Leeham News and Analysis
There's more to real news than a news release.
Pontifications: The Bottom Line isn’t always about The Bottom Line
By Scott Hamilton
June 6, 2016, © Leeham Co.: Sweetheart deals to win strategic aircraft orders are nothing new in commercial aviation.
John Leahy, COO-Customers for Airbus, last week poked Bombardier for its order from Delta Air Lines. Citing a reported airplane sales price of $22m, which Leahy estimated cost BBD $7m per airplane, Airbus’ chief salesman—known for his barbs and quips—said if BBD sold more C Series faster, the company would go out of business quicker.
Set aside for the moment the numbers he cited as unknown quantities. LNC has different figures we’ve reported and in two posts on my column at Forbes, here and here, there are other aspects to the Delta deal that affect economics.
It’s undisputed that BBD took a US$500m charge against the Delta, Air Canada and AirBaltic deals. The second Forbes post explains why. It’s all about the learning curve. Airbus and Boeing know about this: the first A350s are being chalked up to big losses and the 787 has $29bn in production costs. But it’s not to their benefit to acknowledge this when criticizing the C Series deals.
All this is neither here nor there, however. Airbus, Boeing and McDonnell Douglas all have (had) done deals that don’t seem to make commercial sense when key, strategic transactions were necessary.
Airbus stepping up innovation
By Bjorn Fehrm
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Introduction
June 6, 2016, ©. Leeham Co: In January last year I had a discussion with Airbus CEO Fabrice Bregier regarding the innovation level at Airbus. The background to the discussion was that Airbus was trailing its direct competitor, Boeing Commercial Airplanes, in innovations since the early 2000s.
Airbus started life as a more innovative company than Boeing. It was using new technology in an aggressive way to gain product advantages on the incumbent Boeing. Examples are the universal use of Fly-By-Wire (FBW) and the standardization on a common cockpit layout for all its aircraft, whether single or dual aisle, Figure 1.
Figure 1, Airbus A320 cockpit laying the ground for a common cockpit standard. Source: Wikipedia.
The FBW and common cockpit enabled customer pilots to cover a wider range of aircraft with minimal training. Airbus also led the aerodynamic development with high aspect ratio wings for its A320 and A330/340 series aircraft.
Somewhere during the problems with the A380, the creative and innovative spirit got caught in the aim to unify the group, to make sure that the “I make it my way” initiatives stopped in the different national industries that made up Airbus.
Bjorn’s Corner: Transponders, the kingpin of safe air navigation, Part 3.
By Bjorn Fehrm
June 3, 2016, ©. Leeham Co: Over the past few weeks, we have described how transponders go from being little more capable than the WW2 IFF that they were developed from, to how they will act as information beacons, sending the aircraft’s ID, position and speed to all surrounding listeners every second.
The consequences of this change are nothing short of revolutionary. From a situation where the ground controller or adjacent aircraft had scarce information on the multitude of aircraft they tried to track, Figure 1, they can now receive all the information they need from the aircraft under observation.
Figure 1. NASA simulation of air traffic over US on a normal day. Source: NASA
This, together with other technologies like data link-based communication, will change Air Traffic Management as we know it.
Boeing: no new technical issues with KC-46A
Dennis Muilenburg, CEO of The Boeing Co. Boeing photo.
June 2, 2016: Boeing is not discovering more technical issues with the KC-46A, but recent issues relating to the refueling boom and wing pods are being worked through while concurrent production progresses.
“As we discover things in flight tests, we have to roll them into the airplanes. This will be a wide-body program for decades,” he said, forecasting sales of 400 tankers, said Dennis Muilenburg, CEO of The Boeing Co., speaking at the Bernstein Thirty-Second Annual Strategic Decisions Conference 2016.
IATA on air safety
By Bjorn Fehrm in Dublin
Introduction
June 1, 2016, ©. Leeham Co: We report from the International Air Transport Association’s (IATA) Annual General Meeting running in Dublin Thursday and Friday this week, where all the world’s airlines meet to report on a number of initiatives and decide on things to do going forward.
The first briefing from IATA was on the level of safety in the air for 2015, measured through the IATA Operational Safety Audit, IOSA. 2015 was a good year, not quite to the level of 2014 which was the safest year in history, but close at 0.32 jet hull losses per one million flights instead of 0.27 recorded for 2014, Figure 1.
Figure 1. Jet hull losses during 2015 per million flight hours. Source: IATA.
