The Impact of Asian airline difficulties on OEMs

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By Vincent Valery

Introduction  

Feb. 24, 2020, © Leeham News: Passenger traffic in the Asia-Pacific region has grown dramatically since the turn of the century. Except for temporary dips caused by SARS in 2003 and the global financial crisis in 2008-09, passenger growth has stayed comfortably above 5% each year.

China emerged as the second-largest commercial aviation market behind the US. Domestic traffic in mainland China grew fivefold, and international traffic doubled since 2003. Numerous low-cost carriers become powerhouses during that period.

Along with this growth came major aircraft orders. Five out of the 10 largest A320neo family orders are from airlines in the Asia-Pacific region.

However, airline profitability in the region recently lagged that of those in the US and Europe. Even before the COVID-19 (coronavirus) outbreak, numerous carriers had financial difficulties. The outbreak will accelerate the reckoning for some airlines.

According to an IATA report, the COVID-19 outbreak could translate into a $29.3bn revenue loss for airlines in 2019. Instead of a predicted 4.8% YoY passenger traffic growth for the Asia-Pacific region in 2020, traffic could contract by 8.2%.

In the first of a two-part analysis, LNA assesses the vulnerability of various airlines and the resulting potential impact on OEMs.

Summary
  • Numerous airlines have significant capacity exposure to China;
  • Several Asian airlines already had fragile balance sheets;
  • Chinese airlines are under particularly acute cash pressure;
  • Airbus and Boeing have material production exposure to affected airlines.

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ATR: We’re confident in the future of turboprops

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By Judson Rollins

Introduction

Executives from turboprop manufacturer ATR expressed optimism about their product range and the future of turboprops in general at last week’s Singapore Airshow.

According to industry databases, ATR has 52% of the market for 30+ seat turboprops in service and 63% of 70+ seaters. It competes primarily against De Havilland Canada’s DHC-8 family. The ATR-72 accounts for nearly two-thirds of ATR production. Both models are produced on a single assembly line.

However, ATR dominates the backlogs by a wider margin.

Summary

  • ATR touts advantages of the ATR-42 and -72 family;
  • Special performance capabilities of the ATR-42 are key for developing markets;
  • Adapting aircraft capabilities to stay ahead of revitalized DHC-8 competitor;
  • Not looking to compete with regional jets in the 70+ seat space.

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How much did the CSeries cost Bombardier?

By Bjorn Fehrm

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Introduction

February 20, 2020, © Leeham News: As we wrote in last week’s article about the A220 flying the Montreal to Toulouse route, the stakes are high in the civil airliner business. If you don’t have a very strong balance sheet you shouldn’t enter the business.

Bombardier learned this the hard way. Its follow up project to its successful CRJ regional jets, the CSeries, brought Bombardier to the brink of bankruptcy and it had to sell the project to Airbus at a fraction of its value. The project cost more to develop and produce than planned despite not running off the rails during development like Boeing’s 787 or Mitsubishi’s MRJ.

We analyze why it cost so much and at what fraction Airbus got the program.

Summary:

  • The CSeries nearly doubled its development costs despite being void of major hiccups. What was the cause?
  • Airbus picked up the program when Boeing forced Bombardier to sell. How much of a bargain did Airbus get?

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JetBlue, a carrier at crossroads

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By Vincent Valery

Introduction  

Feb. 17, 2020, © Leeham News: JetBlue Airways has come a long way since it started operations in 2000. The airline celebrated its 20th-anniversary last week.

While the US legacy carriers were struggling financially and busy with consolidation, the airline successively expanded. It now generates more revenue than numerous flag carriers around the world.

JetBlue built significant focus city operations outside its main New York–JFK base in Boston, Fort Lauderdale, and Orlando. The carrier profitably grew faster than most competitors in the years after the financial crisis. It also announced the start of trans-Atlantic operations from next year.

The airline has had some resounding successes over the years, notably the introduction of Mint service on US transcontinental flights. However, there have also been strategic failures.

After resisting the usage of ancillary fees, the carrier is aggressively increasing those revenues. Management announced in 2018 a shift towards expanding capacity in the focus cities where the airline has a significant market share.

LNA analyzes JetBlue’s performance over the years and the rationale behind the latest strategic decisions.

Summary
  • Succeeding where many others failed;
  • Some resounding successes;
  • And strategic failures;
  • Increasingly looking like a legacy carrier;
  • Setting itself up for a merger?

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Boeing 737 MAX 2020-23 backlog will require to 2026 to deliver: analysis

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Introduction

By Scott Hamilton

Feb. 14, 2020, © Leeham News: It will take Boeing years to deliver new production airplanes scheduled for delivery in 2020-2023 because the restart of the 737 MAX production will fall far short of delivery commitments.

There are an estimated 2,682 deliveries scheduled in this timeframe. Boeing’s production restart and ramp up provides delivery positions for an estimated 1,827 aircraft. This leaves an estimated 855 aircraft that will have to be rescheduled into the future, from 2023.

These will compete with Boeing sales for new order delivery slots. For example, the MOU for 200 MAXes from IAG, the parent of British Airways and other carriers, has delivery slots in these periods.

