Boeing’s tactical option for MOM sector

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Introduction

Aug. 14, 2017, © Leeham Co.: It’s not a done deal yet—the business for the so-called Boeing 797 remains a challenge. But the consensus is that Boeing will launch the program next year, for an entry-into-service around 2025.

Boeing 797 concept. Source: Boeing.

Yet there are airlines that say they don’t want to wait that long for a new airplane.

What are their choices?

  • Acquire the Airbus A330-200. It’s available now. Fuel is cheap and is expected to remain so well into the next decade.
  • Acquire the A330-800. It’s fairly cheap. It’s about 10% less expensive to operate on a per-trip basis than the A330-200. The new engines will serve as a hedge against rising fuel prices for an indefinite future.
  • Acquire the Boeing 787-8.
  • Airbus ponders an A321neo+.
  • There’s another option that is not readily apparent.

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Can Airbus improve the A321neo further? Part 2

By Bjorn Fehrm

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Introduction

August 10, 2017, © Leeham Co.: Last week we started the look into how the Airbus A321neo could be incrementally improved. To understand what can improve an aircraft, ones need to understand its limitations.

The A321neo is mainly limited by its wing, which is highly loaded. But there are ways around this limitation other than developing a new wing, an exercise which would require time, money and a new certification program.

Having understood the limitations, we now look into what can be done about them.

Summary:

  • The changes to the wings can be limited to those that are easy to do, resulting in longer range.
  • Combined with fuel capacity improvements and stronger engines it produces a very interesting aircraft.

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Key lessors see strong wide-body market despite worries

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Introduction

Aug. 7, 2017, © Leeham Co.: Amid talk that Middle Eastern airlines, which are the largest group of users for wide-body aircraft, may defer Airbus and Boeing airplanes, there are conflicting signs that the bleak view of the sector isn’t as weak as perceived.

Just last week, two big lessors—Air Lease Corp and AerCap–of widebody airplanes said they are confident in the sector.

Few orders have been received for the Boeing 777-8 ultra-long range airplane. Sales for its larger sibling, the 777-9, have stalled. Along with the Airbus A380 and Boeing 747-8, demand is seen as limited.

AerCap ordered 30 Boeing 787s at the Paris Air Show. ALC has a significant order of Airbus A330neos.

And, the chairman of Emirates Airline said in an interview with the region’s  The National newspaper that despite the current challenges at the carrier, it expects to announce an order before the end of the year for either the 787 or the Airbus A350—and possibly the Airbus A380.

Quantities on the former weren’t discussed. Airbus is pitching 20 A380s, according to accounts.

Still, there are a large number of Boeing 777s and Airbus A330s coming off lease in the next few years that could slow orders if these aircraft are offered on the secondary market with low enough lease rates.

Summary
  • Air Lease Corp.’s wide-body aircraft are placed. A330neo orders late due to engine delays.
  • AerCap sees strong wide-body market, reaffirmed with 787-9 order.
  • More than 100 A330ceos and 777 Classics potentially entering secondary market soon.

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Can Airbus improve the A321neo?

By Bjorn Fehrm

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Introduction

August 03, 2017, © Leeham Co.: The Airbus A321 has been in its own single aisle league for capacity and with the A321LR for capacity and range.

With Boeing’s launch of the 737 MAX 10, the unique position has taken a hit. With A321 occupying 40% of Airbus single aisle sales, Airbus is examining how to re-open the gap.There is much talk about an A322: an aircraft with new wing, engines and so forth. This is a major undertaking and will need new engines for its realization. Couldn’t Airbus improve the A321 as it is?

We look into what short term improvements can be done to the A321, and what these would give.

Summary
  • To understand what improvements can be made for the A321neo, one needs to understand its limitations.
  • We describe the present limits.
  • We find them in wing-loading, span-loading, engine thrust and tankage

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Mid-Year production/delivery update: Bombardier, Embraer

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Introduction

July 31, 2017, © Leeham Co.: It’s time for our mid-year update of the Big Four airframe manufacturers and their production/delivery outlooks.

Our update is through June 30. Although Boeing provides weekly order updates, Airbus, Bombardier and Embraer only do so monthly.

Our update data relies on the Airfinance Journal Fleet Tracker.

Today we look at Bombardier and Embraer.

Summary
  • Bombardier’s CSeries production skyline is said by the company to be sold out through 2019, but there are some “dicey” customers as early as next year.
  • BBD’s big challenge comes in 2020, given the goal of producing 120 airplanes a year.
  • The CRJ and Q400 lines continue to be a major challenge.
  • Embraer’s production line looks nearly full in 2018, but it, too has some customer issues.

