Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Bjorn’s Corner: New engine development. Part 5. Turbofan design problems April 26, 2024
- Airbus 1Q2024 results: Airbus CEO: “A350 in-service experience drives positive reputation and orders” April 25, 2024
- A350-1000 or 777-9? Part 3 April 25, 2024
- Boeing CEO promises company is turning around…again April 24, 2024
- Solid start for stand-alone GE Aerospace despite cuts to LEAP output April 23, 2024
Used B777-200ER or A340-300, Part 2
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Introduction
By Bjorn Fehrm
Dec. 3 2015, ©. Leeham Co: Last week we started our article series around acquiring used twin-aisle aircraft to start new long haul services or boost an existing network. We focused on Airbus’ A340-300 and Boeing’s 777-200ER, two capable long haulers, both with a capacity of around 290 seats, using our normalized two class cabin. We wanted to understand which one would have the lowest operating costs over a network which has flights up to 12-13 hours.
We analyzed the Cash Operating Cost (COC) of the aircraft in their standard configuration in Part 1. We could see that their COCs are similar. We now study the aircraft’s capital costs. These will include a necessary cabin makeover where we will use the chance for the 777-200ER to convert it to a 10 abreast aircraft in economy. We aim to amortize its higher acquisition cost by spreading these over more passenger seats.
Summary
- The 777-200ER and A340-300 are very close in Cash Operating Costs in their base versions.
- The 777-200ER has a market valuation which is more than double that of the A340-300. Recently this level has declined but the acquisition cost of a -200ER is still higher than the A340-300.
- We use the potential of 10 abreast in economy to see if we can even the per seat cost of the two by spreading the higher costs of the -200ER over more seats.
Boeing 737 rate hike factors
Boeing 737 factory in Renton (WA). Boeing rendering.
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Introduction
Nov. 30, 2015, © Leeham Co.: As Boeing ponders whether to increase production rates of the 737 line beyond the previously announced 52/mo rate effective in 2018, there are other important considerations besides whether the market can sustain another rate increase and whether the supply chain can gear up to the higher rates.
It is widely known that Boeing is considering rates as high as 63/mo, the maximum capacity at its Renton (WA) plant. Airbus has already announced it plans to go to rate 60/mo for the A320 family in 2019. But a higher rate is being explored, and a relationship to the future of the 747-8 is a factor.
Summary
- Market share protection, backlog clear considerations.
- Termination of the 747-8 program, its effect on suppliers and a Boeing write down are factors.
- Cash flow going into the 2020 decade is important.
Used B777-200ER or A340-300?
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By Bjorn Fehrm
Introduction
Nov. 26 2015, ©. Leeham Co: In recent articles we have latched on to the debate around the prices for used Boeing 777-200 aircraft. Contrary to the market appraising companies’ ideas about second hand values, our surveys show that not only the Airbus A340-300 is cheap in the market but the Boeing 777-200ER is also available at interesting prices.
This, coupled with sustained low fuel prices, makes for interesting opportunities. Charter destinations can be reached which were not possible with less competent aircraft and it is possible to lease or purchase these long range aircraft to backfill an expanding route network while awaiting or even postponing delivery of the latest technology aircraft.
We decided it was time to take a look at which of the two would be the better choice as a long hauler of 300 passengers to destinations of up to 5,000nm. We use our proprietary model to find out which one is the most suitable given different conditions, such as cabin makeover or not. We will also introduce aircraft deterioration to the calculations to map the reality of an older aircraft.
In this first article, we will establish the base values for the aircraft and find their cash operating costs. In a subsequent article, we will add capital costs where we will look at different purchase scenarios and refurbishing options and how these affect the overall direct operating costs.
Summary
- The 777-200ER and A340-300 are very close in most dimensions.
- The 777-200ER is the slightly larger and heavier aircraft. Thanks to more effective engines, it can compete on fuel costs.
- When the other costs are added to make up cash operating costs, the higher weight and more expensive engines start to eat up any fuel cost advantages the 777-200ER has.
The turbo-prop conundrum: small market, high costs
ATR Turbo-prop. Photo via Google images.
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Introduction
ATR and Bombardier are incumbents. China has a home-market offering.
Indonesia and India want to create a product.
