Leeham News and Analysis
There's more to real news than a news release.
Mitsubishi’s options for the SpaceJet
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By Scott Hamilton
Introduction
June 2, 2020, © Leeham News: Mitsubishi Heavy Industry (MHI) yesterday closed the acquisition of the Bombardier CRJ program.
There are 15 CRJs in backlog to complete. But the purpose of the acquisition was to give MHI a global product support system for the SpaceJet.
With the aviation world still reeling and confused by the “suspension” of the SpaceJet program, what are the options going forward?
MHI last month announced it was suspending indefinitely development of the M100 SpaceJet. MHI said it will reevaluate the market demand of the M100. It suspended further flight testing of the M90 SpaceJet. It says it will proceed with office “validation” of the M90 for certification. Facilities in the US and Canada devoted to the SpaceJet program are closing. About half the workforce devoted to SpaceJet in Nagoya, Japan, is being reduced.
Customers that signed MOUs for 495 M100s and which have firm orders for some 200 MRJ90s (the previous brand for the M90) are in limbo. Suppliers are in limbo. MHI’s failure to communicate with them leaves a planeload of questions and no answers.
MHI’s move clears the way for Embraer to have a monopoly in the regional jet space. Unless—unless MHI restarts the SpaceJet program on its own or partners with another company to make a commitment to developing a new airliner.
LNA noted when the Boeing-Embraer joint venture collapsed that this presented opportunities for MHI and Boeing to renew and expand their previous relationship for the MRJ program. Here are some possibilities facing MHI.
Summary
- Kill SpaceJet entirely.
- Restart SpaceJet.
- Resuscitate the agreement for Boeing to support the MRJ program, updating it to the SpaceJet.
- Resuscitate and expand the previous agreement, strengthening the development SpaceJet and co-marketing by Boeing.
- Create an entirely new cooperative agreement, vastly broadening and strengthening decades-long ties between MHI and Boeing. LNA sees this as including SpaceJet and an entirely new family of aircraft replacing the 737 MAX.
- An expanded, broader agreement could even include development of a new “NMA Lite.”
- Finally, buy or create a JV with Embraer Commercial Aviation.
An accelerating widebody fleet streamlining, Part 1
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By Vincent Valery
Introduction
June 1, 2020, © Leeham News: As airlines slashed capacity in the aftermath of the COVID-19 outbreak, some took the opportunity to accelerate aircraft retirements.
Older generation twin-aisle aircraft, notably the Airbus A340, older A330s, Boeing 747 and 767, have exited numerous carrier’s fleet early. Several Airbus A380 operators put their Superjumbos in long-term storage, wondering whether these will ever fly in passenger service again.
Major crises tend to accelerate existing trends. The move away from large twin-aisle aircraft is a case in point. In the context of subdued demand for several years, airlines will be under pressure to reduce expenses. Streamlining fleets is an obvious target.
The Airbus A320 and Boeing 737 families dominated the single-aisle market for decades. The picture has historically been far more fragmented for twin-aisle aircraft. Airbus and Boeing still have three widebody aircraft families apiece with significant numbers of passenger aircraft in service.
LNA analyzes in two-part articles why the picture will likely change for the widebody market in the 2020s. In the first part, we will take a historical detour to analyze why twin-aisle fleets are still so fragmented nowadays.
Summary
- Range going hand in hand with aircraft size;
- Change in the 1990s;
- Superjumbo gamble backfires;
- Full widebody fleet streamlining becomes a reality.
What’s the gain of flying a smaller single-aisle during COVID-19 recovery?
By Bjorn Fehrm
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Introduction
May 28, 2020, © Leeham News: As flying recommences after country lockdowns, the fill factors for the flights will be low for an extended period.
Airlines and the OEMs are anticipating the low load factors. For instance, Delta has not deferred any Airbus A220 deliveries but is postponing deliveries of larger aircraft. How much of an advantage is a smaller aircraft when opening up the traffic again?
