Leeham News and Analysis
There's more to real news than a news release.
Has Airbus pinned too much of its hopes on LCC growth?
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By Judson Rollins
November 14, 2023, © Leeham News: Much ink has been spilled over the bad – and increasingly worse – year for America’s low-cost carriers or LCCs. Frontier, JetBlue, Southwest, and Spirit have all reported disappointing results, with increasingly negative outlooks for the rest of this year and well into 2024.
Source: DigitalAirliners.com.
The future of the LCC model is increasingly murky, having historically depended on consistent double-digit capacity growth to spread fixed costs. Such rapid growth is imperiled in the short term by reluctant lower-income consumers, in the intermediate term by shortages of airplanes, parts, and skilled staff, and in the long term by a growing worldwide pilot shortage.
Boeing’s 737 MAX has its share of LCC exposure; LNA analysis puts it at 37% of unfilled orders. But Airbus’s A220 and A320 programs are even more intensely exposed, with 48% of combined orders coming from LCCs.
Will Airbus’s focus on selling to LCCs eventually return to haunt the OEM? We take a closer look.
Summary
- US LCCs are hampered by excess capacity; is a shakeout coming?
- Europe is brighter for now but faces near- and long-term constraints.
- Airbus has more to lose than Boeing in a global LCC retreat.
SR Technics navigates surge in MRO demand, bridge to new-gen engines
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By Judson Rollins
November 13, 2023, © Leeham News: On the sidelines of last month’s Aviation Week MRO Europe conference, LNA sat down with Matthias Düllmann, CEO of engine MRO provider SR Technics.
Düllmann spoke at length about how the company is coping with ongoing supply chain issues while adding support for GTF and LEAP engines. He also discussed the recent AOG Technics undocumented parts scandal, staff retention, sustainability, and aviation’s public image.
Matthias Düllmann. Credit: SR Technics.
Summary
- Supply chain issues persist, even for legacy engine parts.
- Supplier approval processes offer protection from unscrupulous suppliers.
- Staff recruiting and retention are growing concerns.
- Sustainability is a key pillar to keep aviation attractive as an employer.
Airbus profits climb despite one-off charge
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By Gordon Smith
Nov 9, 2023, (c) Leeham News: Airbus struck a defiant tone on Wednesday as the company posted strong numbers for the first nine months of 2023. Despite supply chain headwinds, the European firm’s Q323 adjusted Earnings Before Interest and Taxes (EBIT) rose by 21% year-on-year to €1.013bn. The figure was influenced by increased commercial aircraft deliveries and the positive impact of currency hedging.
The robust performance of its civil portfolio was dampened by a net loss at Airbus’ Defence & Space division. The group took a hit of €400m relating to “updated estimates at the completion of certain satellite development programs” which were mainly recorded in the third quarter.
The headline figures for the first nine months of 2023 are as follows:
- Revenues: €42.6bn
- Adjusted EBIT: €3.6bn
- Free cash flow (before Mergers and Acquisitions (M&A) and customer financing): €1.0bn
- 488 commercial aircraft delivered
For context, let’s compare these figures with those published at the same time last year. In its nine-month results for 2022, the OEM delivered 437 commercial aircraft, with revenues of €38.1bn generating an adjusted EBIT of €3.5bn. Free cash flow comprised €2.9bn.
Speaking during a follow-up investor call, Airbus CEO Guillaume Faury was bullish in his assessment. He said that the company is confirming its earnings target for 2023 and would be ramping up aircraft production in the years ahead: “We think we are well-placed to deliver around 161 planes to fulfill the guidance for the year. For those deliveries, we obviously have a high degree of visibility on parts, including engines.”
Faury’s positive outlook appeared slightly at odds with comments from other industry heavyweights in recent days. On Tuesday, Steven Udvar-Hazy from Air Lease Corporation suggested OEMs could miss their year-end goals as chronic engine supply issues persist.
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Maintenance cost, availability are growing concerns for OEMs, airlines
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By Judson Rollins
November 7, 2023, © Leeham News: Maintenance costs and lead times have been a growing topic in aviation circles and financial markets since last month’s Aviation Week MRO Europe conference in Amsterdam.
Wage and commodity inflation have been widely identified as key cost drivers in many regions. However, this has been compounded by ongoing part shortages, deferred maintenance from aircraft flown less than normal in 2020-2022, and the retention of older aircraft to maintain capacity in the face of new-generation engine reliability issues and resulting groundings.
Even the Financial Times recently covered the impact of MRO constraints. Consultant Kevin Michaels of AeroDynamic Advisory told the FT that airline maintenance spending had ballooned from a historic 8%-10% of airline costs to an estimated 14% this year.
Source: Aviation Week.
Summary
- Aircraft availability limits options for carriers, spares providers.
- Spares availability further limited by commodity shortfalls.
- Labor constraints evolve from headcount to experience and productivity.
- Sustainability panel long on possibilities, short on deliverables.
Spirit Focused on Delivering On Time and At Quality
By Dan Catchpole
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Nov. 6, 2023, © Leeham News: Spirit Aerosystems’ new CEO Pat Shanahan’s focus right now is “to restore confidence in the company” with its biggest customers—Airbus and Boeing.
During a Nov. 1st conference call discussing the company’s third quarter earnings, Shanahan said, “I recognize we have disappointed our stakeholders.”
Shanahan just came on as chief executive in October to help turn around Spirit, which has been flailing, along with much of the aerospace supply chain. Boeing and Airbus will be watching Shanahan’s progress. He gained a reputation as Mr. Fix-It during his time at Boeing.
Summary
- Market responds favorably to latest earnings report and management’s promises.
