Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Bjorn’s Corner: Air Transport’s route to 2050. Part 21. May 9, 2025
- Does an A220-500 need a new wing and engines? Part 2. May 8, 2025
- Embraer downplays tariff impact on 2025 results May 6, 2025
- JetZero readies effort for private equity fund raising May 5, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 20. May 2, 2025
Why Boeing won’t take a charge on 787s
Subscription Required
Introduction
Boeing 787-9. Source: Boeing.
April 11, 2016, © Leeham Co.: Boeing has $29bn in deferred production costs and another $3bn in deferred tooling costs for its 787. The accounting block, for its program accounting, is a record 1,300 aircraft. Many Wall Street analysts are skeptical whether Boeing will ever recover the huge deferred numbers.
Boeing insists it will.
Still, taking a charge of some number—as it has done twice for the 747-8 and twice for the 767-based KC-46A—is something Boeing repeatedly insists it doesn’t need to do.
Why not?
There are a few key reasons, say Wall Street analysts who follow Boeing: revenue, cash flow and the stock price.
Summary
- Bank of America Merrill Lynch estimates Boeing needs to post a profit of $30m on each of the remaining 900 787s to be delivered to recover the deferred costs. LNC figures this number is higher.
- Pricing pressure from Airbus makes it difficult to obtain this profit.
- The deferred costs limit Boeing’s ability to price down to meet Airbus’ offers to customers.
- Credit Suisse figures Boeing can recover only some $22bn of $29bn in deferred production costs.
- Boeing warns in SEC filings a forward loss might be required.
- But no forward loss is likely unless revenue falls short.
Pontifications: Catching up on the KC-46A, KC-30A
By Scott Hamilton
April 11, 2016, © Leeham Co.: The Government Accountability Office (GAO) concludes that the Boeing KC-46A aerial refueling tanker for the US Air Force has “challenging testing and delivery schedules” ahead in its annual review of the program.
It’s been a long, long time since I wrote about aerial refueling tankers. Having delved into this topic during the long-running saga of the USAF recapitalization effort, and the competitions between Northrop Grumman/EADS and later Airbus alone and Boeing, the topic had been beaten to death.
But as we who follow such things know, Boeing’s current effort to build the winning KC-46A for the Air Force has run into more than a few problems. These have led Boeing to be at least eight months late and write off $1.2bn pre-tax on the program.
And the problems aren’t over.
Bjorn’s Corner: Embraer’s Fly-by-wire approach
By Bjorn Fehrm
08 April 2016, ©. Leeham Co: Two weeks ago we discussed the advantages of a Fly-By-Wire (FBW) system which uses feedback based flight laws. We discussed the fact that aircraft OEMs can get the desired FBW handling characteristics with smaller horizontal tail surfaces. I put forward the Embraer E-Jets as an example where the change of FBW principle allowed a 26% reduction in the horizontal tail size for the E2 generation.
At the time there were some debate on how this was achieved and what the root cause of the improvement was. Embraer followed the discussion and told me when I contacted them that my information was correct. In the interest of our readers, Embraer agreed, however, to have their FBW team to give a more complete picture of the advantages of a feedback based FBW.
Here is the team’s response. Read more
Inflight Internet
By Bjorn Fehrm
06 April 2016, ©. Leeham Co., Hamburg, Germany: On the second day of the Aircraft Interior eXpo, AIX 2016, we checked out the In-flight Internet situation. What interested us was why is there such lousy Internet performance on many airlines today and what will be done about it over the next few years. We got a good picture on why things are as they are and how this will change within quite a short time.
Rather than go through what a lot of vendors will do, we will try to describe the root problems involved and what is done by the industry to change that. We will also mention some of the key players that are attacking the subject.
But let’s start with the problem. Figure 1 shows where the world’s main airline routes are right now.
Figure 1. World air traffic taken from FlightRadar24 at 23.00 CET on 05.04.2016. Source: FR24. Click to see better.
As can be seen, the world air traffic is not very evenly distributed. One third of the world has intense traffic and two-thirds not so much or none at all. Read more
Trends in cabin amenities
By Bjorn Fehrm
05 April 2016, ©. Leeham Co: We are at the Aircraft Interior eXpo, AIX 2016, to check out what’s new where the aircraft meets the passenger. We got to the expo in Hamburg on a full Lufthansa A320 flight. It was the usual struggle for the last passengers boarding to find place for their roller bags in the overhead bins.
Airbus showed the new overhead bins for the A320 at the show, Figure 1. They will be a big relief for the airlines and passengers, just like the Space-bins announced by Boeing at last year’s show.
Figure 1. Airbus new A320 overhead bins. Photo: Leeham News.
As can be seen in the picture the passengers don’t get quite the nice airy feeling which is part of Boeing’s Sky interior. The shape of the bins are rather like the present day product but with the A350 style curvature to the other section.
