Leeham News and Analysis
There's more to real news than a news release.
“There’s light at the end of the tunnel, but the journey is just beginning.”
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By Scott Hamilton
Introduction
April 26, 2021, © Leeham News: Aerospace suppliers generally had worse delivery and quality control performance in 2020 than in 2019. By next year, executives think timeliness and quality will return to 95% of pre-pandemic levels.
Eighty-three percent of executives surveyed see delivery rates for narrowbody aircraft improving this year and next.
Forty-nine percent of executives surveyed see airline industry revenues returning to 2019 levels in 24-36 months.
And eco-aviation and sustainability drives will be an increasingly important topic over the next three years.
These are just some of the findings in the annual survey of aerospace and airline executives conducted by the international consulting firm Accenture.
Summary
- “There’s light at the end of the tunnel, but the journey is just beginning.”
- 6-18 month outlook. 2019 survey skipped as the pandemic spread.
- The shift in sustainability-driven is by today’s younger generation.
Bjorn’s Corner: The challenges of hydrogen. Part 34. Series wrap-up
By Bjorn Fehrm
April 23, 2021, ©. Leeham News: I said last week we spend this final Corner on hydrogen-fueled air transport, describing projects outside the big ones, like Airbus.
But more important events took place in the week with implications for sustainable air transport. We wrap up by describing these and speculate where these take us.
“The thin blue layer that enables life on our rock planet.” Source: President Biden’s introduction to the climate summit.
Unsustainable – and growing – airline debt load weighs on OEMs, suppliers
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By Judson Rollins
Introduction
April 22, 2021, © Leeham News: COVID-19 has forced every layer of the commercial aviation supply chain, apart from cargo airlines, to streamline their businesses and raise cash to survive. Nowhere has this been more true than for passenger airlines, the end-customers for most aviation products.
Before the pandemic, passenger carriers were taking advantage of cheap capital to invest in both new and used aircraft. However, most have stretched their balance sheets beyond imagination by pledging every unencumbered asset – even frequent flyer programs – to raise additional debt.
International Air Transport Association (IATA) economist Brian Pearce said in a February webinar that governments provided $101bn of repayable loans and tax deferrals in 2020 alone. Another $125bn was raised from banks, capital markets, and lessors. More will be required this year.
Governments and markets backstopping the world’s airlines, aided by central bank money printing, are why fewer than 50 have ceased operations since the start of the pandemic. This is not materially worse than a typical year, but it doesn’t begin to reflect the scale of the ongoing financial shock to airlines.
Summary
- Airline demand recovery is prolonged in most regions; new tax and cost pressures loom.
- Debt loads will continue to grow this year; interest expense is mounting.
- High leverage may depress airline capital expenditures through 2030.
- Governments may finally ground loss-making state carriers, adding to used aircraft inventory.
- Aircraft production cuts are already impacting the supply chain.
10 Minutes About: Boeing, Calhoun’s extension and Smith’s retirement
April 21, 2021, (c) Leeham News: Boeing announceed April 20 that the Board extended CEO David Calhoun’s mandatory retirement age from 65 to 70. Calhoun was 64 on April 18 and had one year to accomplish everything that needs to be done. 
Now, with six years, he can finish structuring Boeing and presumably launch a new airplane program.
Also announced on April 20 is that Greg Smith, the chief financial officer and EVP of strategy and other things, will retire July 9. Smith was named CFO in 2011. Some thought he might be in line to become CEO once Calhoun stepped down at age 65.
Richard Aboulafia of The Teal Group is LNA’s guest on this episode of 10 Minutes About to discuss these developments.
Boeing AGM routine, action came an hour before
April 20, 2021, © Leeham News: Despite some media suggestions that the Boeing Annual Shareholders’ Meeting would be a “showdown,” the event proved as LNA predicted: More of the same.
All 10 company nominees to the Board of Directors were elected or reelected. They were unopposed, so there was no room for a showdown on this score.
Dissident shareholder resolutions were voted down. Company resolutions were approved.
The only surprise came an hour before the meeting, when Boeing announced that Greg Smith, the CFO since 2011, will retire July 9. This wasn’t expected.