An analysis by LNA indicates it will take at least until 2026 to deliver these 855 airplane if no other orders are slotted in through 2025.

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Could A220 fly Air Canada’s Montreal to Toulouse route? Part 2

By Bjorn Fehrm

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Introduction

February 13, 2020, © Leeham News: We continue our analysis if the Airbus A220 is a credible long-range aircraft. We started looking at the limitations of the aircraft last week and how these could be lifted.

Now we continue with an analysis of the economics of the A220 compared to established long-range aircraft like the Airbus A330 and A321LR/XLR. Is a higher frequency A220 route competitive with an A330 or A31LR/XLR operated route? We also examine how Breeze air will operate its A220s on long-range routes.

Summary:

  • By virtue of its size, the A330-300 has good economics when it can be filled to a high load factor.
  • The A321LR comes close in operating costs to the A330-300 on these types of routes.
  • The surprise is the competitiveness of the A220-300 on a route type it wasn’t designed for.

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Airbus’ profitability challenges

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By Vincent Valery

Introduction  

Feb. 10, 2020, © Leeham News: Airbus Commercial Aircraft ended 2019 with a surprisingly strong 1,131 new aircraft orders (768 net orders) and a backlog of 7,482 aircraft.

There were 863 aircraft deliveries, 8% higher than in 2018

But 2019 also sees settlement of a year-year probe into bribes and corruption of Airbus commercial airplane sales dating back years. A record fine of €3.6bn will be recorded against 2019 earnings. These results will be announced on Feb. 13.

Settling the probe lets Airbus off the hook from criminal prosecution, providing its skirts remain clean for the next three years.

But prosecution against individuals may proceed. The potential targets have not been identified.

Summary
  • The poster child of European integration;
  • Profitability lagging commercial success;
  • Decades-old programs still causing headaches;
  • Making up for early A220 program losses;
  • Short and long-term challenges.

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Could Airbus’ A220 fly Air Canada’s Montreal to Toulouse route?

By Bjorn Fehrm

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Introduction

February 6, 2020, © Leeham News: Air Canada announced in August 2019 it will start a five weekly route between Montreal and Toulouse from the 4th of June. It connects two growing, French-speaking cities with strong aeronautical clusters. The route will also connect Airbus headquarters and production in Toulouse with its new A220 aircraft development and production center in Mirabel outside Montreal.

Air Canada announced it will fly the route with its 292 seat Airbus A330-300 but the question has been raised “Could route be served with the smaller A220, then with an increased frequency”? We use our airliner performance model to find out.

Summary:
  • Montreal to Toulouse is on the range limit for an A220, especially when flying the return route against winter winds.
  • We look at different means to increase the range of the A220 to make the route possible without fueling stops when going West.

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Assessing airlines’ widebody replacement needs

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By Vincent Valery

Introduction  

Feb. 3, 2020, © Leeham News: As part of the 777X maiden flight, Boeing briefed the media on its demand forecast for the large widebody market. The OEM sees a demand to replace between 60 and 100 aircraft annually in that market segment until 2030.

Last week we estimated the number of narrowbody aircraft where airlines still need to place a replacement order. We now perform a similar analysis for the widebody market.

OEMs are struggling to cope with the insatiable demand for latest-generation narrowbody aircraft. However, the situation is different in the widebody market. After significant orders and deliveries during most of the last decade, demand is sharply slowing now.

After announcing a 787 Dreamliner production rate cut last year from 14 to 12 per month, Boeing acknowledged it is expecting a further cut to 10 per month from early 2021. The company expects to return to rate 12 in 2023.

Photo by Scott Hamilton

Airbus hasn’t announced any reduction in its A330neo or A350 production rates yet but acknowledged demand softness.

Both OEMs point to the significant widebody replacement needs that will arise later in the decade. We will analyze whether their hope for better days is justified.

We will also partially address why Boeing decided to go back to the drawing board on new aircraft design.

Summary
  • At face value, numerous widebody aircraft to replace;
  • Materially different customer mix from narrowbody aircraft;
  • Varying demand, depending on aircraft size;
  • Boeing forecast for the large widebody market;
  • And a change of mind on the NMA;
  • Replacement needs timelines.

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With Boeing’s 737 MAX delivered to storage instead of customers, unique cost and revenue insights can be gained, Part 2.

By Bjorn Fehrm

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Introduction

January 30, 2020, © Leeham News: The last three-quarters of non-delivered Boeing 737 MAX production has exposed the internals of an airliner OEM as never before.

By comparing the second, third and fourth quarterly reports from Boeing for 2018 and 2019 we can get an understanding of the net revenue shortfall for the non-delivery of 737 MAX aircraft during 2019. By digging deeper into the reports we can also get an understanding of the present production cost of the 737 MAX.

Summary:

  • The difference in revenue for a well-chosen time period of 2019 compared to the same period in 2018 tell the story of 737 MAX net revenue per aircraft.
  • In principle, the same is valid for production costs which get booked into inventory instead of being delivered. Here more intricate adjustments must be made, however.

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