As a reference, the the 2013 rate was 0.41 hull losses over one million flights. The 2015 rate was a 30% improvement over the average rate of the years 2010-2014. The turboprop level was worse at 1.29 hull losses per million flights but it was a large improvement compared to previous years at 3.13 and 3.95. It shall be cautioned that the sample size for Turboprops is much smaller than for Jets, therefore one hull loss will affect the statistics quite a lot. Read more
Airbus changing production to be more competitive
By Bjorn Fehrm
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Introduction
June 1, 2016, ©. Leeham Co: With the large aircraft development programs being on the way to fade out and give way to incremental improvement programs, Airbus is shifting its focus onto making its production more competitive.
The revenue and profitability of Airbus commercial aircraft depends on up to 90% on delivered airliners. With the pricing determined by the market, the production costs are virtually determining Airbus’ bottom line.
Figure 1. The forward part of an A350 loaded into Station 50 in the Final Assembly line. Source: Airbus.
The classical Airbus production system was designed to satisfy industrial-political rather rational production criteria, with each participating national aeronautical industry vigorously carving out its piece of the production pie. The result was a production system that had non-optimal efficiencies.
With the coming 5-10 years being a period of incremental development amid a further ramp up of production, the time has now come to focus the Airbus production system and to change this to an efficient and streamlined operation.
Airbus aircraft programs in review
By Bjorn Fehrm in Hamburg
Introduction
May 31, 2016, ©. Leeham Co: Airbus went through a complete review of all their aircraft programs as part of their yearly briefing for media in Hamburg today. A lot was said regarding the status for the different programs by Airbus CEO Farbice Bregier, its COO customers John Leahy and Executive VP Strategy and Marketing Kiran Rao.
Figure 1. Most recent A350 delivery was to Cathay Pacific. source: Airbus.
The briefing was given against a backdrop of weak orders and deliveries for the first five months of the year. Both Bregier and Leahy said, “This is to be expected, it’s not sustainable that we have Book-to-Bill ratios (orders vs. deliveries) of over 1.5 or even close to two for many consecutive years. We have a backlog of 6,700 aircraft that customers expect us to deliver and they have little appetite to order new aircraft when they can earliest get them by 2021 at the earliest.
“We are now in a period of focus on deliveries and we can expect and be happy with a book to bill ratio of around one for the coming years. The extraordinary backlog also justifies our decision to increase production to 60 units per month for our A320 single aisle program.”
Here follows what was said for each of the programs.
Airbus will recover 2016 production
By Bjorn Fehrm in Hamburg
Introduction
May 30, 2016, ©. Leeham Co:
Airbus has got off to a slow start for A320neo and A350 production this year. The Airbus Hamburg and Toulouse airfields are filled with A320neo aircraft waiting for engines and the A350 Final Assembly Line (FAL) in Toulouse has 40 aircraft in different states of readiness but very few are being delivered. Out of target of 50 A350 delivered in 2016, a total of nine have been delivered to customers so far.
Airbus COO Tom Williams. Source: Airbus
“We have been making gliders for some time now,” said Airbus COO Tom Williams in an Airbus briefing in Hamburg,”but that is about to finish. We are getting delivery of engines from our partner Pratt & Whitney, which has a fix for a prolonged starting time and we have fixed other issues for the A320neo with software updates and changed procedures”.
“When it comes to A350 we have enough aircraft in final production ready for customer delivery after cabin installations,” Williams said. “Now we just got to work through some persistent supplier problems for the cabin side.” Read more
New KC-46A delay means more charges probable
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Introduction
May 30, 2016, © Leeham Co.: It’s the classic maneuver to bury bad news: Boeing
Boeing KC-46A. Source: National Defense Magazine via Google images.
announced on Friday, the start of the three-day Memorial Day weekend that its KC-46A tanker will be delayed yet again. Only 16 days earlier, Boeing CEO Dennis Muilenburg said the tanker was on time under a schedule that had been revised previously.
That wasn’t all, according to the announcement. Even when the tankers are delivered, the wing pod refueling systems won’t be operational. (The Boeing statement is below the jump.)
If all this has a familiar ring, it should.
The previous version of the KC-46A, the KC-767 International Tanker, was delayed four years in part because of flutter issues with the pod refueling systems.
Only eight of these tankers were built: four for the Italians and four for the Japanese. Boeing took huge write-offs for these tankers.
Summary
- Will the latest delay be the last?
- Boeing is building tankers despite the need for rework and some internal design changes.
- Are we facing the prospect of a new set of “Terrible Teens”?
- Another write-off is probable-and it may not be the last.
- Will the full USAF tanker procurement yield a profit on the sale?
Pontifications: The crystal ball
By Scott Hamilton
May 30, 2016, © Leeham Co.: We at Leeham Co. and Leeham News and Comment take some risk when we make analyses, forecasts, projections and predictions. These often put us out on a limb, open us to criticism and even ridicule and as often as not really pisses off those companies that are the target of such predictions.
Some recent events and news stories caught my eye that validated something I predicted eleven years ago.
First, the set up.