It’s the 60-seat and up turbo-prop market.
It’s too many companies chasing too-small a market.
Summary
- The 20-year demand for 60-99 seat turbo-props is small.
- Developing a new, clean-sheet design is costly.
- There is a solid demand for an inexpensive 19-34 seat turbo-prop—but nobody is interested.
Embraer sees broadening market in North America
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Introduction
Nov. 17, 2015, © Leeham Co. The chief commercial officer of Embraer sees US mainline carriers adding
John Slattery, Chief Commercial Officer, Embraer. Photo via Google images.
aircraft in the 100-plus seat sector that will open new opportunities for the largest E-Jets hitherto a limited interest in this region.
First among high profile possibilities: United Airlines, which was identified as a major prospect for Bombardier and its CS100. According to multiple news reports, UA is holding out an order for the CS100 as an inducement for some pilot contract revisions. According to Market Intelligence, the potential order is for an equal number of orders and options, well below 50 orders but one which would be a crucial win for struggling Bombardier.
But Embraer isn’t going to let this order go without a stiff fight. Through United Express partners, EMB has a large installed base of E-175s operating for United. This is viewed as a major advantage by EMB’s CCO, John Slattery.
Summary
- United, JetBlue, Air Canada targets for CSeries sales.
- Embraer has large, installed fleet of E-Jets at these airlines.
- Broadened market potential seen with North American carriers for 100-plus seat airplanes.
Delta CEO is right about 777-200ER values, says market
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Introduction
Richard Anderson, CEO, Delta Air Lines. Photo via Google images.
Delta Air Lines CEO Richard Anderson is right.
Actual market values for 10-year old Boeing 777-200ERs are around $10m, not the $50m-ish suggested by Boeing and professional appraisal firms.
This is the conclusion of our Market Intelligence of real-world demand for these airplanes, not some theoretical book appraisal.
Furthermore, used 777-300ERs are in little demand.
The costs involved in reconfiguration and maintenance, repair and overhaul (MRO) simply upend traditional expectations.
Summary
- Used 777-200ERs can’t be “given away,” reducing values to scrap regardless of book values carried by owners or appraisers.
- Rolls-Royce-powered -200ERs, caught up in RR maintenance programs, make traditional engine valuations irrelevant.
- A sudden glut of late-model 77-300ERs upend these values.
- Ten year old -300ER lease renewal rates demanded by airlines drop to $325,000 in negotiations.
Emirates’ 615 seat A380, is it more economical?
By Bjorn Fehrm
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Introduction
Nov. 11, 2015, ©. Leeham Co: Emirates Airline showed off its newly delivered two class A380 at this week’s Dubai Air Show. With a record 615 seats, this is the densest A380 that has been delivered by Airbus.
Emirates have reached this record seat number by replacing the first class cabin (and showers) with economy seats. Part of the business area has gone as well. What remains on the Premium side are 58 of the well known lie-flat seats and the ubiquitous Emirates bar.
The aircraft is aimed at high density destinations which are reached within a 12 hours limit, therefore the aircraft has no crew rest facilities.
The question is, what improvements in seat-mile costs does this configuration bring and how does it stack up against a similarly configured Boeing 777-300ER or 777-9?
Will there be a change in the economical pecking order compared to the more classical long range configurations that we looked at December last year?
We used our proprietary performance model to find out.
Summary:
- To be fair to all aircraft, we equipped them with similar high density two class cabins.
- We also kept the ratio of business-to-economy seats the same for all cabins.
- The result is high capacity workhorses that are used for flying passengers and cargo at sector lengths of up to 12 hours. Consequently, none of the aircraft have crew rest facilities.
- We then looked at fuel efficiency, Cash Operating Costs and Direct Operating Costs for these long-haulers now given a mostly mid-haul work scope.
Embraer’s fundamental advantages
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Introduction
With the first Embraer E-Jet E2 under assembly, we take a look at the E1 and E2 programs in the run-up to 
roll-out of the E-190 E2 next year and projected Entry Into Service (EIS) in 2018.
Summary
- Broad customer base gives Embraer a major advantage against new competitors.
- More than 2,300 ERJs, E-Jets in service.
- More than 1,100 E-Jets in service.
- Broad product support a key advantage.