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
Boeing 777-300ER and its replacements; A350-1000 and 777-9X.
By Bjorn Fehrm
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Introduction
Dec. 21, 2014: Last week we did a deep analysis of A380 and its competition. It has been windy weeks for the aircraft since the Airbus Global Investor Forum and it was time to bring some needed facts on the table. These facts showed there is a clear difference between the hype being perpetuated in the media and the reality. As we cleared the situation around the A380, we also touched on the large twins that could fulfill at least parts of its missions.
There has been a lot of discussion around these aircraft as well as they form the battle of titans one level down from A380, the large, long-haul market today dominated by Boeing’s 777-300ER (the A380 does not have a real competitor–the 748i is clearly smaller, in fact so much smaller that it will be engulfed by the 777-9X).
Summary
- The 777-300ER had an exclusive run in its size until launch of the A350-1000;
- The A350-1000 doesn’t enter service until 2017;
- 777-9 EIS set for 2020, with hopes to advance by six months;
- We undertake a full economic analysis which gives good cues as to the future dominance of Boeing or Airbus in this highest margin segment of the market.
A380, a deep analysis of its competitiveness
By Bjorn Fehrm
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Introduction
Dec. 18, 2014: In our Monday article we go behind the scenes of the doubts that were spread over the A380 by Airbus last week. To complete the picture we now update our competitive analysis that we did in February this year. We then compared the A380 to Boeing’s 747-8i, the 777-300ER and the forthcoming 777-9X. We also included Airbus closest aircraft, the A350-1000.
A lot has happened since then. Airbus has done a lot of work on the passenger area of the A380 to offer increased passenger densities and the pictures of the emerging Boeing 777-9X and Airbus A350-1000 is now clearer.
Sales efforts of the A380 has also progressed, with meager results despite adding a leasing proposition what should make the hurdles of operating a small sub-fleet of A380s lower. To understand why, we interviewed Mark Lapidus, the CEO of Amedeo, the leasing company which specializes in financing and leasing of A380s. We wanted specifically to talk to Lapidus about the reactions of the airlines to the A380 and what problems he saw in selling an aircraft of this type.
In preparing the article we also gathered additional info from Airbus and Boeing, from the former around their work on the cabin configurations and densities, from the latter the maintenance costs for the up and coming 777-9X.
Summary
- In our February article we established that an A380 is roughly equal on fuel per passenger transported to the benchmark in the present non-VLA long haul market, the Boeing 777-300ER. We also found that this is highly dependent on how many passengers one assumes for both aircraft in the comparison.
- We could also see that come 2020, when the replacement of the 777-300ER would be available, the 777-9X, A380 would trail with up to 20% in fuel efficiency, once again dependent on how many seats were used in the comparison.
- At the time we only looked at a fuel consumption comparison; we did not include crew cost, maintenance costs, landing and en route fees to generate Cash Operating Costs (COC) or capital costs to come to Direct Operating Cost (DOC). In today’s updated analysis we add these costs items.
- Finally we have talked with Amedeos CEO Mark Lapidus, asking about his discussions with the Airline CEOs and their teams, to understand what the reactions are from the airlines and why has he not placed any A380 with customers yet.
As we did this deeper study, a more nuanced and different picture emerged from the one seen in February. The results busts a number of deeply engraved myths, one being that four engines are more expensive to fly and maintain than two.
A look behind the headlines of Airbus’ Investors Forum
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Update, 0530 PST Dec. 15: Aviation Week posted an article that indicates Airbus and Rolls-Royce are closing in on an engine deal that will lead to the A380neo and a stretch.
Introduction
Last week’s Airbus Global Investors Forum proved to be a debacle due to a rogue customer and two miscues by management.
First, Group CFO Harald Wilhelm indicated Airbus may decide in 2018 to terminate the A380 program, causing consternation from Tim Clark, president of Emirates Airlines, which has 44% of the order book. Airbus Commercial management spent a good part of the next day in damage control.
Second, with little forewarning, Airbus told analysts that production rates for the A330ceo would come down in advance of introduction of the A330neo. This news shouldn’t have come as a surprise, but for some it did. If they had closely followed sales efforts for the A330ceo, the lack of success and the production gap, news that Airbus will bring rates down more than the 1/mo decline previously announced shouldn’t have surprised. Still, Airbus had not previously sent strong enough warning signals.
Third, profit and free cash flow warnings weren’t well received.
Finally, Akbar Al-Baker, the prickly CEO of Qatar Airways, chose the first day of GIF to announce he wasn’t going accept delivery of the first A350-900 three days later.
The result: the stock price plunged 10% on Day 1 of GIF and another 4.3% on Day 2.
Summary
- It’s time to look behind the headlines of the debacle and analyze what the meaning is;
- The implications of Wilhelm’s A380 statement;
- Better detail on the A330 rate reduction; and
- Implications for Boeing.
Airbus stock hammered on airplane news, Boeing caught in the downdraft
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Introduction
Dec. 10, 2014: As company investors’ days go, Day 1 of Airbus Group didn’t go well. Airbus stock traded off 10% on news that the A330 production rate, already to reduced from 10/mo to 9/mo in 4Q2015, will be further reduced in 2016. No number was given.
Then Airbus acknowledged it may decide by 2018 whether to terminate the A380 program. There were no sales this year.
And true to form, the CEO of Qatar Airways, Akbar Al-Baker, did another one of his famous U-Turns. Only a short time ago he was singing the praises of the A350, the first of which was to be handed over to his airline on Saturday. Today he announced delivery was postponed “until further notice,” with no explanation for the delay.
