Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Teamsters, Boeing have a new contract April 29, 2025
- 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
Southwest, the “legacy LCC,” part 1: Not keeping up with industry standards crimps unit revenue
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By Judson Rollins
Introduction
May 13, 2024, © Leeham News: Southwest Airlines, previously a longtime darling of investors and leisure passengers alike, struggles to find its footing now that the post-covid US domestic market is returning to normal.
“Bags fly free” is more headache than help for Southwest as it tries to grow unit revenue. Source: Forbes.
The airline eked out a 0.8% operating margin in 2023 and fell to -6.2% in the first quarter of 2024. Investors have lost faith in the company’s ability to return to its previously strong margins.
Southwest “is now a ‘show-me’ [investment],” airline analyst Helane Becker of Cowen recently told investors. “We expect shares to trade in a narrow range until they can return to sustainable profitability and at least high single-digit operating margins.”
After a deep dive into the airline’s cost and revenue performance, LNA believes the company is in a strategic quandary with few ways to offset rapidly rising labor, maintenance, and fuel costs. In short, Southwest is increasingly a “legacy LCC,” with LCC-like unit revenue but a legacy cost structure.
Summary
- The airline struggles to achieve innovations widely implemented elsewhere.
- Unit revenue is comparable to low-cost competitors, but a leisure-oriented network, product, and passenger experience leave little opportunity to increase it.
- Underinvestment in IT and onboard product reduces Southwest’s reliability and alienates much-needed high-yield passengers.
Bjorn’s Corner: New engine development. Part 7. Open Rotor Propulsive Efficiency
By Bjorn Fehrm
May 10, 2024, ©. Leeham News: We do an article series about engine development. The aim is to understand why engine development now has longer timelines than airframe development and carries larger risks of product maturity problems.
To understand why engine development has become a challenging task, we need to understand engine fundamentals and the technologies used for these fundamentals.
In the last Corner we started a discussion around Open Rotor engines after looking at geared versus direct-drive Turbofans. We now look deeper at the Open Rotor Propulsive Efficiency.
Figure 1. The CFM RISE Open Fan engine. Source: CFM.
Airbus’ A350-1000 or Boeing’s 777-8? Part 1
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By Bjorn Fehrm
May 9, 2024, © Leeham News: We are doing an article series comparing the capabilities of the Airbus A350-1000 and the Boeing 777X series. We started with the 777-9, the larger model. Now, we continue with the shorter 777-8, an aircraft closer in size to the A350-1000.
The 777-8 was originally launched in a shorter version together with the 777-9. Then, it went very quiet around the 777-8, with some analysts speculating that the passenger version would not be done. The 777X freighter, the 777-8F, was launched in January 2022. It became a bit longer than the 777-8. This now forms the final definition of the 777-8.
Summary:
- The comparison of the A350-1000 and the 777-8 is comparing the longer-narrower versus the shorter-wider.
- Which is the best? We use Leeham’s Aircraft Performance and Cost Model (APCM) to find out.
Embraer: Improved results, but no plan for new narrowbody
By Leeham News Team
May 7, 2024, ©. Leeham News: Embraer presented its 1Q2024 results today, showing revenues for the period up 25% and deliveries up 67% year-on-year.
Notably, however, the Brazilian planemaker dampened speculation of a push to launch a new narrowbody to compete with the A320/B737.
Embraer’s firm order backlog now stands at $21.1 billion, its highest point over the past seven years.
That was helped by the firm order from American Airlines for 90 E175 jets, plus purchase rights for 43 more.
Francisco Gomes Neto, Embraer’s CEO, highlighted during a call on Tuesday the company’s campaigns for more than 200 aircraft within the commercial division – including both the E1 and E2 family.
For 2024, Embraer is still expecting to deliver between 72 and 80 commercial aircraft, compared to 64 in 2023. Read more
Shanahan: Spirit AeroSystems and Airbus need to have “family meeting”
By the Leeham News Team
May 7, 2024, © Leeham News: For a company actively negotiating its own dismemberment, Spirit AeroSystems managed to record first quarter losses even worse than Wall Street expected. The company recorded $617M in losses and burned through $444M in cash during the first three months of the year due to the ongoing Boeing 737 MAX crisis and unfavorable prices on its Airbus A530 and A220 work.
“The death throes of Spirit are hard to watch, as these 1Q numbers are pretty horrendous,” Rob Stallard, Vertical Research aerospace analyst, wrote in a research note after the company released its earnings report.
It recorded $495M in net forward losses, largely from the Airbus A350 ($280M) and A220 ($167M) programs. Read more
Southwest could solve its MAX 7 woes … by buying Breeze?
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By Judson Rollins
Introduction
May 6, 2024, © Leeham News: Southwest Airlines, still awaiting the certification and delivery of the Boeing 737 MAX 7 as a replacement for its aging 737-700s, might have an unorthodox alternative: acquire startup Breeze Airways for its Airbus A220 fleet – and, more importantly, its order book.
Source: Orlando International Airport via Simple Flying.
Launched in 2021 by serial airline entrepreneur David Neeleman, Breeze operates 23 A220-300s, 10 Embraer E190s, and six E195s to 47 airports across the US. It focuses on connecting larger airports to smaller cities, including a handful of transcontinental routes.