- Shanahan says Spirit is on track to deliver more than 50 737 MAX airframes in 2025.
- Goal is zero-quality issues.
NASA, Boeing Say SAF Creates Fewer Greenhouse Contrails
By Dan Catchpole
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Nov. 2, 2023 © Leeham News: High over Montana, Andy “Jeeves” Barry slipped the McDonnell Douglas DC-8 to the right and out of the Boeing 737-10’s wake to “get some fresh air.”
NASA’s uses a highly-modified McDonnell Douglas DC-8 as a test platform for its Armstrong Flight Research Center. (Photo by Dan Catchpole)
After a few minutes, the NASA research pilot edged the DC-8 behind the MAX, trailing about a mile and a half or so. It was another in a slew of test flights in October that he’d spent riding the 737’s bumper in NASA’s venerable DC-8 research aircraft.
The former U.S. Navy aviator eased the workhorse into a slot of calmer air in the 737’s wake, he said. “…[I]n that sweet spot of that secondary (wake) and just above the primary wake is where we lived the whole time and got the best science that they really loved the entire time we were out there.”
NASA and Boeing collaborated on the flights to test the effect of sustainable aviation fuels (SAF) on the formation of contrails, short for condensation trails, which climatologists contribute to global warming. The 737-10 alternated between burning jet fuel and 100% SAF, while the DC-8 sampled the air in its wake.
Summary
- Researchers say data collected will help predict when and how contrails form and SAF’s effects on contrails.
- How much contrails contribute to global warming is not completely clear.
- Boeing is working with supply chain to develop airplanes that can fly 100% SAF and traditional jet fuel by 2030.
Safran revenues take flight, but supply chain woes persist
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By Gordon Smith
Oct 31, 2023, (c) Leeham News: Robust demand in the civil aftermarket sector has helped propel Safran Group’s Q3 2023 revenues upwards. The French firm shared its latest sales results on October 27 and confirmed that it was on track to achieve its year-end targets – but the positive performance hasn’t been universal.
A choppy combination of headwinds and tailwinds is currently buffeting the business, whose vast range of interests includes engine development, aftermarket, aircraft interiors, and other MRO-related sectors.
Overall, revenues were up 20.1% year-on-year at €5.82bn, tracking estimates of €5.79bn. As a result, the company reiterated its FY23 adjusted revenue guidance of €23bn, which was raised at the end of July.
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MTU posts upbeat earnings report despite €1bn GTF hit
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By Gordon Smith
Oct. 30, 2023, (c) Leeham News: MTU Aero Engines has confirmed its guidance for 2023 and posted higher adjusted sales and earnings in the third quarter. The numbers are the first reported by the German company since it revealed last month that it would take a €1bn knock from the Geared Turbofan (GTF) inspection program.
The exceptional charges dragged the engine manufacturer into the red with an EBIT loss of €410m for the first nine months of 2023. The comparative earnings figure for last year was €331m, representing a sharp 224% fall.
In September, the firm said well-documented powder metal issues with the Pratt & Whitney PW1100G-JM GTF would knock revenue and earnings for the year by around €1bn. During an earnings call on September 27 attended by Leeham News, MTU CFO Peter Kameritsch said he expected this figure to be slightly above the €1bn mark. Without adjustments, revenue was €3.7bn for the first nine months of 2023. Adjusted operating profit was €597m, up a third from the €448m posted a year earlier.
Commenting on the latest numbers, CEO Lars Wagner said: “MTU posted organic growth in all business segments. However, exceptional charges for the Geared Turbofan inspection program affected our figures.”
Adjusted net profit reached €138m, up from €113m a year earlier. Adjusted EBIT – which is the company’s chosen profitability metric – grew to €192m from €158m, representing a margin of 12.7%. Kameritsch acknowledged that “favorable exchange rate effects” provided a welcome boost to the numbers, alongside the company’s “positive revenue mix and a good cost base”.
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Further developments of the A321, Part 4
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By Bjorn Fehrm
October 26, 2023, © Leeham News: We do an article series about what can be the next development for Airbus’ most popular aircraft, the A321neo. We looked at a minimal makeover in Part 3; now, we make a larger change.
We use our Airliner Performance and Cost Model (APCM) to examine what a new wing and revised engines can bring regarding larger passenger capacity, range, and lower seat-mile costs.
Summary:
- To increase the capacity significantly of the A321, a new wing is needed.
- We design a new wing combined with uprated engines and look at the result.
MRO demand, pricing power near record levels: great for providers, painful for operators
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By Judson Rollins
October 24, 2023, © Leeham News: In aviation’s topsy-turvy post-Covid recovery, one group of companies faces a near-perfect storm of positive developments: maintenance, repair, and overhaul (MRO) service providers and their suppliers.
Source: Maxim Commercial Photography via Aviation Week.
Last week, MRO providers and airline representatives met in Amsterdam for Aviation Week’s MRO Europe conference. There was an almost palpable sense of “it is what it is” resignation from airlines about costs and delays and from providers regarding labor availability and supply chain challenges.
However, the current balance of power clearly favors providers, who face almost unprecedented demand. The aforementioned constraints serve to limit MRO capacity further, giving providers almost unprecedented pricing power.
The biggest obstacle facing both providers and airlines is a growing gap between market demand and production rates of key components, especially for engines. This shortage is exacerbated by limited aftermarket supply, which in turn is driven by limited feedstock for part-outs.
Summary
- Long backlogs, high prices are a growing concern for airlines.
- Lessors are also facing strong tailwinds from MRO, engine market dynamics.
- Production and pricing strategies are being called into question.