We compare the operational costs of the Airbus alternatives. The cost of flying the A220-300 is compared with the A320neo.
Summary:
- The A220-300 is about 25 seats smaller than the A320neo. It’s smaller airframe makes for lower fuel costs and airway/landing fees.
- There are savings on the crew side as well, as both flight and cabin crew costs less.
- Finally, modern systems, a composite wing, and a fuselage made of advanced materials promise lower maintenance costs than the A320neo.
Mitsubishi SpaceJet retreat is the best news for Embraer in months
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By Scott Hamilton
Analysis
May 25, 2020, © Leeham News: Mitsubishi Heavy Industries (MHI) surprising retreat from its SpaceJet regional airliner program is the best news in months for beleaguered Embraer.
This takes pressure off the Brazilian manufacturer and gives it time to regroup after Boeing jilted it at the alter by walking away from a proposed joint venture.
Going into storage: four Mitsubishi MRJ90s at Moses Lake (WA). Photo: Mitsubishi.
MHI’s actions leave Embraer with a monopoly in the 76-100 seat arena vs new airplanes. The M90 SpaceJet is not a viable competitor to the E175-E1 or the struggling E175-E2. Embraer’s competition will be its own used jets, plus used Bombardier CRJ-700/900s.
Summary
- Closing US operations entirely. Closing the recently opened engineering center in Montreal
- Continued operation of the CRJ product support center in Montreal or relocation to Nagoya uncertain.
- Major cost-cutting drive.
- MHI wants to certify M90, then consider whether to proceed with M100.
- M100 has MOUs for 495 aircraft.
- MRJ90 was not certifiable due to design deficiencies.
- Redesigned M90 meets certification requirements.
- M90 is economically uncompetitive with E-Jet.
- COVID-19 upends entire airline industry, casting doubt in MHI’s commitment to SpaceJet future.
Better to bring capacity back with a 777-9 or 787-10 if we fly 777-300ER today?
By Bjorn Fehrm
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Introduction
May 21, 2020, © Leeham News: We looked at the economics of extending the lease of a Boeing 777-300ER or taking an ordered 777-9 here.
If traffic post-COVID-19 on the routes we fly stays down for long, should we change the order to a 787-10? What are the trades between staying with the 777-300ER, taking the 777-9, or stepping down to a 787-10?
We use our airliner economic model to find out.
Summary:
- The 787-10 is the safe choice if the fill level for our routes will stay below its passenger capacity for a longer period.
- This choice is valid for a JFK to Heathrow route. The 787-10 has a shorter range than the 777-300ER and 777-9, so a 787-10 alternative is only possible for routes within its capacity.
Lessor exposure to Airbus, Boeing wide-bodies
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By Scott Hamilton
May 18, 2020, © Leeham News: As airlines park or retire thousands of aircraft, lessors with wide-body airplanes are most at risk.
Single-aisle airplanes are easier to re-lease and more in demand when traffic recovers. Reconfiguration and maintenance costs, if required, are 
reasonable by aviation standards. Cabin reconfiguration may run up to $1m. Airframe and engine MRO costs for Airbus A320s and Boeing 737s typically are in the low millions, depending on condition.
MRO and reconfigurations costs for wide-body airplanes, on the other hand, can cost more than a new A320 or 737. GE Aviation GE90s on Boeing 777-200LRs, -300s and -300ERs are notoriously expensive. MRO for Rolls-Royce wide-body engines is costly under RR’s contract packages.
Reconfiguration costs for A330s, 777s and A380s can run up to $30m, depending on the initial operator and who the second (or third) one will be. Therefore, HiFly did not reconfigure the ex-Singapore Airlines Airbus A380 it acquired after SQ retired the airplane.
LNA analyzed the number of wide-bodies owned by lessors. There are more than 670 Airbuses and more than 600 Boeings.
Better to bring capacity back with a 787-10 or 777-300ER
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By Vincent Valery
Introduction
May 14, 2020, © Leeham News: Last week, we compared the economics of the Boeing 777-300ER and 777-9 on the world’s busiest intercontinental route. The older aircraft proved a viable alternative, thanks to low fuel prices and low capital costs. We will now turn our attention to the step-down case mentioned in the article.
