Leeham News and Analysis
There's more to real news than a news release.
Analysis: With Gentile out at Spirit, here’s what Shanahan’s hiring likely means
By Bryan Corliss
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Oct. 2, 2023, © Leeham News – Tom Gentile is out as CEO of Spirit AeroSystems, the victim of a number of serious production missteps and a failure to lead the Tier 1 supplier into a stronger position following the Covid-19 pandemic and the grounding of Boeing’s 737 MAX.
Interim Spirit AeroSystems CEO Pat Shanahan.
The new interim CEO is Pat Shanahan, a long-time Boeing and Pentagon executive who has been serving on Spirit’s board since 2021.
Spirit said its board is conducting a search for a new chief executive.
- Markets respond to news
- Shanahan faces huge challenges as CEO
- Shanahan’s resume fits Spirit’s need
- Our takeaway: What this means for Spirit’s future
Related Article:
Analysis: Boeing’s options for Spirit AeroSystem
Breaking News: Tom Gentile, the CEO of Spirit, is out. He’s been replaced by Pat Shanahan, a Spirit Board member, on an interim basis while the search for a permanent CEO is underway. Shanahan is a former Boeing executive and former deputy secretary of the US Department of Defense. This story will be updated.
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By the Leeham News Team
Oct. 2, 2023, © Leeham News: Boeing is in another bad spot with a major contractor and the depth of the problems is quickly becoming apparent. Spirit AeroSystems in Wichita has been seriously underperforming with inspection escape after inspection escape seriously hampering Boeing’s ramp-up of the 737 rate.
Spirit isn’t making money on Boeing 737s and 787s. Boeing is charging Spirit for rework, and a glance through Spirit’s second-quarter earnings report was full of items where they did not have a firm handle on their losses and future exposures attributable to operations with Boeing.
Spirit’s repeated quality and production problems led to speculation that Boeing might buy Spirit, to bring direct control over the Wichita (KS) plant back in-house. Spirit was once “Boeing Wichita.” It was sold on orders of then-Boeing CEO Harry Stonecipher. The resulting spin-off, Spirit, remained Boeing’s supplier for all the commercial airplanes then in production. Nose sections were supplied for all but the 737. Spirit produced the entire 737 fuselage and does to this day. Boeing has a workforce in place at Spirit to help sort out the problems.
At the Paris Air Show, Boeing shot down the speculation, saying purchasing Spirit wasn’t going to happen. Since then, more quality control and production issues emerged on the 737. Two-thirds of the 737s in inventory and an unknown of aircraft in service or new production models are affected.
Speculation over the possibility of Boeing purchasing Spirit continued. Doing so would not be simple, even if Boeing was so inclined.
LNA takes a deep dive into the issues.
Further developments of Airbus’ A321
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By Bjorn Fehrm
September 28, 2023, © Leeham News: We recently looked at the latest developments around Airbus’ A321XLR certification. When the certification is completed, it extends the A321 to a true Trans-Atlantic airliner.
After the A321XLR, what will be Airbus’ next development? A clean sheet replacement for the A320/A321 series won’t be needed until Boeing replaces the 737 MAX family next decade, and we have described why we think an A220-500 will not happen anytime soon.
The A320/A321 is Airbus main source of revenue and margin. It would, therefore, be a logical focus for further development to keep the success going into the next decade. But what can be done? Is the A321neo with the A321LR and XLR the end of the development of the A321? We use our Airliner Performance and Cost Model (APCM) to analyze A321 fundamentals and look at how to increase capacity and efficiency further.
Figure 1. The Airbus A321XLR. Source: Airbus.
Summary:
- From launch 40 years ago, the A320 family has increased capacity by 66%, more than doubled range, and reduced fuel burn per passenger mile by over one-third.
- What can be achieved over the next 20 years and how?
eVTOL operator profitability: an elusive dream?
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By Judson Rollins
Sept. 25, 2023, © Leeham News: As the hype grows around electric-powered short-haul air mobility, questions linger around the industry’s ability to be profitable without government subsidy.
LNA’s Bjorn Fehrm has written extensively on the cost hurdles facing eVTOL operators. His analysis predicted operating costs of approximately $2.14 per seat-mile, significantly higher than startup Lilium’s 2021 estimate of $1.75. But even the latter is a high bar to clear, as this article will show.
Source: Lilium.
Other startups have been pitching business plans with even lower unit costs. But, as aviation consultant Kevin Michaels pointed out last year, such plans often rely on impossibly high assumptions of load factors and/or utilization.
For instance, Lilium’s cost projections are predicated on 10 hours of average daily utilization. By comparison, US DOT data from 2019 show turboprop utilization averages 7.3 hours, small regional jets average 6.2 hours, and large regional jets average 9.4 hours.
Summary
- Helicopter services demonstrate the difficulty of making urban air mobility profitable.
- Comparing eVTOL costs to potential revenue highlights a lack of markets.
- Market forces will allocate scarce pilots to where they generate the most revenue.
The Airliner Production Problem, Part 2
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By Bjorn Fehrm
September 19, 2023, © Leeham News: The Airliner OEMs can’t increase their production rates as planned after the pandemic, and it’s become clear it’s not a short-term problem. We started looking at the root causes of the difficulties last week.
We looked at the complex puzzle the production of a modern airliner is and the importance of the learning curve for the result. Now, we analyze the effects that the pandemic had on airliner production and why things are not the same as before the pandemic.
Figure 1. The Boeing 737-8 is sold out for years. Source: Boeing.
Summary:
- Last week, we looked at the importance of skills in the supply chain and their influence on production rates.
- Now, we analyze what happened with skill levels in the industry before, during, and after the pandemic.
