Interview with Airbus CEO Fabrice Brégier: Airbus and innovation

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By Bjorn Fehrm

Introduction

18 Jan 2015: When visiting Toulouse last week we got the opportunity to talk to Airbus CEO, Fabrice Bregiér, on one of his pet subjects: the need for Airbus to be more innovative.

Leeham logo with Copyright message compactBackground to the discussion was that we had observed that Airbus, after decades of a high innovation level, higher than its main competitor Boeing, had slipped behind in the last decade. We wanted to discuss this with Brégier, who has during his tenure, elevated the innovation theme to one of his top priorities. We wanted to see if we had consensus on the past and understood Airbus way forward.

Summary

  • A380 problems undercut subsequent innovation; but
  • Airbus still maintains innovative lead, Bregier says;
  • A350, A320neo, A330neo examples of innovation; and
  • Don’t need to overreach when benefits aren’t there.

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Customer Quality counts as much as orders, says Boeing

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Introduction

Jan. 14, 2015: Customer quality counts as much as the raw number of orders, a top Boeing official said yesterday during a bit of counter-programming on the day Airbus held its annual press conference recapping the previous year’s orders and deliveries.

In a tele-press conference, John Wojick, Boeing SVP of Global Sales & Marketing, said, “It’s not just orders, it’s also about the quality. We work very hard to do business that will actually get to deliveries. We have a much stronger history of orders-to-deliveries than our competitor.”

Summary

  • Wojick has a point: Boeing’s customer quality orders historically have been better than Airbus; but
  • This is changing. Our Storm Warning Flag assessment shows an improved Airbus customer quality base among the top orders.
  • Both companies overbook in anticipation of cancellations and deferrals; Airbus is more aggressive in this practice.
  • Airbus had three times the cancellations in 2014 as Boeing.

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A380neo decision likely this year, triggering the next widebody engine project

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By Bjorn Fehrm

Introduction

Jan. 12, 2015: One of the subjects which is sure to come up on Airbus annual press conference on Tuesday the 13th in Toulouse will be when and how Airbus will re-engine the A380.

Airbus Commercial CEO Fabrice Bregier vowed during the Airbus Group Global Investors Day last month that an A380neo is coming.

There is much speculation around this subject as the business case of re-engineering an aircraft that is selling at such low numbers is difficult to get to close. The business case is difficult to make work for Airbus Leeham logo with Copyright message compact(such a project will cost in the order of $2 billion) but it will be equally hard for the engine manufacturers to offer engines that have enough efficiency gain to make the overall project feasible from an efficiency improvement perspective.

Summary

  • A380 Classic equals Boeing 777-300ER seat fuel costs.
  • Boeing 777-9 beats A380 on CASM, an A380neo regains the advantage.
  • Engine makers face hard choices to retain dominance or to broaden market penetration.

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Assessing turmoil at Bombardier: it doesn’t stop at CSeries

  • The Wall Street Journal takes a look at Bombardier.(Subscription required.)
  • ““We did not fully expect and prepare” for the competitive response, said a Bombardier executive. Its studies concluded re-engining the A320 and 737 made no economic sense and was unlikely to happen,” The WSJ writes.

This is an incredibly naive assessment by BBD. We co-wrote in a study in 2009 that concluded Airbus and Boeing had no choice but to reengine their A320 and 737 families, about 18 months before Airbus launched the A320neo and two years before Boeing launched the 737 MAX. The WSJ piece is a good look at the program and competitive situation. We take a critical look at the turmoil below.

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Introduction

Jan. 9, 2015: The sudden departure of the sales chief at Bombardier Aerospace, the second time in 13 months, underscores the continuing turmoil at the multimodal transportation company and the drag its commercial aerospace unit has been and continues to be.

Summary

  • Key sales people departed in 2014.
  • CSeries sales still anemic.
  • Q400 down to 10% market share.
  • CRJ struggling.
  • Falling oil prices gives reasons to put off committing to CSeries.
  • Airbus viewed CSeries as a threat.

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2015 a year of execution for Embraer commercial

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Introduction
Jan. 7, 2015: Embraer, the world’s #3 commercial airplane manufacturer, Leeham logo with Copyright message compactenters 2015 viewing this as a year of execution, says its chief commercial officer, John S. Slattery.

There are three pillars:

  1. Continuing to fill out the balance of the current generation orders and commitments in advance of the E-Jet E2 re-engined airplane scheduled for entry-into-service in 2018;
  2. Execution to continue to grow the commitments for the E2—there are already 590; and
  3. Execution for the next several years for the milestones of the E2 development.

Summary

  • Customer base goal by the end of 2017;
  • Customer support;
  • Barriers to entry for competitors.

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Turboprops’ future is OK but not great as ATR corners market

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Introduction

Jan. 5, 2015: Conventional wisdom suggests that turboprops are making a bit of a comeback because these remain far more efficient for routes up to 400 miles than jets, particularly at high fuel prices.

Even though oil prices have plunged to a seven year low, few expect that long-term prices will remain at today’s levels. While fuel between $50-$60bbl breathes new life into aging regional jets, there remains efforts in several corners to develop a new generation of turboprops.

  • Summary
    ATR wants to launch a new, 90-100 seat turboprop.
  • Bombardier launched a high-density, 86, seat version of its Q400 but appears cool to a new design.
  • China offers its indigenously built turboprop.
  • India and Indonesia are exploring a new design.
  • Pratt & Whitney, GE, others are developing the next generation engine.

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Airbus/Boeing duopoly single-aisle is safe well into 2030 decade

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Introduction
Dec. 28, 2014: Two challenges to the duopoly of Airbus and Boeing in the 150-220 seat single-aisle sector move forward in development in 2015, but neither is in a position to be a threat for the balance of this decade, nor even in the next.

Both challenges, the COMAC C919 from China, and the Irkut MC-21 from Russia, will for various reasons fall short of the Airbus A320/321 and Boeing 737-8/9 and plans to design the next generation new single-aisle airplane.

Summary

  • The C919’s chief advantage was eliminated when Airbus and Boeing moved to reengine the A320 and 737 families.
  • C919 retains pricing advantage but won’t overcome duopoly dominance.
  • By the time the C919 enters service, Airbus and Boeing will have the second generation of LEAP and GTF engines available.
  • The MC-21 takes into account better passenger comfort through a wider fuselage, but engines will be no better than those used on Airbus and Boeing.
  • The MC-21 sales potential will be highly limited because Russia still hasn’t become a full trading partner due to political direction.

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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.

Leeham logo with Copyright message compactThere 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.

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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.

Leeham logo with Copyright message compactA 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.

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Boom times leads to looming cash flow shortfall across OEMs

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Introduction

Dec. 16, 2014: There have been record aircraft orders year after year, swelling the backlogs of Airbus and Boeing to seven years on some product lines, Bombardier’s CSeries is sold out through 2016, Embraer has a good backlog and the engine makers are swamped with new development programs.

So it is with some irony that several Original Equipment Manufacturers (OEMs) are warning of cash flow squeezes in the coming years.

Summary

  • With so many development programs in the works, the prospect of new airplane and engine programs are being trimmed.
  • Most airframe and engine OEMs under pressure.
  • The full impact of the pending cash flow squeeze hasn’t been appreciated by the markets yet.

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