Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- 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
- Natilus: Composite BWB, entry-into-service by 2029, 570 on order April 17, 2025
- China bans Boeing, US parts imports in tariff war April 15, 2025
- Boeing welcomes COMAC competition as Asia-Pacific demand soars April 15, 2025
Engineering, Innovation is our DNA: Embraer
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By Scott Hamilton
Nov. 25, 2024, © Leeham News: Embraer’s revenues may be small compared to Airbus and Boeing.
Luis Carlos Affonso. Credit: Embraer.
But “under the hood,” the company is, in many respects, more innovative and aggressive in developing new airplanes.
Compared with Boeing, which in 2017 wanted to take over Embraer’s commercial airplane unit, Embraer is far more efficient and more dedicated to making safety and engineering the top of its culture.
Airbus hasn’t developed an all-new commercial airliner since the A350, launched in 2013. Boeing hasn’t launched an all-new airliner since the 787, launched in December 2003. Each has developed derivatives of existing products since then. Airbus launched the A330neo in 2014 and the long-range and extra-long-range versions of the A321neo. It added the Ultra-Long-Range model to the A350.
Boeing launched the 737 MAX derivative in 2011, the 747-8 in 2005, and the 777X and 787-10 in 2013.
Since 2000, Embraer developed and certified more than 20 aircraft types across its commercial, military, and executive product lines.
During the same period, Airbus launched the A320neo family in addition to those listed above. Boeing launched the KC-46A (a derivative of the 767-200ER) aerial tanker in 2011 and a few new military programs.
Credit: Embraer.
“One thing that is incredible at Embraer is the amount of new designs, new platforms that we have developed in the last 25 years. I don’t know any other company that has developed so many airplanes in this time frame,” Luis Carlos Affonso, Senior Vice President of Engineering and Technological Development, said during the Embraer investors’ day on Nov. 18 in New York.
No changes to US labor Scope Clauses for indefinite future, says Embraer
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By Scott Hamilton
Nov. 22, 2024, © Leeham News: Embraer doesn’t see any changes in the US airline labor contract Scope Clause for the foreseeable future. This means that the E175-E1, equipped with previous generation engines, will remain in production for the same period.
Arjan Meijer, president and CEO of Embraer Commercial Aircraft. Credit: Embraer.
The E175-E2 with current generation Pratt & Whitney Geared Turbo Fan engines is stillborn.
The Scope Clause is a long-standing contract provision for American, Delta, United, and Alaska airlines that restricts the passenger capacity, weight, number of aircraft, and sometimes the operating range of regional aircraft that may be operated by airline subsidiaries or independent regional carriers on behalf of the mainline airline.
The Scope Clause aims to protect higher-paying pilot jobs from being farmed out to lower-paid pilots flying regional aircraft.
Airline managements see a cost benefit to farming out these jobs. They also recognize that many markets can’t support bigger airliners, yet these markets are crucial to feeding the hubs that dominate the US airline industry.
Embraer is now the only manufacturer outside China and Russia producing a regional jet designed specifically for these markets. The E1 entered service in 2004. The company launched the E2 program with a new engine, updated systems, and aerodynamic improvements only nine years later. The smallest original E-Jet, the E170, was dropped. The E175/190/195 was offered as the E2.
However, US unions refused to alter the Scope Clause to allow the E175-E2 to replace the E175-E1 to accommodate the heavier weight of the E2, which exceeded Scope restrictions by only a few tons due to heavier engines. Thus, Embraer put the E175-E2 on indefinite hold and continued to sell updated E1s to US airlines.
Embraer goal: $10bn in revenues by 2030, nearly doubling YE2023
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By Scott Hamilton
Nov. 21, 2024, © Leeham News: Only a few years ago, Embraer was struggling. Airbus acquired Bombardier’s C Series program for US$1 and rebranded it the A220. Instead of competing against a financially distressed Bombardier with its E2 jets, Embraer faced the global might of Airbus.
In a defensive move, Embraer agreed to create a joint venture with Boeing as the junior partner, with a mere 20% share of the JV.
Francisco Gomes Neto, President and CEO of Embraer. Credit: Embraer.