It thereby will bring a bit lighter feel to the cabin but most importantly more space for carry on luggage. Roller bags can be stored standing on the side and this increases the capacity with over 50%. The first delivery of the new bins was to Delta for their new A321 last month. As can be seen in the picture mood LED lighting is also part of the A320 cabin upgrade. Read more
Alaska, Virgin confirm merger
April 4, 2016, (c) Leeham Co.: Alaska Air Group and Virgin America confirmed weekend reports that they reached a deal to merge.
The replay of the Alaska webcast/conference call, with slide show, is here.
Rationale includes what LNC outlined in our March 29 post: growth, access to more gates and slots. Alaska officials said Virgin’s presences in California, combined with Alaska, will give Alaska to #1 market share position on the US West Coast, passing Southwest Airlines’ 21% by one percent.
Here are some highlights from the conference call:
Boeing has lost neo/MAX battle; time to refocus goals
Subscription Required
Introduction
April 4, 2016, © Leeham Co.: Boeing should forget about competing with Airbus for market share.
The Airbus A320neo. Airbus has won the single-aisle battle between the neo and Boeing 737 MAX. Boeing needs to refocus its goal. Photo via Google images.
Airbus already has won the neo/MAX battle. This is a battleground Boeing will not retake for the lives of these airplanes.
Airbus has led Boeing in wide-body, passenger airplane sales for most of the past several years. (Boeing smashes Airbus in wide-body cargo aircraft sales.) This sector will remain competitive.
Instead, Boeing should concentrate on profit margin and roll the dice on a clean-sheet, new single-aisle airplane as its best hope of recovering the dominance it long held over Airbus.
Summary
- Airbus has won the single-aisle competition with the A320neo family. Boeing has no hope of catching up in the next 10 years.
- Airbus is competitive in wide-body sales (excluding freighters). This is the new battleground.
- Boeing should “maintain” 737 market share and focus on margin across the 7-Series instead.
- Boeing’s hope to regain the leadership in the single-aisle sector is the next generation aircraft.
Pontifications: Boeing’s 8,000 employee reduction isn’t nearly enough
By Scott Hamilton
April 4, 2016, © Leeham Co.: Boeing’s plans to reduce head count at Boeing Commercial Airplanes by 8,000 jobs this year dominated the news last week. Comparing employment figures with Airbus Commercial shows this reduction isn’t nearly enough.
BCA has 22% more employees per airplane than Airbus. BCA is a bloated organization. Some of this undoubtedly is inherent to being a 100 year old company, compared with Airbus being less than 50. Airbus is more automated than Boeing as well.
Bjorn’s Corner: Flight control, Part 4
By Bjorn Fehrm
1 April 2016, ©. Leeham Co: Last week we described the computer augmented flight controls that are possible with Fly-By-Wire (FBW) systems. We described the most common flight control laws by discussing the two most common control law implementations in the market, the Airbus and the Boeing ones.
Today we will finish the series by discussing how an autopilot, or as the OEMs call it, an Autoflight or Automatic flight system, is added to the aircraft’s control system. An autopilot is most of the time combined with a flight director and a Flight Management System (FMS).
We will mention how these fit in the picture but focus on the autopilot, once again to keep it simple and avoid trying to cover too much. The autopilot subject is large enough. Read more
Airbus only one reason for Boeing cost-cutting
- The bigger danger at Boeing is not Airbus pricing, but the potential for up to 15,000 early retirements this year by engineers, technicians and touch-labor. See Scott Hamilton’s column at Forbes online.
- Job cuts drive margin at Boeing, analyst concludes.
March 31, 2016, © Leeham Co.: Boeing has to cut costs. So it’s cutting 10% of its work force.
The reason?
Ray Conner, CEO of Boeing Commercial Airplanes. Photo via Google images.
Pricing pressure from Airbus, says Ray Conner, the CEO of Boeing Commercial Airplanes (BCA). The Seattle Times, which reported March 30 that it obtained an internal memo citing the 10% number, quoted Conner extensively from a Feb. 10 internal webcast that Boeing is losing orders to Airbus over price.
Declining market share, especially for the 737, is a major concern, The Times quotes Conner.
“Their biggest weapon that they’re using in the competitions today is price,” Conner told employees. “They are attacking us with price in every single campaign. And as a result of that, you know, we’re being pushed to the wall,” Dominic Gates of The Seattle Times wrote, citing a transcript of Conner’s internal comments.
Gates went on to write that “In justifying the anticipated cuts to employees in last month’s internal webcast, Conner was unusually frank as he invoked a dire threat from Airbus.
“He said that Airbus winning 63 percent of single-aisle sales last year with its A320 jets going against Boeing’s 737 jets was ‘alarming … because the 737 is the biggest contributor to the earnings of the Boeing Company.’”
Gates went on to extensively quote Conner in his article and the defensive posture Boeing is now in vis-à-vis Airbus.