Employee Expenses, Fuel Costs Hit Southwest Earnings

  • Rising fuel supports introduction of 737 MAX in October

By William DiBenedetto

May 1, 2017: Southwest Airlines’ first quarter profits fell by nearly 32% to $351m, driven largely by big increases in employee union contract expenses and fuel costs.

During a conference call with analysts, Gary C. Kelly, chairman and CEO, characterized the quarter as “another strong performance with an operating margin of almost 13% despite higher fuel prices.” He also noted that revenue expectations were reset in March, down 2% to 3% for the quarter, adding that the quarter included “a lot of noise with year-over-year union contract increases and settlements.”

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C919, the Chinese challenger

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By Scott Hamilton and Bjorn Fehrm

May 01, 2017, ©. Leeham Co: The COMAC (Commercial Aircraft Corporation of China) C919 is expected to have its first flight this month, perhaps as early as this week. We review where the program stands and how it compares to its competition.

When the C919 program was launched in 2008, neither Airbus nor Boeing envisioned re-engining the A320 and 737 families. First flight was planned for 2014 and entry-into-service in 2016.

The C919 would have had economic and capital cost advantages over the A320 and 737NG. With program delays of at least four years, and maybe more, those advantages have been narrowed. Read more

Pontifications: Boeing complaint against Bombardier no surprise

By Scott Hamilton

May 1, 2017, © Leeham Co.: The Boeing Co. filed a complaint with the US Commerce Department and the International Trade Commission charging the Bombardier “dumping” the CSeries in the US to the detriment of Boeing and its 737.

Brazil, on behalf of Embraer, another competitor to Bombardier and the CSeries, previously filed a complaint with the World Trade Organization over similar charges that the Canadian and Quebec governments improperly subsidized BBD when they bailed out Bombardier for the CSeries.

The federal and provincial governments provided about US$1.5bn in investments in a new company that segregated the CSeries from Bombardier. A quasi-government pension fund took an investment in BBD’s rail division, also for more than US$1bn.

Neither move is a surprise.

At the time, the Canadian investments in Bombardier and the CSeries pretty much transformed the CSeries into a government program, managed by BBD.

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Boeing-Bombardier complaint could affect competition in coming Delta neo-MAX RFP


May 1, 2017, © Leeham Co.: Boeing’s complaint against Bombardier’s CSeries transaction with Delta Air Lines, and a request for millions of dollars in antidumping and penalties might be coming at a bad time.

Was the Boeing 787 program marked by “launch customer pricing” or “dumping”? This may depend on program or unit accounting. Boeing photo.

“Boeing requests that the Department initiate an antidumping investigation and impose antidumping duties on Aircraft from Canada in an amount sufficient to offset unfair pricing above.”

If Boeing is successful in its request of the US government and International Trade Commission to impose duties before the first CS100 is delivered to Delta next year, the cost of the airplane will balloon from the $19.6m Boeing calculates (and which BBD denies) to at least $33m.

It’s unclear from the complaint who would pay this penalty—Bombardier, maintaining the price to Delta, or would Delta have to pay the reset price?

Regardless, this kerfuffle can’t be welcome news to Delta, which already has a ruffled relationship with Boeing due to its opposition to the ExIm Bank and orders for Airbus aircraft.

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Bjorn’s Corner: Keeping airliners operational. Part 2

By Bjorn Fehrm

April 20, 2017, ©. Leeham Co: We will start the second article in series on keeping airliners operational by discussing how the structure is kept fit.

There are three areas that are more key to flight safety of an airliner than others. The aircraft’s structure, the engines (already discussed) and the flight control system. We will start with the structure.

Figure 1. The first modern maintenance program was formed around the Boeing 747. Source: Wikipedia.

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Boeing targets Bombardier for “dumping” CSeries in US

April 27, 2017, © Leeham Co.: The Boeing Co. late today filed a petition with the US government, charging Bombardier with “dumping” the CSeries in its deal last year with Delta Air Lines for 75+50 CS100s. Delta can convert the order to the larger CS300, which competes with Boeing’s 737-700/7 MAX.

Boeing claims Bombardier sold the airplanes for about $20m, against a cost to build the airplanes of about $33m.

Delta Air Lines ordered the Bombardier CS100. Boeing claims the low price constitutes “dumping,” as defined in regulations.