Sales of the E2 stalled while the market awaited Boeing’s takeover of Embraer’s commercial unit. All regulatory authorities quickly approved the JV except the European Union, which stalled interminably. Embraer believes Airbus was behind the stall, and it may have been. The USA’s new President, Donald Trump, imposed a 20% tariff on Airbuses delivered to the US, and the EU was in a retaliatory mood.
Then Boeing’s global 737 MAX fleet was grounded beginning on March 10, 2019, after two fatal crashes revealed a design flaw of a flight control system. A year later, the COVID-19 global pandemic began. Sales and deliveries from all manufacturers, including Embraer, immediately tanked.
A month later, Boeing withdrew from the JV. Embraer cried foul and this year won a $150m arbitration break-up fee claim.
Today, it’s clear Embraer’s operational and financial performances have recovered from these difficult years. The stock price is up 147%. Deliveries of the E-Jets are nearing pre-pandemic, pre-JV levels. The defense, executive jet, and services divisions are on upward swings. And now, Embraer’s goal is to hit $10bn in revenues by 2030, almost double what it reported for the full year of 2023.
Executives outlined the company’s progress and ambitions at an investors’ day conference in New York on Monday. This is the first in a series of reports from this event.
Spirit Airlines bankruptcy could free up scores of A320/321s
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By Scott Hamilton
Nov. 18, 2024, © Leeham News: Spirit Airlines’ bankruptcy will likely be its death knell unless a deep-pocketed savior emerges. The carrier filed a pre-packaged bankruptcy petition today, expecting to emerge in the 1Q2025. Uncertainties follow any Chapter 11 filing, however, and there is no guarantee Spirit will successfully reorganize.
Spirit Airlines A320neo. Credit: Spirit Airlines.
However, a fairly large order book for the A320neo and A321neo could help lessors that hold a large portion of these orders remarket the aircraft to viable airlines.
Spirit, an Ultra-Low-Cost Carrier (ULCC), has nearly 100 neos on order. Thirty-three are for the A320neo, and 65 are for the A321neo. All but six have delivery dates from 2026 onward, well before production begins. Airbus can deliver these aircraft to a new buyer’s specifications. Monument positions (lavs and galleys, for example) don’t have to be relocated, and interiors may be configured as a new buyer desires.
The biggest challenge will be whether interior companies can accommodate new Buyer Furnished Equipment (BFE) near-term. Safran, Collins and others are running late on some interiors as it is.
This chart shows the delivery stream for Spirit’s aircraft, as based on data from Cirium last month.
CAE: Leading quietly from Canada, with changes
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By Karl Sinclair
Nov. 18, 2024, © Leeham News: Marc Parent, the CEO of the simulator company CAE of Canada, will step down next year after 15 years at the helm, the company announced on Nov. 12.
Parent, 63, will retire at the Annual General Meeting in August 2025, after 20 years at the company. He joined CAE after working at Bombardier as an aerospace engineer, working his way up to vice-president and general manager of the Challenger 300, Challenger 604, 850/870, and CRJ-200 aircraft programs.
CAE is the dominant simulator company, providing equipment to the military, corporate and commercial aviation industries.
CAE grew under his leadership to become industry leader in the industry, growing revenues to C$4.3bn and a C$12bn backlog in 2024.
Boeing strike post mortem: Ortberg has work to do
- Teamsters contract expires in April 2025.
- IAM’s contract with Boeing’s defense unit follows in July.
- SPEEA engineering contract negotiations come up, too.
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By the Leeham News Team
Analysis
Nov. 15, 2024, © Leeham News: Boeing CEO Kelly Ortberg’s performance during the IAM strike is getting low marks from the men and women who will do the work that turns Boeing around-–the mechanics, techs, and engineers in the factories, according to those LNA has spoken with.
Kelly Ortberg, Boeing CEO. Credit: Boeing.
Ortberg came in talking about a “reset” in the company’s relationship with its unionized workforce. He took a good symbolic step by announcing he’d relocate to Seattle and work from there.
But while Wall Street hailed the move, it didn’t land as well as it could have.
Ortberg spent one day in the Renton factory before the strike. Boeing got a good photo of him touring the factory floor, but it’s unclear if he met with many workers.
Likewise, it’s unclear how much Ortberg was involved in one of the biggest crises his new company faced when he took over: the Machinists Union negotiations.