We will look at the market developments in the twin-aisle market and compare the economics of the 777-300ER with the 787-10 on the JFK to London Heathrow route to find out how attractive such an option is.
Summary
- 777X hot when launched;
- A materially different market for customers seven years on;
- Leads airlines to consider large twin order conversions.
Bringing back long-haul capacity with narrowbody aircraft
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By Vincent Valery
Introduction
May 11, 2020, © Leeham News: The timeline for a passenger traffic recovery is highly uncertain. Major OEMs and some airlines expect a return to 2019 passenger traffic levels in two years at the earliest.
Southwest Airlines doesn’t see traffic returning to 2019 for five years. IAG, parent of British Airways and several other airlines, predicts a three year recovery.
Leeham Co. predicts that it will take four to eight years before traffic returns to pre-COVID-19 levels.
Airbus A321XLR. Source: Airbus.
However, the recovery sequence for the various markets is becoming clearer. Governments will progressively lift travel restrictions on domestic markets, followed by regional international. Long-haul international will probably be the last to return to normal.
Airlines in China started ramping up domestic capacity, though the government mandates some of this. The governments of Australia and New Zealand disclosed discussions to lift trans-Tasman travel restrictions. French President Emmanuel Macron made it clear that travel would be first allowed within the European Union before outside the old continent.
People who need to travel for business reasons will be allowed first, including for long-haul travel. That means airlines that wish to restore long-haul capacity will have to do so with a much-reduced demand. With this in mind, it might make sense to restore long-haul flights with latest generation narrowbody aircraft such as the Airbus A321(X)LR and Boeing 737 MAX.
LNA analyzes pre-COVID-19 long-haul route patterns to determine what fraction narrowbody aircraft can cover as passenger traffic recovers.
Summary
- Long-haul markets split in two;
- Missed New Mid-Range Aircraft launch opportunity;
- A large addressable market for the A321XLR;
- A321LR and 737MAX long-haul route coverage.
Better to bring capacity back with a 777X or 777-300ER? Part 2
By Bjorn Fehrm
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Introduction
May 7, 2020, © Leeham News: With the Covid-19 pandemic depressing passenger traffic for years to come, we started an analysis last week on the options the airlines have who wait for their Boeing 777-9. Hold on to their 777-300ER or upgrade to the newer and more efficient 777-9?
We deepen the analysis this week by comparing the economics of a 10 years old 777-300ER versus a new 777-9.
Figure 1. The 777X has 30% larger windows than standard in the class. Source: Boeing.
Summary:
- The 777X is best seen as a cross between a Boeing 787 and a 777-300ER. It inherits the passenger comfort features the 787 brought to the market like lower cabin altitude, higher cabin humidity, larger windows, and a smoother ride.
- If a 777-9, with it’s higher capital costs, can compete on operating cost with a used 777-300ER depends on the fuel price.
Collapse of Boeing-Embraer JV gives Mitsubishi Aircraft new opportunities
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By Scott Hamilton
Introduction
May 4, 2020, © Leeham News: The collapse of the Boeing-Embraer joint venture removes a major cloud over another Boeing agreement with a different airframe company.
Long ago, Boeing and Mitsubishi Aircraft Corp. (MITAC) entered into a support agreement for what was then the MRJ program.
MITAC was to receive marketing and services support from Boeing for the MRJ.
From the moment the news emerged that Embraer and Boeing were talking about a merger, acquisition or joint venture (the goal moved over time), questions arose over the future of the MITAC agreement.
Summary
- Boeing said the MITAC agreement would be honored, but skepticism remained.
- The MRJ and later the SpaceJet would compete with the former Embraer product line.
- Recovery consensus 3-5 years.
- With collapse of Boeing-Embraer JV, Mitsubishi-Boeing can reaffirm, strengthen their cooperative agreement.