Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Boeing wants to remarket China’s airplanes. It’s costly and time consuming. April 28, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 19. April 25, 2025
- How good is the C929? Part 2. April 24, 2025
- Boeing First Quarter Results Update: China is 10% of the backlog, with 500 in “Unidentified” April 24, 2025
- Boeing First Quarter Results: Tariffs, Return flights, $10.55bn asset sale April 23, 2025
Southwest Airlines Slashing Capacity Growth Shakes Up Their Fleet Plan
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By Chris Sloan
Sept. 30, 2024, © Leeham News: Southwest Airlines outlined significant moves in its quest to return to sustained profitability at its investor day on September 26 in Dallas. Widely reported revenue and financial initiatives include assigned and premium seating, network realignment, capacity growth cuts, and staffing reductions.
Billed as Southwest Even Better, the plan is the most transformational program in the company’s 53-year history, according to Chief Executive Officer Bob Jordan. “The plan includes a robust set of tactical and strategic initiatives and elements uniquely available only to Southwest Airlines. The plan is capital efficient and supports achieving our financial goal of ROIC [Return on Invested Capital], well above our cost of capital,” he said. Yet, he acknowledged that recent financial performance is not up to anyone’s expectations. “Our model is not broken, but it needs continued calibration and enhancement.” By 2027, the plan is expected to add approximately $4 bn in cumulative incremental earnings before interest and taxes (EBIT).
Jordan pointed to external factors as a significant culprit, notably Boeing. “It’s no secret that Boeing’s delivery delays have created significant issues for us, making it very difficult for us to run a business. Boeing has delivered very few MAX aircraft on time, and we are still waiting on the MAX 7 certification.” Though compensation agreements remain confidential, “Past financial issues caused by Boeing delivery delays and other Boeing issues have largely been resolved through the application of credits on future deliveries,” said Jordan.
Southwest is taking dramatic steps to mitigate “operational risk” by reducing hiring and cutting annual capacity growth to 1-2 percent through 2027. “We expect production issues at Boeing and issues related to the (Pratt & Whitney) Geared Turbofan engine to continue to constrain industry growth for years to come,” Jordan noted.
Bjorn’s Corner: New engine development. Part 26. New versus old, Trent 1000 vs. XWB
By Bjorn Fehrm
September 27, 2024, ©. Leeham News: We do an article series about engine development and why it has longer timelines than airframe development. It also carries larger risks of product maturity problems when it enters service than the airframe of an airliner.
In our look at examples of recent developments with problems and these put in a historical perspective, looking at the reliability and durability of its predecessor we compare the Rolls-Royce Trent 1000 for the Boeing 787 to the Trent XWB for the Airbus A350.
Figure 1. The Rolls-Royce Trent 1000 with its wide cord hollow titanium fan. Source: Rolls-Royce.
Heart Aerospace’s revised ES-30
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By Bjorn Fehrm
September 26, 2024, © Leeham News: Heart Aerospace has revised its environmentally friendly aircraft for the third time. The variants started in September 2020, when Heart presented an all-electric, battery-based 19-seat airliner that should test fly by now and be available in 2026, Figure 1, top aircraft.
Two years later, in September 2022, it all changed. The aircraft was changed to a 30-seater with a serial hybrid propulsion system using turboextenders to increase the operational range, Figure 1, aircraft two.
After another 20 months, the configuration changed again to the third iteration in Figure 1, which will fly in prototype in 2026 and be available to airlines in 2029.
In an article series, we explain the reasons for these changes and analyze whether the changes in the aircraft have increased the likelihood of the ES-30 entering the market in 2029.
Figure 1. The Heart Aerospace regional airliner series. Top, the ES-19, then the ES-30, and finally, the revised ES-30. Source: Heart Aerospace.
Summary:
- Heart Aerospace has followed the typical trajectory for an electric aircraft startup.
- It begins with an all-electric, battery-based airliner that will change regional flying.
- Gradually, reality sets in, and all-battery architecture becomes a serial hybrid and, finally, a parallel hybrid.
- We analyze if the evolution trail increases the chances we will fly on Heart Aerospace airliners come 2030.
Ortberg’s honeymoon with Boeing’s labor unions is over
By Scott Hamilton
Analysis
Sept. 24, 2024, © Leeham News: That was a short honeymoon.
