Leeham News and Analysis
There's more to real news than a news release.
Engine OEMs forecast big hit to aftermarket revenue
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By Scott Hamilton
May 5, 2020, © Leeham News: The COVID crisis will damage the aerospace aftermarket in ways that are only beginning to be understood.
As key companies report 1Q earnings, it’s clear that engine aftermarket revenue is going to take a major hit for years to come.
Engine companies like CFM, GE Aviation, Pratt & Whitney and Rolls-Royce, rely on aftermarket sales as the key component of their business plans.
The research and development money that goes into an engine consumes such huge amounts of cash that the OEMs don’t recoup their costs for 10-20 years. The aftermarket for parts, maintenance, repair and overhaul is where they make their profits in the meantime.
But this is seriously threatened by the virus crisis.
“The aftermarket for key programs took 4+ years to return to 2008 levels out of the Great Financial Crisis, and that was with traffic decline at a fraction of the declines today,” Bernstein Research wrote in a May 4 note to clients.
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.
Pontifications: Ugly, fundamental changes coming for airline industry
By Scott Hamilton
May 4, 2020, © Leeham News: The global airline industry is on the cusp of a fundamental restructuring that will be painful, and painfully long.
A few airlines already ceased operations.
Several others are on the brink of filing for bankruptcy—among them Lufthansa and Virgin Atlantic, brand names that aren’t normally at the top of an endangered list.
A shake-out in Europe was already underway before the COVID-19 crisis erupted. The inevitable shake-out in Asia hadn’t yet begun.
Fleet rationalization among legacy carriers will occur at rapid-fire speed. And some carriers now have the opportunity to shed unprofitable routes that were maintained for market share.
It’s going to be an ugly process, though.
Bjorn’s Corner: Why e in ePlane shall stand for environment, Part 20. Wrapup.
May 1, 2020, ©. Leeham News: We now wrap the series about technologies that can help reduce air transport’s environmental footprint.
I wrote in the first article, December 13: We have lost our way in our search for a lower carbon footprint air transport system by heading down the electric lane. I will argue why it’s not the best route as it’s not the route that leads to tangible results any time soon, despite huge investments.
In 19 Corners to date, we discussed why. It’s time to summarize what we learned.
Figure 1. The Gartner hype cycle. Source: Wikipedia.
Supply chain focus: Thales’ first 2020 quarter
By Bjorn Fehrm
April 30, 2020, ©. Leeham News: We continue our special focus on the OEM supply chain as the COVID19 crisis threatens several suppliers.
Thales Group is the number three supplier of Avionics and IFE to the commercial aircraft industry. The defense sector represents 45% of the business, and the commercial side 30%. With defense less exposed to the crisis, it moderates the effect on the 1Q2020 results.
Figure 1. The Airbus A350 avionics and displays are mainly from Thales. Picture from my test flight of the A350-900 in May 2015. Source: LNA.
Better to bring capacity back with a 777X or 777-300ER
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By Vincent Valery
Introduction
April 30, 2020, © Leeham News: The travel restrictions implemented in the aftermath of the COVID-19 outbreak lead to an unprecedented collapse in global passenger traffic.
These travel restrictions should remain in place until a COVID-19 vaccine becomes available for the wider population. Combined with the economic effects of the various social distancing measures, travel demand will remain depressed for a substantial period. Leeham Co. predicts that it will take four to eight years before traffic returns to 2019 levels.
Boeing 777-9 on the way to what was hoped to be its first flight Jan. 24. Photo by Scott Hamilton.
Airlines grounded a large number of aircraft due to the collapse in passenger demand. As a result, there will be plenty of aircraft in long-term storage available for lease or purchase at discounted prices once demand recovers.
These aircraft will compete against those coming off the assembly line. The 777-9 is planned to enter service in 2021 at the earliest. Apart from Lufthansa, all the airlines that ordered the 777X are 777-300ER operators. Once traffic bounces back, they will have to ponder whether they are better off keeping (or sourcing) older 777-300ERs or take deliveries of 777-9s as scheduled.
In this article series, we will compare the economics of the 777-300ER with the 777-9 on the world’s busiest intercontinental route.
Summary
- Depressed demand brings airlines to the brink;
- Near-terminal wounds to heal once demand recovers;
- A perfect storm for new (large and expensive) aircraft;
- Peculiarities of operating on the busiest intercontinental route.
Boeing techs ratify contract extension
By Bryan Corliss
April 29, 2020 © Leeham News — Unionized technical workers who initially rejected a proposed contract extension with Boeing have changed their minds.
Their union – the Society of Professional Engineering Employees in Aerospace (SPEEA) – on Tuesday announced that the techs had approved a 
proposed contract extension with a 74% yes vote.
The deal extends the techs’ contract with Boeing until October 2026, putting them in sync with unionized engineers at the company, who had approved a companion contract offer in March.
SPEEA represents some 4,700 techs at Boeing – mostly in Puget Sound, but also in California, Oregon and Utah – along with nearly 13,000 engineers.
Boeing to cut rates on 787, 777 production; posts big 1Q loss
By Scott Hamilton
David Calhoun, CEO of Boeing.
April 29, 2020 © Leeham News: Boeing will cut production rate of the 787 in half and the 777 from 5/mo to 3/mo in response to the dramatic drop in demand from the COVID crisis.
Production of the 737 MAX resumes at a low initial rate with a current target of 31/mo next year.
Boeing announced these rates in its first quarter financial results. The company has an operating loss of $1.35bn and a net loss of $641m on revenues of $16bn.
Airbus 1Q2020, preparing for “the gravest crisis in our industry’s history”
April 29, 2020, © Leeham News: Airbus presented its results for the first quarter of 2020 today. In the accompanying news conference, Airbus CEO Guillaume Faury said, “we are facing the gravest crisis in our industry’s history,” and the company is implementing several measures to secure Airbus’ future.
World travel has disappeared, and new airliner deliveries will be down for years. Production of Airbus commercial aircraft is cut with one third, but this will be adapted as actual demand evolves, with the next adjustment expected in June.
Boeing announces voluntary layoffs in Puget Sound
By Bryan Corliss
April 28, 2020, © Leeham News: Boeing on Monday formally announced it would offer voluntary layoffs – essentially contract buyouts – to members of its Puget Sound workforce.
For most workers, the offer would give them one week’s pay for each year of service, up to a maximum of 26 weeks. Boeing would also continue paying health insurance benefits for most of the laid-off workers for three months. (The exception to this: Machinists Union members will get six months of extended health benefits under the terms of an agreement negotiated in 2016.)