In the same announcement, the Board waived the mandatory retirement age of 65 for CEO David Calhoun. He turned 64 Sunday. The Board gave Calhoun until age 70 before he’d have to retire. There’s nothing to say he couldn’t before then. But this gives Calhoun more time to right the ship and set Boeing on a new path for the future. Calhoun’s one year Countdown now has up to six years.
Below are some initial reactions from Wall Street aerospace analysts about the two moves.
The conundrum of a new airplane design vs a derivative
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By Scott Hamilton
Introduction
April 19, 2020, © Leeham News: When it comes to a decision by an aircraft manufacturer whether to develop an entirely new airplane or a derivative, these multi-billion dollar decisions involve hundreds of thousands of considerations.
Airbus missed with its first A350 design, but has a winner with the A350 XWB. Source: Airbus.
Sometimes derivatives will do the job. Sometimes a new airplane is the better choice.
Given that Boeing faces a decision whether to launch the Next Boeing Airplane (NBA) and Airbus must decide how to respond, all within the next few years, looking at the considerations and some history is timely.
Today’s examination is going to focus at the 40,000 ft level. We’re not going to delve down into the decisions over suppliers or the minutiae into production. Rather, we’re going to look at general strategy.
Summary
- Airbus wins big gamble with A320neo decision.
- Boeing was victor with 787, while Airbus missed with first A350 design.
- Boeing missed with 747-8I and, it appears so far, with 777X.
- Next airplane decision by Boeing will drive Airbus response. Read more
Pontifications: End appears in sight for 16-year old US-EU trade dispute
By Scott Hamilton
April 19, 2021, © Leeham News: There appears to be progress in resolving the 16 year long trade dispute between Airbus and Boeing. Finally.
The dispute officially is between the European Union and the United States. But neither political entity would have pursued a dispute but for complaints by Boeing and Airbus.
No recap of the trade dispute is required for LNA readers.
Bjorn’s Corner: The challenges of hydrogen. Part 33. Wrap-up: The Eco-system
By Bjorn Fehrm
April 16, 2021, ©. Leeham News: Last week, we wrapped up the operational part of sustainable air transport using hydrogen as an energy source.
Now we look at where we are with the all-important Eco-system. It has many moving parts and risks a chicken and egg stalemate.
Figure 1. The prospective conversion of the European gas pipeline network to hydrogen. Source: EU.
Aviation Writers Bloc: Calhoun’s Countdown
April 15, 2021, © Leeham News: Boeing CEO David Calhoun turns 64 on April 18. This means he is in his final year on Boeing’s Board of Directors and as an employee, unless the Board extends his contract beyond the mandatory retirement age of 65.
In a new feature, the Aviation Writers Bloc, LNA’s panel discusses Calhoun’s legacy, whether he’ll launch a new airplane program and whether Boeing Commercial Airplanes will remain headquartered in Puget Sound.
Investors’ bull case on aircraft OEMs has gaps
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By Judson Rollins
Introduction
April 15, 2021, © Leeham News: Late last month, the aerospace and defense analysis team at Credit Suisse (CS) published its view on the future of the Airbus-Boeing duopoly, as well as an introduction to COMAC’s market position and future.
CS’s main thesis struck a decidedly upbeat note: “As a result of excess retirements due to [COVID-19], significant [sustainability investor] pressure on decarbonization, and the appeal of new warrantied aircraft, we might actually expect a period of solid new aircraft demand in a year or two.”
In terms of specific manufacturers, the team was unsurprisingly more bullish on Airbus than Boeing. They cited Airbus’s “strong market positions in narrowbodies” and their expectation that Boeing’s “recovery will be encumbered by the realities of its product portfolio.” CS did see room for longer-term optimism on Boeing, arguing that while spend on new product development “would pressure numbers this decade, it could also shift the competitive pendulum back … helping anchor a higher terminal [share] value.”
However, CS’s view seems to be more optimistic than that reflected in the two manufacturers’ equity prices. Airbus and Boeing shares are down 23% and 26% from their respective early-2020 highs.
A deeper look into their analysis raises several questions about the future trajectory for commercial aircraft sales.
Summary
- Aircraft retirements aren’t the overreaction they appear to be.
- Sustainability is already a priority for airlines and manufacturers; new regulations will only dampen commercial aircraft demand.
- The appeal of new aircraft, while boosted by low interest rates, must be balanced against the wide availability of used ones.
- A slow recovery in business travel will dampen yields, crimping investment in new aircraft.