Analysis: Labor issues continue to challenge aerospace industry
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By Bryan Corliss
Sept. 18, 2023, © Leeham News – One of the continuing themes we’re hearing – at investor presentations and on quarterly earnings calls – is the shortage of skilled labor, which is disrupting deliveries up and down the aerospace industry supply chain.
The inability of suppliers to deliver parts on time – or to deliver correctly assembled parts – is hampering the OEMs as they attempt to ramp up production to meet high demand from airlines.
This is not just an issue affecting aerospace. There’s a general shortage of medium- and high-skill workers in the Western world right now, with shortages of every kind of worker from line cooks to truck drivers. Shortages existed prior to the Covid-19 pandemic, and there’s still strong demand, even with economies slowing as central banks move to tamp down inflation.
The issue is more pronounced in industries that rely on high-skill workers – like aerospace.
One outcome of this worker shortage is a rise in union activism. In aerospace, we’ve seen the strike by the International Association of Machinists against Spirit AeroSystems this summer, and the near strike by members of the same union against Boeing’s defense business in and around St. Louis last year.
Next year, both Spirit and Boeing will be back at the bargaining table; Spirit to negotiate with members of SPEEA, the union for aerospace engineers, while Boeing holds talks with IAM District 751, which represents hourly workers at the company’s plants in Puget Sound and Oregon.
IAM 751, in fact, is urging members to prepare for what it’s describing as a September 2024 contract vote that will “forever change the aerospace industry.”
The environment seems to be favorable to the unions, for reasons we’ve discussed before. However, with the OEMs and Tier 1 suppliers heavily in debt (and currently bleeding red ink), there’s going to be a limit to what the companies will be willing to offer in a bid to satisfy their labor forces.
- Demand for workers remains strong
- Lack of skilled labor is hurting industry
- Boeing, Spirit aren’t strong financially
- UAW strike bellwether for next year’s talks
GE Aero sees growth through 2026, despite supply chain snags
By Bryan Corliss
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Sept. 15, 2023, © Leeham News – Demand for aircraft engines and spare parts will continue to grow in 2025-26, but perhaps at a slower rate than what the industry is currently experiencing, the CFO of GE Aerospace said at an investor conference Thursday.
“Clearly the demand is robust,” Rahul Gai, who is CFO of both GE and GE Aerospace, told investors gathered at Morgan Stanley’s annual Laguna Conference. “We are trying to ensure we meet the demand expectations.”
GE Aero plans to deliver some 2,000 LEAP engines next year, which is up from this year’s projected total of 1,700, he said. This comes even as the company continues to deal with supply chain constraints caused in part by a lack of skilled labor.
- GE Aero and Vernova on track for two-company split
- Chinese recovery driving 2023 growth
- GE sending engineers to help its suppliers
The Airliner Production Problem
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By Bjorn Fehrm
September 14, 2023, © Leeham News: For more than a year, we have heard all the Airliner OEMs complain that they can’t increase production rates because of delivery problems in their supply chain. It’s a problem that is not easy to fix; it just goes on and on.
What is the root problem behind the persistent problem of increasing production of our airliners? There are specific problems for each aircraft type and time, but some fundamental problems are behind the overall problem of increasing the production numbers.
We analyze these fundamental problems in a series of articles.
Figure 1. The Airbus A321, a model which a new customer gets delivered six years from now if the production increases to plan. Source: Airbus.
Summary:
- We start describing the realities of airliner production, and what a gigantic puzzle it is.
- We also delve into the learning curve, and why it has such importance for production rates.
Analysis: Jefferies presentations show industry hasn’t stabilized post-Covid
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By Bryan Corliss
Sept. 11, 2023, © Leeham News: Negative cash flow in the quarters ahead. Ongoing issues with the supply chain. OEMs struggling to meet high airline demand as Tier 1s wrestle with quality issues. New technology wearing out faster than the old systems it replaced.
The No. 1 takeaway from last week’s Jefferies Financial Group Industrials Conference presentations is that the aerospace industry is still a few years away from being in a stable state capable of meeting the demands of customers and shareholders alike.
“We know our customers really do want to make more,” said Howmet CEO John Plant, whose company casts fasteners and engine components for Tier 1s and OEMs. “The question becomes when can we achieve these improved rates?”
Plant went on to say that he believes both Airbus and Boeing will hit their goals for increased widebody production; Airbus at 9/mo on the A350, Boeing at 10/mo for the 787.
The question, he said, is whether the OEMs will hit those rates in 2025 or 2026.
Executives from Boeing, Spirit AeroSystems and Howmet all presented at the conference, and all agreed that there’s reason to be optimistic, given the strong demand from airlines for more planes.
The issue, as Plant put it, is the industry’s ability to meet that demand. “We haven’t seen the real benefits of increased aerospace production.”
- Companies discuss latest 737 quality issue
- Spirit tries to get on track as refinance deadline looms
- Gentile: Supply chain needs new contract terms
- Boeing CFO projects losses for next quarter
- Howmet talks about engine challenges
- Takeaway: Fundamental demand is strong, but…
The range of the Airbus A321XLR, Part 2
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By Bjorn Fehrm
September 7, 2023, © Leeham News: The advertised range of 4,700nm for the Airbus A321XLR enables true trans-Atlantic single-aisle routes that can originate further inland, both in the US and Europe. When EASA and FAA demanded that Airbus add extra fire protection around the tank that gives the extended range, rumors told of a substantial range loss.
Last week we could see that whatever the weight increase, the range loss is not substantial. Now we look at what Airbus could do to restore the range of the A321XLR.
Figure 1. The Airbus A321XLR. Source: Airbus.
Summary:
- We could see last week that the range shortfall from the rumored weight increases is less than rumored.
- When we look at the fixes for any range shortfall, they seem straightforward and doable.