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How Boeing pays back the 787 debts

By Bjorn Fehrm

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Introduction

July 27, 2017, © Leeham Co.: Boeing held its 1H2017 call yesterday, giving further information on how the 787 deferred costs decline. The payback in 2Q2017 was $16m per aircraft.

Boeing needed to achieve a $36m per-plane reduction, based on our analysis, to not increase the payback amount per aircraft for the remaining aircraft in the current accounting block.

The $16m is still a low rate, although better than the $11m 1Q2017, given that the remaining $26.5bn deferred production costs must be amortized over the Program accounting’s remaining 735 units of a 1,300 units block.The key to amortizing the costs is the different margins of the 787 variants. We compare costs and revenue of the 787-, -9 and -10 to understand the payback margins better.

Summary:

  • Program accounting means deferred production costs shall be nil at the end of the accounting block.
  • Right now, there is $26.5bn to amortize and not many aircraft left that can pay the sum.
  • The key to a plausible payback scenario is the payback margins of the different 787s.
  • We analyze the margins through modeling of net revenue and unit costs for the 787 variants.

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Mid-year production/delivery update for Boeing

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Introduction

July 24, 2017, © Leeham Co.: Boeing’s 2Q earnings call is Wednesday and analysts will be watching for information about the 787 deferred production costs, potential production rate changes for the 787 and for the 777 Classic.

We looked at the 787 costs last week.

It’s also mid-year and LNC is taking an updated look and production and delivery rate streams for Boeing, Airbus, Bombardier and Embraer. The Airfinance Journal Fleet Tracker is our resource for this report.

We begin with Boeing in advance of its earnings call.

Summary
  • A case can be made for taking 737 production rates to 60/mo.
  • 777 Classic rates still may need to come down.
  • 787 rate increase remains questionable.

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Boeing 787 payback gap widens

By Bjorn Fehrm

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Introduction

July 20, 2017, © Leeham Co.: The 787 Dreamliner is now on its sixth delivery year, well past half calendar time in the program’s 1,300 unit accounting block (for the explanation of accounting block and program accounting read here).

Within two quarters we also reach half time for deliveries at 650 aircraft. Production cost improvements must now create a margin, so that the $30b deferred costs to date can be amortized by remaining units. Is the margin created? Not so far.

We will know more in a week’s time. Boeing has its 2Q2017 call next week, where the production cost improvements can be monitored through the decline of the $30bn deferred costs. Right now, the decline is at a slow pace.

Summary:
  • Program accounting means deferred production costs shall be nil at the end of the accounting block.
  • Right now, there is $30bn to amortize and not too many aircraft left that can pay the sum.
  • We explore the payback margins necessary to reach a black nil at 1300 units.

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Business case for NMA remains uncertain

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Introduction

July 17, 2017, © Leeham Co.: We’re half way through 2017. Boeing reported orders through July 11, a week ago. Airbus won’t update its July orders until the end of the month.

Through July 11, Boeing reported 116 net wide-body orders: 15 for the 767, 33 for the 777 and 75 for the 787. Net cancellations of -7 for the 747 are included in the net 116 figure.

The 15 767s were not commercial models, however, but 767-2C tankers for the USAF.

Over at Airbus, none of China’s 40 commitments announced July 5 for 40 A350s are in the June summary, and won’t be in the Orders tally until the commitments turn into firm orders. Through June, airbus had net 26 widebody orders: three A330-200s and 29 A350-900. There were cancellations of four A330-800s and two A380s.

If the 40 China A350s were included, this would bring Airbus to 66 widebody orders, still well short of Boeing’s YTD figure.

Summary
  • Airbus product gap widens as A330-200/800 stalls.
  • Boeing 787 strength comes from 787-9; 787-8 remains minor player.
  • Middle of the Market business case still unproved.

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Jet sales in 75-150 seat lag Airbus, Boeing

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Introduction

The Mitsubishi MRJ90 hasn’t recorded a sale in a year. Photo by Scott Hamilton.

July 13, 2017, © Leeham Co.: While analysts and reporters focus on the high-profile order competition between Airbus and Boeing, it’s time to look at Bombardier and Embraer, along with the 75-150 seat sector.

Boeing is doing better than expected this year, due largely to the launch of the 737 MAX 10. Airbus is struggling year-to-date, but received a big boost post-Paris Air Show with an agreement to sell 140 A320s and A350s to China. At this stage, it’s not a firm order, however.

How are Bombardier and Embraer doing in their core markets of 75-150 seats?

Just awful.

Sukhoi and Mitsubishi aren’t doing any better.

Summary
  • Few new sales in 2017 in the 75-150 seat sector.
  • Low fuel prices, Scope Clause and general order downturn converge.
  • Embraer’s Paris Air Show results boosted this OEM’s year-to-date performance.

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