US Regional Consolidation Began Before Covid

Second in a Series on the Future of Regionals

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Introduction

By Kathryn B. Creedy

Aug. 6, 2020, (c) Leeham News: Many might assume the recent loss of three regionals – Compass, Trans States and ExpressJet – is Covid related.

What is actually happening is the long-anticipated consolidation of the regional airline industry coupled with fleet restructuring and the most recent fallout of the pilot shortage crisis that began in 2013.

Reducing the number of regional partners also streamlines the inherent inefficiencies of the regional/major model.

Summary
  • Regional airline industry is volatile.
  • Mainline-regional model broken for many years.
  • Rising costs eliminate some advantages.

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Boeing’s big opportunity

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By Scott Hamilton

Analysis

Introduction

Aug. 3, 2020, © Leeham News: Boeing has one of the biggest opportunities in decades.

This is counter-intuitive, given the disaster it faces with the COVID-19 crisis.

But in chaos, there are opportunities.

There are some key assumptions that must be made. But these are not outlandish.

Summary

Assume:

  • Boeing survives the virus crisis.
  • Boeing consolidates 787 in Charleston.
  • 787 demand doesn’t return, reactivating Everett line.
  • Sharp gains in production efficiency.
  • These lead to the Big Opportunity.

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Sunset of the Quads, Part 1

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By Vincent Valery

Introduction  

July 30, 2020, © Leeham News: British Airways announced two weeks ago that it would immediately retire its entire Boeing 747 fleet. Several other operators announced accelerated retirements of their Queen of the Skies fleets. There are now fewer than 100 747s left in passenger service.

While less publicized, airlines have also been accelerating the retirement of their Airbus A340 fleets. Lufthansa put its 10 remaining A340-600s into long-term storage.

So far, Air France is the only airline to have permanently retired its A380 fleet, initially scheduled for 2022. However, Emirates and China Southern are the only airlines currently operating the Superjumbo in passenger service. All but a handful of A380s are in storage, with some airlines not intending to bring them back into service for several years.

Credit: Qantas

The slump in passenger traffic caused by the COVID-19 outbreak accelerates the sunset process of the markets operated by quad-engined aircraft. What did the quads bring that was desirable and what changed? Are quad engine aircraft gone for all times?

We look into these questions in this article series, and we start with the Queen of the Skies, and we focus its best selling variant, the 747-400.

Summary
  • Shrinking quad-engine jet fleet;
  • Flying an A340 or 747 will be rare;
  • Uncertain future for A380;
  • 747-400 commercial success;
  • An ultra-long-range route.

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Looking ahead for 2020 and 2030 decades: ATR & De Havilland Canada

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Seventh and final in a series.

By Judson Rollins

Introduction

Jet manufacturers typically introduce a new airplane every 15 years or so.

Commercial turboprops have not innovated to nearly the same extent as jets, with rival manufacturers ATR and De Havilland Canada (and predecessor Bombardier) having produced nearly 95% of the world’s in-service fleet. Although order volume has slowed in recent years, more than 300 aircraft are still on order.

Both manufacturers sell aircraft based on 30+ year old designs. However, the market’s size is probably capped because of turboprops’ relatively low cruise altitude and speed, making them limited alternatives to regional jets beyond roughly 500nm. This limits the return on investment from a clean-sheet design, either from aerodynamic improvements or the use of carbon composites.

Emerging threats lie on the horizon as China’s Xian MA700 nears its first flight and Embraer deliberates re-entering the market with a new design. Given sufficient market acceptance, either would constitute a significant threat not only to ATR and DHC, but potentially also the smaller end of the regional jet market.

Summary
  • ATR has a commanding share of the market; access to Airbus resources adds to ATR’s ability to win future business.
  • DHC’s dwindling order book and high production costs limit its ability to compete.
  • Old designs leave the turboprop space ripe for disruption; Embraer may re-enter the market with a clean-sheet design.

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Applying ASC 606 to the Airbus Order Book

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By Vincent Valery

Introduction  

July 27, 2020, © Leeham News: Since the first quarter of 2018, Boeing applies a new revenue recognition accounting standard, ASC 606, to its aircraft order book.

As a result, the OEM needs to remove orders from the backlog when a customer deviates materially from its contractual obligations.

ASC 606 adjustments affect all Boeing commercial aircraft programs apart from the 767. Orders removed from the 737 backlogs increased from 183 to 622 between the end of 2019 and June 2020. The figure should rise further as more airlines have strained finances due to the COVID-19 outbreak.

Other aircraft OEMs, notably Airbus, do not apply such standard. As a result, the firm backlogs of Airbus and Boeing aren’t apples-to-apples comparisons.