The stock reverberation didn’t end there; it migrated across the Atlantic, sending Boeing stock down on Wednesday at a rate twice that of the Dow Jones index.
Summary:
- A330ceo sales have dried up in advance of the A330neo introduction. A large Chinese order appears to be going nowhere.
- The A380 program is supposed to finally hit cash break-even in 2015, but no sales put this program in doubt.
- The only way to boost the A380 is to do a neo and the business case is iffy.
737 MAX 8 could be enabler for some LCC Long Haul
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By Scott Hamilton and Bjorn Fehrm
Introduction
Figure 1. Nominal range of 737 MAX 8 from Oslo Source: Great circle mapper, Boeing. Click on Image to enlarge
Dec, 8, 2014:The Boeing 737-8 MAX is the successor to the 737-800 and has largely been thought of in this context.
Our analysis, prompted by Norwegian Air Shuttle (NAS) plans to use Boeing 737-8 MAXes to begin trans-Atlantic service on long, thin routes, comes up with a conclusion that has gotten little understanding in the marketplace: the 8 MAX has enough range and seating to open a market niche below the larger, longer-legged 757, and the economics to support profitable operations for Low Cost Carriers interested in some trans-Atlantic routes or destinations beyond the range of the -800.
Summary
- We based our analysis on our proprietary, economic modeling, assumed Norwegian cabin configuration standards.
- We compared the operating costs of the 737-8 with Norwegian’s present long haul aircraft 787-8 in a similar cabin configuration.
- The comparison range is the max endurance range for an LCC long haul 737-8, eight hours or 3,400nm air distance (no wind included).
Little progress on A330 production gap
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Introduction
With the end of the year a mere five weeks away, Airbus appears to have made little progress in closing its production gap for the A330.
Summary
- Airbus still has a gap of approaching 150 production slots at current and announced rates between now and the planned EIS of the A330neo in December 2017.
- Launch of A330neo helps, but does not cure production gap–especially between now and 2018.
- No Chinese order for A330 Regional after more than a year.
- AirAsiaX deferring orders–and will some CEO orders be swapped for the NEO?
Lufthansa to use A340s in “lower cost” operation; our analysis against the 787
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By Scott Hamilton and Bjorn Fehrm
Introduction
Low cost long haul service is gaining traction, but previous efforts proved difficult to be successful.
Dating all the way back to Laker Airways’ Skytrain and the original PeoplExpress across the Atlantic, airlines found it challenging to make money.
More recently, AirAsiaX retracted some of its long-haul service, withdrawing Airbus A340-300 aircraft when they proved too costly. The airline recast its model around Airbus A330-300s as an interim measure, unable to fly the same distances as the longer-legged A340. AirAsiaX ordered the Airbus A350-900 and now is a launch customer for the A330-900neo.
Cebu Pacific of the Philippines is flying LCC A330-300 service to the Middle East. Norwegian Air Shuttle famously built its entire LCC long haul model around the Boeing 787, initiating service with the 787-8 and planning to move to the 787-9.
Canada’s WestJet is leasing in four used Boeing 767-300ERs to offer LCC service,
Legacy carrier Lufthansa Airlines plans to use fully depreciated A340-300s to begin “lower cost” (as opposed to “low cost”) long haul service. LH says the fully depreciated A340s come within 1%-2% of the cost per available seat mile of the new, high capital-cost 787s.
Summary
- AirAsiaX’s A340 LCC long haul service proved unprofitable. Can Lufthansa’s similar service with fully depreciated A340s work?
- Our analysis shows that it can. It can even support the lease rates that would be charged for a 10 year old A340 if the fuel price remains at the present level.
- When doing the research for this article and going through the results of our proprietary model we started to ask ourselves, is the A340-300 the ugly duckling of the airline market?
Boeing fails to assure on 777 production gap
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Introduction
Boeing’s ability—or inability—to bridge the production gap for the 777 Classic to the 777X entry-into-service in 2020 was a top concern of a series of Wall Street types during a recent series of meetings we had across the USA.
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There is a great deal of skepticism over whether Boeing can successfully maintain the current production rate of 100/yr (8.3/mo). People we talked with look at the number of orders Boeing needs to bridge the gap, the Boeing claims that it can obtain 40-50 or 40-60 a year, and, in a more recent development, the falling oil prices depressing the need for a new, more efficient 777-300ER compared with the 2004 model and the even older 777-200ER series.
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We have been telling our clients since March that Boeing will have to reduce the production rate of the 777 because of the large production gap. Aerospace analysts began waking up to this possibility by May and the broad consensus today is that Boeing will have to reduce the rate—the only questions remaining is by how much and how soon.
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As recently as the 3Q2014 earnings call, Boeing continues to assert it will be able to maintain rates with new sales. Boeing has booked 43 firm orders through October for the 777 Classic—39 for the 300ER and four for the freighter. This is as the low-end of the range Boeing says it needs.
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However, our Market Intelligences gathered over the summer and into the fall indicates sales efforts are struggling.
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Summary
- Boeing clearly hasn’t been persuasive in its claims it will bridge the production gap at current rates;
- Boeing has open delivery slots in the second half of 2016;
- The big drop off in backlog begins in 2017 and gets worse going forward;
- Key airlines that have been pitched have said “no;”
- Emirates sends the industry’s first operational 777-300ER to scrap;
- Bow wave of 777s coming to 12 years and off lease begins soon, creating cheap alternatives to new sales; and
- Lessors will be compelled to offer -300ERs for low prices, depressing opportunities for Boeing.