Kelly Ortberg, CEO of The Boeing Co. Credit: Boeing.
The desire of Kelly Ortberg, the new CEO of The Boeing Co., to reset labor relations with its largest union came to a crashing halt
yesterday. This is a mere six weeks after his appointment, on Aug. 8, to succeed David Calhoun, whose four and two-thirds-year tenure was marked with one failure after another.
Boeing’s largest union, the IAM 751 with 33,000 members, delivered a thumping to the company on Sept. 12 when 95% of the members rejected what Boeing claimed was its best contract offer ever. Ninety-six percent of the members concurrently voted to strike at midnight. They were walking the picket lines when Boeing issued its Best and Final Offer (BAFO) on Sept. 23. The offer sweetened the pot in some key areas.
But how the offer came about and was delivered incensed union members, who rejected the original offer in large part due to 16 years of pent-up anger and resentment over stagnating wages, reduced benefits, and elimination of a defined benefit pension plan. The union concessions were made under threats of locating the final assembly of the 737 MAX and 777X outside the greater Seattle area.
In preparing and presenting the BAFO, Boeing ignored the IAM’s negotiating team. Two days of talks under federal mediation failed. The IAM complained that Boeing refused to return to the negotiating table. (On Sept. 13, the day after the original contract was rejected and the strike began, company CFO Brian West said Boeing was anxious to resume negotiations.)
Boeing released details of the BAFO to the media before presenting it to 751 President Jon Holden. The union later released a scathing statement rejecting the offer and Boeing’s demand for a member vote by midnight Friday, Sept. 27.
Is Boeing’s BAFO really it? IAM rejects it and says no vote (Update) (2)
Update 2: Here is the red-lined union contract proposal from Boeing: Redlined-CBA-IAM751W24-Sept-23-2024 (1)
By Scott Hamilton
Sept. 23, 2024, © Leeham News: Boeing’s Best and Final Offer (BAFO) today to its striking IAM 751 union membership for a new contract is a risky gamble.
The offer bypassed the local’s negotiating team and appealed directly to the membership. 751 leadership already filed a complaint with the National Labor Relations Board for alleged violations of collective bargaining laws for the same reason during the original contract negotiations.
Boeing risks a new complaint over its latest move, which almost certainly angered Jon Holden, president of 751, and the negotiating team. No comment has been forthcoming from Holden or 751, but the president of the “parent” IAM issued to following statement, ABC TV News reported yesterday:
“Employees knew Boeing executives could do better, and this shows the workers were right all along. The proposal will be analyzed to see if it’s up to the task of helping workers gain adequate ground on prior sacrifices,” said Bill Bryant, president of IAM International.
The absence of a comment from 751 doesn’t mean others aren’t. Two retired Boeing IAM members told LNA the BAFO is acceptable and said union members should approve it. However, social media commentary takes a decidedly different view.
Update: The IAM 751 just posted a response to its Twitter (X) account, here. It’s a scathing reply. In part, the union leadership said, “THIS IS A NON-NEGOTIATED OFFER from Boeing. Your Negotiating Committee did not have any discussion or input on this offer. We have said all along that the Union would be available for direct talks with Boeing or, at a minimum, expected to continue mediated discussions when the company was ready. These direct dealing tactics are a huge mistake, damage the negotiation process, and attempt to go around and bypass your Union negotiating committee.” (Emphasis is the union’s.)
There will be no vote Friday, the union says.
One post on Reddit mocks Boeing’s “Best and Final Bingo” offer. There are claims of “astroturfing,” ie posts that purport to be from IAM members but which are believed to be ghosts for Boeing. There’s no proof, but one former IAM member said that during the contentious 2013/2014 vote for concessions in exchange for the 777X assembly in Everett astroturfing was traced to Boeing.
Other posts make it clear that there is resentment over Boeing’s releasing the BAFO to the media before the members received it. And generally, there remains a belief that Boeing can do more.
Boeing makes “Best and Final Offer” to IAM; sets Sept. 27 midnight deadline
Sept. 23, 2024, (c) Leeham News: Boeing issued its Best and Final Offer (BAFO) to its largest union, the IAM 751 a short time ago. The company set midnight Friday as the deadline to accept it.
So far, there has been no comment from the union. The union went on strike at midnight Sept. 12 after rejecting a contract with a 95% vote and went on strike with a 96% vote.