With Airbus reporting earnings Thursday, LNA adjusts the OEM’s order book for orders at material risk of cancellation. The goal is to obtain a more representative market share picture.

Summary
  • ASC 606 Course 101;
  • Identifying Boeing ASC 606 customers;
  • Applying adjustments to Airbus’ order book;
  • Estimation of adjusted market shares.

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Looking ahead for 2020 and 2030 decades: Mitsubishi

Sixth in a Series

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By Scott Hamilton

July 23, 2020, © Leeham News: The Mitsubishi Aircraft (MITAC) SpaceJet program is in limbo.

MITAC parent Mitsubishi Heavy Industries (MHI) suspended development of the M100 SpaceJet in the wake of the COVID-19 crisis. Customers are suppliers are in the dark about this program’s future.

MHI continues to complete certification of the M90 SpaceJet, which is simply the rebranded MRJ90. But, as LNA previously wrote, the M90 is at an economic disadvantage to the competing Embraer E-Jets.

The planned entry-into-service for the M90 is next year. However, certification process by the Japanese regulator is slow. The impact by COVID on the certification process and EIS remains to be seen.

Summary
  • M100 program on hold at least until next year.
  • What’s next for MHI?
  • Strengths, Weaknesses, Opportunities and Threats

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Restoring capacity with the A330ceo or A330neo, Part 6, Wrapup.

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By Bjorn Fehrm

Introduction  

July 23, 2020, © Leeham News: Over the last four weeks, we analyzed the venerable Airbus A330, to see if the present low fuel and lease prices make the recent A330neo version less attractive than an older ceo version.

As airlines are cash injection driven in the present COVID-19 crisis, taking delivery of a new aircraft and then do a sell, lease back deal injects fresh cash to the airline. The order deposit and the Pre-Delivery-Payments, PDPs, then flows back to the airline. This is why we see airlines take new aircraft despite not really needing them right now.

The A330 has seen phenomenal growth in capability as the Gross Weight has gone from 212t to 251t over the years. We now wrap the series by looking if there is potential for another stretch in the A330? Could it grow to a true Pacific-Ocean crosser, and if so, what changes should be made?

Summary
  • The A330neo now has a 251t Maximum TakeOff Weight (MTOW). Is this enough or could the aircraft gain from another MTOW hike?
  • We go through the gains and the areas that need changing should the business case be there to stretch the payload-range curve further for the A330neo.

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As federal aid comes to end, small suppliers see “blood bath”

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By Scott Hamilton

Introduction

July 20, 2020, © Leeham News: As the Payroll Protection Plan of the US government nears expiration, a blood bath among small suppliers is all but certain unless an extension is approved by Congress.

This is the dire forecast by William Alderman of Alderman & Co. Alderman specializes in representing small suppliers and aftermarket companies wanting to exit the business. Small, in this case, is defined as revenues up to $100m.

Alderman told LNA that some of his clients don’t see business recovery for 10 years. This is a different metric than the one most often cited: air traffic returning to pre-COVID levels in 2023-24, by most accounts.

Summary

  • Small companies need PPP extension.
  • Small companies need working capital, fast.
  • If neither is forthcoming, exiting the business in the other alternative.

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Restoring capacity with the A330ceo or A330neo, Part 5

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By Vincent Valery

Introduction  

June 18, 2020, © Leeham News: In the previous articles, we outlined Economic factors that determine whether the older A330ceo or newer A330neo is a better choice for airlines. We summarize those findings and broaden the discussion.

Summary
  • Economic summary;
  • The case for keeping older aircraft;
  • And purchasing newer ones;
  • A further factor in favor of more modern airplanes;
  • Potential A330neo enhancements.

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Looking ahead for 2020 and 2030 decades: UAC

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Fifth in a series.

By Bjorn Fehrm

Introduction

July 15, 2020, © Leeham News: UAC stands for United Aircraft Corporation, and is the name of the group owning the Russian aircraft industry.

After the fall of the Soviet Union, the multitude of individual companies and design bureaus could no longer survive on their own. The Russian state, therefore, gathered them all in UAC to introduce necessary consolidation and reform.

While UAC has done much with the support of the Ministries of Industry and Defense, the changing political situation for Russia has made it harder for the Civilian aircraft side to achieve sales outside captive Russian markets for its jets.

Summary
  • UAC is the holding company of the Russian aircraft industry since 2006. The UAC management has stopped pointless infighting and consolidated the industry, latest to a civilian and military side.
  • But it’s ambitions on the civil side outside Russia is at mercy to state politics and the Kremlin has shown that world politics is more important than the development of its industries.
  • This, and the rise of arch-rival and cooperation partner China, clouds the future for UAC civil aircraft.

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