Ironically, the Utah-based airline achieved its first-ever monthly operating profit in March. It recently announced plans to operate the A220 exclusively by the end of this year.
According to a January update from database provider Cirium, Breeze has between 11 and 13 A220s scheduled for delivery each year through 2028. No options are listed.
Market intelligence says Airbus Commercial Aircraft CEO Christian Scherer visited with Southwest executives in Dallas and Breeze leadership near Salt Lake City in mid-April. This was well after Breeze’s February order for 10 additional A220s.
Summary
- To deliver or not to deliver the MAX 7?
- Southwest’s aging 737-700 fleet has few replacement options
- How a Breeze acquisition might play out
- Azorra Aviation is likely a key partner in helping Southwest get A220s
Bjorn’s Corner: New engine development. Part 6. Open Rotor
By Bjorn Fehrm
May 3, 2024, ©. Leeham News: We do an article series about engine development. The aim is to understand why engine development now has longer timelines than airframe development and carries larger risks of product maturity problems.
To understand why engine development has become a challenging task, we need to understand engine fundamentals and the technologies used for these fundamentals.
We have in previous Corners discussed geared versus direct-drive turbofans. Now the time has come to discuss Open Rotor engines.
Figure 1. The GE 36 Open Rotor engine, the father to today’s CFM RISE. Source: GE Aviation.
A350-1000 or 777-9? Part 4
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By Bjorn Fehrm
May 2, 2024, © Leeham News: We are doing an article series comparing the capabilities of the Airbus A350-1000 and the Boeing 777-9. We looked at the development history of the aircraft and then their capability and fuel economics.
We could see that the 777-9 is trailing the A350-1000 in payload range, partly because we compare the base version of the 777-9 with a further developed A350-1000. Now, we investigate what the 777-9 performance would be should we include a typical future development of the Maximum TakeOff Weight (MTOW).
Summary:
- The A350-1000 has a clear payload-range advantage over the standard 777-9.
- With an in-service Maximum TakeOff Weight (MTOW) development like the A350-1000, the difference is reduced.
Pontifications: Tombstone mentalities and Fantasy Land
By Scott Hamilton
Analysis
By Scott Hamilton
April 30, 2024, © Leeham News: David Calhoun, the CEO of The Boeing Co., put this right at the top of an employee message and the
1Q2024 earnings call last Wednesday:
“Since Jan. 5, more than 70,000 of you have participated in Quality Stand Downs across more than a dozen Boeing sites. From those, we’ve received more than 30,000 ideas on how we can improve. And this year, we’ve seen more than a 500% increase in employee Speak Up submissions compared to 2023. We are taking all ideas collected and prioritizing them as we further enhance our factory disciplines and overall quality standards. Our people know better than anyone the actions we must take to improve, and we are listening and acting on their feedback.”
It’s obviously a statement intended to assure everyone interested in Boeing that it’s taking positive steps to increase safety protocol and listen to employees.
I had two reactions.
First: Why was this necessary? Supposedly after the 2018-19 737 MA X crisis, Boeing upped its safety protocols, its employee Speak Up program, and it was forced into a new relationship with the Federal Aviation Administration (FAA).
The Jan. 5, 2024, accident involving Alaska Airlines flight 1282 made it crystal clear that the post-2019 MAX crisis changes were largely window dressing.
Second: Reading Calhoun’s statement reminded me of a long-held axiom in commercial aviation of what’s derisively called the Tombstone mentality. This is tied to the belief that the FAA doesn’t take drastic safety action until after someone dies in an accident.
Unfortunately, recent history renders this parallel to The Boeing Co.
Sadly, failure to assure safety is indeed Boeing’s No. 1 priority will go down as David Calhoun’s legacy as CEO of The Boeing Co.
Related articles:
- SPEEA, Boeing at impasses over safety proposal
- Boeing unlikely to meet the FAA’s 90-day deadline on safety plan
- Boeing defends against whistleblower allegations
- Boeing must meet FAA quality plan before raising production rates (Reuters)
Boeing Financial Analysis – Inventory Q1 2024
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By the Leeham News team
April 29, 2024, © Leeham News: The Boeing Co (BA) released its financial results on April 24 for the first quarter of this year. BA relies heavily on Program Accounting to determine what amount of expenses are to be deducted against income, which is a major feature of the system.
The company also reveals the latest information about deferred program balances. This is closely related to Program Accounting.
A Quick Primer
Boeing describes program accounting in its financial statements:
Boeing Commercial Airplanes (BCA) develops, produces, and markets commercial jet aircraft principally to the commercial airline industry worldwide. Revenue on commercial aircraft contracts is recognized at the point in time when an aircraft is completed and accepted by the customer.
With respect to each of our commercial aircraft programs, inventoriable production costs (including overhead), program tooling and other nonrecurring costs, and routine warranty costs are accumulated and charged as cost of sales by program instead of by individual units or contracts.
Source: Boeing Financial Statements
As such, expenses reported for the sale of aircraft during the reporting period are not what was paid, but what BA estimates the average cost will be over the remaining orders and aircraft to be sold. Any overages are noted as an increase in Deferred Production Costs and are held in Inventory.