The 1,039 page complaint cites as one of its references Leeham News and Comment. A redacted, 147 page version may be downloaded here: BBD Complaint 042717.

Wall Street Journal article and Financial Times article summarize the complaint.

Boeing’s press statement is below the jump.

Delta Air Lines competition

Boeing competed in the Delta competition, offering a combination of used Boeing 717s and, LNC believes, new 737-700s. The fully amortized -700s can be offered at a very low price, compared with the new 737-7 MAX (which at that time was the 125-seat, two-class version, not the 149-seat configuration it has since become). Boeing beat Bombardier in a hot contest at United Airlines, predating the Delta deal, by offering the -700 at a rock-bottom price believed to be in the $24m range, a price Bombardier could not then match. (A United official denied the $24m price to LNC, but others cited this number.)

Since the United deal, Bombardier received investments from the Quebec provincial and federal governments specifically tied to the CSeries, and more than US$1bn from a quasi-government pension fund for a stake in Bombardier’s rail unit. The investments are widely considered to be bailouts that prevented Bombardier from declaring bankruptcy due to cost overruns and delays from the CSeries and Global corporate jet development programs.

Bombardier took a US$500m “onerous contract charge” in connection with the Delta order and one from Air Canada.

Rival Embraer immediately cried foul and alleged the government monies violate World Trade Organization rules. Bombardier says the financial structures comply with WTO rules. Brazil, at the behest of Embraer, filed a formal complaint with the WTO. Boeing, while not filing its own WTO complaint, joined in the action, according to press reports at the time.

Boeing’s action today so far is limited with the US government.

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Airbus group 1Q 2017 results: no surprises.

By Bjorn Fehrm

April 27, 2017, ©. Leeham Co: Airbus Group presented its first quarter results this morning. There were no surprises. Revenue and earnings were a bit lower than expected, but this is because a part of the company has been sold, the Defense & Space Electronics division.

There was no news on the problematic A400M. Negotiations with the customers have just begun, any results will take time to materialize.

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Could an NMA be made good enough? Part 6

By Bjorn Fehrm

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April 27, 2017, © Leeham Co.: We have in several articles gone through the sizing of an NMA (New Midrange Aircraft). We looked at the fuselage, cabin, wings and engines. Now we will sum the exercises and look at the performance of the resulting aircraft.

Boeing is seriously considering launching an NMA. The key to the launch decision will be the airplane’s economics: for development and production as well as operation.

The idea is the NMA shall have “twin aisle comfort with single aisle economics.” We will now use or performance model to analyze if the final aircraft has these characteristics.


  • An NMA designed to the principles in our articles will have a seven abreast dual aisle cabin. The cabin will increase passenger comfort in the 200 to 260 seat range and speed ground operations.
  • Careful design of the fuselage, paired with a modern wing and engines, would produce an NMA with “dual aisle comfort and single aisle economics.”

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Boeing 1Q earnings: revenues down, profits up

April 26, 2017: Boeing today reported first quarter revenues that were lower in the year earlier period in part because of fewer commercial airplane deliveries, but the operating margin and net earnings were higher.

There were fewer 737 deliveries as Boeing transitions from the 737NG to the 737 MAX. First deliveries of the MAX are due this quarter.

Likewise, Boeing is beginning a transition to a third family member of the 787. The first 787-10 rolled off the production line this month, beginning flight testing. The first delivery is scheduled for next year.

Revenue was down 7% YOY, to $21bn. Operating margin was up 1.7 points to 9.6%.

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Aeroflot, the route to a modern airline. Part 3

By Bjorn Fehrm

April 26, 2017, ©. Leeham Co: In our third article about Aeroflot, we cover the period from 2010 to today. During this period, Aeroflot started a strategic change. The airline decided to grow to a global world leader.

To get there, the group needed a multi-brand strategy. The top brand, Aeroflot, should develop into a top tier premium airline. To understand the considerable changes Aeroflot needed to go trough for this strategy, we talked to Aeroflot’s Deputy CEO Strategy and Alliances, Giorgio Callegari, about the transformation.

Callegari took us through the journey to a Four-star airline and the ranking of Aeroflot as the world strongest airline brand in its area of operation. To validate the improved ratings, we contacted Skytrax and Brand Finance, the issuers of the ratings. Read more