embraer E1 and E2 E-Jets; the Boeing 737 NG; the Boeing 787-9 and the Boeing 777 Classic.
At the moment, there are no Boeing 737 MAXes in the future fleet plans. KLM had none on order, even before the October 29, 2018, Lion Air accident.
The possibility of a Boeing 777X is also not shown in the rendering.
Big Three Gulf Carriers’ financials
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By Vincent Valery
Introduction
Nov. 4, 2019, © Leeham News: The rise of the Big Three Middle Eastern carriers since the mid-2000s has been nothing short of astounding.
They took full advantage of an advantageous geographical location: 85% of the world population is within a 10-hour flight from either Qatar or the UAE. Emirates and Qatar Airways connect all continents, except Antarctica.
This transformation i
nto super connectors did not come without controversies. The most vocal are the Big Three US legacy carriers, through the Partnership for Open and Fair Skies. They accuse the Gulf Carriers of benefiting from massive subsidies that allow them to underprice their competitors.
As part of a deal between Qatar, the UAE, and the USA, the Big Three Gulf Carrier started publishing audited financial statements. Emirates’ and Qatar Airways’ financial statements are publicly available on their websites since 1994 and 2015, respectively. Etihad Airways has been releasing some income statement information since 2010.
Ahead of the upcoming Dubai Air Show Nov. 18-19, LNA had a look at those financial statements. We outline our takeaways in this article.
Summary
- Very high growth at all three airlines;
- Funded by different means;
- Global slowdown and Geopolitical tensions force strategy rethink;
- Varying levels of earnings quality;
- An unsuspected (significant) source of revenues.
Is reengining the Boeing 767 a good idea? Part 3.
By Bjorn Fehrm
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Introduction
October 31, 2019, © Leeham News: We have looked into what a reengining of the 767 with GE GEnx engines would give over the last two weeks. FlightGlobal wrote Boeing considers reengining the 767-400ER with the GEnx engine to produce a new freighter and perhaps a replacement for the NMA project.
We analyzed the aircraft fundamentals in Part 1, then passenger and cargo capacities in Part 2 and now we finish with the economics of different possible variants compared with the standard 767 and a possible NMA.
Summary:
- The economic improvement of a GEnx reengined 767 is hampered by the new engine’s larger size and higher weight.
- After catering for the increased empty weight and drag of a reengined 767, the result puts the project in question.
- A reengined 767 is far from a replacement for the NMA.
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Boeing’s 777X problem: Shifting market, lagging economics, softening order book
By Judson Rollins
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Introduction
Oct. 28, 2019, © Leeham News: The Boeing 777X’s lackluster sales to date put it in a similar light as the soon-to-end A380 program. Is the era of the 400+ seat aircraft turning onto final approach?
There are only 344 777Xs on firm order at present. As many as 59 of these orders are soft. The aircraft has been available for sale since May 2013, during a period of near-record global airline profitability. This calls into question the market viability of the 777X – and whether Boeing will ever break even on the program.
Summary
- VLA demand is limited; Airbus’s forecast seems overly optimistic.
- 777X order book is concentrated on just a handful of customers.
- Middle East carriers account for two-thirds of 777X orders.
- Inferior economics limit the 777-8 to a narrow niche like the 777-200LR.
- 777-9 economics outweighed by trip cost risk, lower yield of marginal seats.
Is reengining the Boeing 767 a good idea? Part 2.
By Bjorn Fehrm
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Introduction
October 24, 2019, © Leeham News: According to FlightGlobal, Boeing is investigating reengining the 767-400ER with GE GEnx engines to produce a new freighter and perhaps a replacement for the NMA project.
We started an analysis of what this would look like last week where we analyzed the aircraft fundamentals. Now, we continue with the capacities of passenger and cargo variants.Summary:
- The 767-400ER is one size larger than the largest NMA. It would be a competitor to the Boeing 787-8. This makes the variant doubtful as an NMA replacement.
- As a cargo variant, it adds less than 20% of cargo volume on top of the present freighter, the 767-300F. Is this attracitve enough to motivate a reengine for a freighter?
NMA off the table in 2020–and maybe entirely
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Introduction
Oct. 21, 2019, © Leeham News, New York: What is the impact of the 737 MAX grounding on Boeing’s plan for the New Midmarket Airplane (NMA)?
This question was common along the sidelines last week of the Wings Club and two conferences in New York City. (See Pontifications.)
There is, of course, no definitive answer today.
But the plurality of opinion is that the NMA is off the table for the indefinite future.
Summary
- There is no clear picture when the MAX will be recertified, either by the FAA or other regulators.
- There is no clear picture how long Boeing will maintain production rate at 42/mo, which depends on how much longer it must wait for recertification.
- With turmoil in the executive suite (the CEO lost his chairman’s title Oct. 11), there is no clear picture how long Dennis Muilenburg has a job.
- With, apparently, Boeing Commercial CEO Kevin McAllister also in the cross hairs, there is no clear picture of executive suite stability at Longacres, the BCA HQ.
- Any successors for Muilenburg and/or McAllister will want to review Boeing’s entire product strategy.
- Therefore, do not expect any go-forward for NMA in 2020.
Other than that, everything is fine.
Preferred 737 MAX return to service timeline for Airlines
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By Vincent Valery
Introduction
Oct. 21, 2019, © Leeham News: As Boeing sorts out final requirements with regulators for the 737 MAX return to service, preparations to resume deliveries are in full steam.
The company is hiring scores of temporary workers to return grounded and built but not yet delivered airframes. A note from Alliance Bernstein estimates that Boeing will be able to hand over 25 aircraft per month on top of those that come off the assembly line.
After taking hefty losses and having lost its most robust cash flow source for almost a year, Boeing will want to hand over as many aircraft to airlines as fast as possible.
Do all 737 MAX customers, likewise, want their aircraft back in service as soon as possible?
Summary
- National regulators will drive return to service timeline;
- Passenger demand variations;
- 737 MAX exposure by region;
- Demand peaks might dictate who flies first;
- Maintenance, compensation, and other considerations.