Boeing’s website has additional information.
A retired union member told LNA the members should accept this one, with the restoration of the year-end bonus a key feature.
Boeing’s shareholders: which do you prefer? Dilution or bankruptcy?
By Scott Hamilton
Sept. 23, 2024, © Leeham News: A Wells Fargo analyst calculated The Boeing Co. might have to issue 190 million shares of stock to get itself out of the financial mess it’s in.
At the $155 range Boeing’s stock has been recently trading, which would be just shy of $30bn.
Last week, Barron’s (a financial publication) wrote that Boeing has too much debt and perhaps a $10bn equity offering would suffice.
The Wells Fargo analyst and Barron’s complained that issuing stock would hurt shareholders due to the dilution.
On Sept. 12, the day Boeing’s IAM 751 union rejected the Tentative Agreement for a new labor contract and voted to strike at midnight, LNA did a deep dive analysis of the Wells Fargo equity speculation and the increasing speculation that Boeing might be forced into bankruptcy if the strike lasts a long time.
Before that, LNA analyzed the net debt levels, how long it would take to pay it down, and the annual interest to be paid.
Boeing’s financial position is precarious. It needs $10bn in cash to run the company; on June 30, the end of the second quarter, it had $12bn in cash. It’s losing an estimated $100m a day during the strike.
Wall Street types wring their hands over the dilution of a possible stock offering. This begs the question: would they prefer dilution or bankruptcy, which typically wipes out shareholders?
Or would they prefer at least a decade of stagnation while Boeing tries to operationally repair its balance sheet?
LNA welcomes the idea of a $30bn equity offering.
Boeing won’t fully recover without drastic action. And a massive equity offering best fits this need.
Related Stories
- Boeing has too much debt. (Barron’s)
- IAM rejects contract, strikes at midnight
- Boeing’s liabilities problem: a decade to resolve
- Melius analyst report: The Strike is a Symptom of a Bigger Problem
Bjorn’s Corner: New engine development. Part 25. New versus old, CFM56 vs. LEAP
By Bjorn Fehrm
September 20, 2024, ©. Leeham News: We do an article series about engine development and why it has longer timelines than airframe development. It also carries larger risks of product maturity problems when it enters service than the airframe of an airliner.
In our look at examples of recent developments with problems and these put in a historical perspective, we compare the CFM56 to the LEAP, comparing their reliability and durability.
Figure 1. The CFM56 with its mid-span shrouded titanium fan. Source: CFM.
The A330neo for medium haul or twice the frequency with A321XLR? Part 3
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By Bjorn Fehrm
September 19, 2024, © Leeham News: We examine the high-volume short-to-medium-range market and check whether a route previously reserved for the Airbus A330 can be flown with a fleet of A321XLRs. At equal per-passenger operational costs, doubling the frequency is advantageous and can drive market growth, revenue, and margin.
After comparing passenger only operating costs, such as per seat mile Cash Operating Costs (COC), we add cargo to the mix. To compare efficiency, we then need to do a route margin comparison.
Summary:
- When we add cargo to the revenue mix, the A321XLR’s limited cargo capability makes it a less attractive alternative for routes with cargo traffic.
- The A321XLR is still an interesting alternative for routes with few cargo opportunities and where route frequency can motivate higher passenger yields.
Embraer versus Boeing JV arbitration decision results in $150m cash payment
By the Leeham News team
September 16, 2024, © Leeham News: Embraer issued a short investor release today stating that the arbitration was concluded regarding Boeing’s unilateral termination of the agreement of a Commercial Aircraft Joint Venture and a partnership regarding the C-390 aircraft. Boeing did the M&A termination in April 2020.
The resu
lt is that Embraer will receive a $150 m cash payment from Boeing. The payment is below the market expectations, which were around $300m to cover the Embraer carve out and carve in costs. The issue of the Boeing merger and its effects on Embraer is now history, which is positive even though Boeing’s damages payment was lower than expected.
Embraer will most likely use the cash injection to lower its net debt, which is already at a low $1.3bn and has a leverage to EBITDA of 2.0.
It was in July 2018 that Embraer announced it would sell 80% of its Commercial Aviation business, then valued at a 100% value of $5.25bn to Boeing. The Master Transaction Agreement was signed in January 2019. It included a joint venture for marketing the C-390 Millenium multi-mission military cargo jet.