- Ortberg went with Calhoun’s plan
- Boeing bureaucrats believed their own spin
- Behind-the-scenes hardball
- Boeing’s billion-dollar blunder
- Absent Ortberg
- Furloughs and layoffs
- Looking ahead
Production ramp-up goals ambitious; exceed historical trends
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By Karl Sinclair
Nov. 14, 2024, © Leeham News: Airbus (AB) and Boeing (BA), the two largest commercial aircraft makers in the world, have a combined backlog of over $1tr in orders to deliver.
Both OEMs announced plans to increase production rates in the upcoming years to satisfy demand.
Airbus issued guidance for an increase to the A320neo family delivery rate of 75/mo by 2027. It is also targeting a rate of 14/mo on the A220 program by 2026.
Boeing previously projected a return to 50/mo on the 737 MAX family by mid-2025. However, LNA is told that internally, Boeing sees 2028 as a more likely timeframe. The consulting company Accenture thinks it will be five years (ie, 4Q2025) before Boeing achieves rate 50/mo.
Boeing’s 737 production rate was 52/mo on March 9, 2019, the day before the second MAX crash. Regulators worldwide began grounding the MAX on March 10. The Federal Aviation Administration grounded the US-registered MAXes on March 13 for what turned out to be 21 months.
Just how realistic are projections by Airbus and Boeing?
Boeing’s Investment-Grade Rating; Not just for bondholders
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By Karl Sinclair
Nov. 11, 2024, © Leeham News: The Boeing Company (BA) has repeatedly reaffirmed its commitment to retaining an investment-grade rating in comments from management. Many have taken that stance as an attempt to avoid an increase in interest rates on the $57bn in debt Boeing carries on its balance sheet.
However, there is another reason that is broadly overlooked by the market, analysts, observers, and media. Maintaining Boeing’s investment grade rating is important to a good portion of its supply chain that requires Boeing’s financial help.
Buried in Boeing’s filing with the Securities and Exchange Commission is this relatively innocuous paragraph:
“At September 30, 2024, trade payables included $2.7bn payable to suppliers that elected to participate in supply chain financing programs compared with $2.9bn at December 31, 2023. In future quarters, our suppliers’ access to supply chain financing could be curtailed or more expensive if our credit ratings are further downgraded.”
Boeing uses the supply chain to finance operations. Accounts Payable as of September 30, 2024, totaled $12.267bn, while Accrued Liabilities – an expense incurred but not yet paid for, hit $22.628bn (up from $11.964bn and $22.331bn year-end 2023, respectively).
Boeing’s 12-Step process to recovery – Part 2
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By Karl Sinclair
Nov. 7, 2024, © Leeham News: As employees from the International Association of Machinists and Aerospace Workers District 751 (IAM 751) begin to report back to work after ending their 53-day strike and accepting the fourth offer from the company, Kelly Ortberg, CEO of the Boeing Company (BA) can now shift his attention to other pressing needs.
LNA identified 12 key points that need to be addressed. We continue analyzing what needs to be addressed in the upcoming months and years to get Boeing back on track.
Related Article
Boeing’s 12-Step process to recovery
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By Karl Sinclair
Nov. 5, 2024, © Leeham News: When Kelly Ortberg became CEO of The Boeing Co. on Aug. 8, the company was mired in a multitude of crises. The most immediate was the open labor contract with its largest union, the International Association of Machinists and Aerospace Workers District 751 (IAM 751). The contract would expire 34 days after Ortberg took over from David Calhoun.
A strike was considered likely, and those thinking so were right. Based on a near-unanimous vote, members rejected the contract on Sept. 12 and walked off the job hours later.
Now, 53 days after the strike began, the union has approved a fourth contract offer. The first employees will begin returning to work tomorrow, and the remaining 33,000 union members must return by Nov. 12.
Boeing can now get back to the task of building aircraft.
Ortberg will now be at peace with the IAM’s touch labor for the next four years and can move on to tackling what needs to be fixed.
On the 3Q2024 earning call, Ortberg alluded to the work ahead. “First, we need a fundamental culture change in the company; second, we must stabilize the business; third, we need to improve our execution discipline on new platform commitments across the company; and fourth, while doing the first three, we must build a new future for Boeing.”