Leeham News and Analysis
There's more to real news than a news release.
ATR begins US tour, part owner wants to divorce Airbus
ATR is making a push to sell its turbo-props in the US, which is the last exclusive domain of the Bombardier Q400. Note the new forward door on this ATR-72. The absence of this door, which the Q400 has, was a strike against the ATR in the US. The door now enables jetway boarding. Photo via Twitter.
May 3, 2016, © Leeham Co.: ATR, the maker of the ATR turbo-prop, is beginning a tour of its aircraft in the US, the last uncontested domain for the rival Bombardier Q400.
ATR won orders for its ATR-42/72 in the US decades ago, but largely ceded the market to Bombardier. ATR-42s fly for FedEx, the express package carrier, but no
ATR-42 operated for FedEx. No passenger ATRs are operated in the USA. Photo via Google images.
passenger ATRs are in service in the USA.
As the tour gets underway, Finmeccania, a 50% owner of ATR with Airbus owning the other half, wants to assume the latter’s holdings if Airbus doesn’t change its mind over its refusal to green light development of a next generation turbo-prop.
Airbus has for several years refused to grant approval because ATR had between 80% and 90% of the backlog at any given time. Bombardier had the remaining market share backlog. Now that oil prices are low, Airbus doesn’t believe a business case can me made to justify a new development.
Pontifications: Big sigh of relief at Bombardier
By Scott Hamilton
May 2, 2016, © Leeham Co.: To say that the order from Delta Air Lines last Thursday for 75+50 CS100s with conversion rights to the CS300s was welcome news for Bombardier is an understatement.
Bombardier has a superb airplane in the C Series. The passenger seats are the most comfortable coach seats of any manufacturers, better than the Airbus A320 and way more comfortable than the Boeing 737. With apologies to Embraer, the C Series is even marginally better than the Embraer E-Jet, which is very good. Read more
Bombardier’s onerous $500m loss demystified
By Bjorn Fehrm
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Introduction
May 2, 2016, © Leeham Co: Bombardier announced a game-changing order from Delta Air Lines for its C Series program last week. In the midst of the celebration and well wishing came the news that this order, one to Air Canada and seven firmed up options to airBaltic, would result in a charge of $500m next quarter.
Figure 1. C Series in the livery from Delta Air Lines. Source: Bombardier.
One analyst wrote in the wake of the Delta deal that “I understand that to get Delta and Air Canada you need to give attractive pricing, but that it would cost Bombardier $500m is a bit stiff.”
The comment shows that at least this analyst had no idea about the realities of aircraft programs financials. The announced onerous loss is nothing special; it is business as usual.
Summary
- Bombardier’s accounting is according to International Financial Reporting Standards (IFRS) rules. These say that one must announce the results of a contract on the company’s financials at the time of contract closure.
- Consequently, BBD informed in the 1Q2016 report that: “In conjunction with the closing of these firm purchase agreements, we expect to record an onerous contract provision of approximately $500 million as a special item in the second quarter of 2016.“
- Note that it says “provision” and not loss. Further, the provision will have no effect on 2016 profits or cash flow. This is a non-cash charge.
- In fact, the $500m provision is nothing special; it’s part of business as usual. We explain why.
Bjorn’s Corner: C Series flight controls
By Bjorn Fehrm
29April 2016, ©. Leeham Co: With the order by Delta Air Lines, the Bombardier C Series has taken the step up to be a viable alternative to Airbus’ and Boeing’s single aisle 130-150 seat aircraft.
In my description of airliners’ flight control and Flight Management Systems (FMS), I have focused on the established mainline single aisle players. Time to change that; C Series has arrived and will stay in the mainline segment.
Why 130 seats as a limit? Because below 130 seats there are a number of additional players (Embraer, Sukhoi, Mitsubishi…) and we can’t describe them all right now.
Now to how Bombardier has implemented the flight controls, autopilot and FMS for the C Series. In fact, we will look at how they have made the C Series cockpit, Figure 1.
Figure 1. C Series flight deck. Source: Bombardier.
I haven’t flown the C Series yet (working on it!) but I have been able to glean quite a bit over time and spent quite some time in the cockpit with the Bombardier test pilots at the Paris Air Show.
So here is a shot at describing the C Series control philosophies and capabilities and how they mimic/differ from Airbus and Boeing.
Bombardier: Our turnaround plan is gaining traction
Alain Bellemare, CEO of Bombardier. CTV photo via Google images.
April 28, 2016: “Our turnaround plan is gaining traction,” said Alain Bellemare, BBD CEO, to lead off the first quarter earnings report for Bombardier.
“This is a big win for Bombardier,” he said. “This is a strong endorsement for the C Series.” He said BBD is finalizing the agreement with Air Canada for 45 firm orders and 30 options for the CS300. “We significantly improved the quality of the backlog list.
“Looking ahead, we are seeing increased customer interest in C Series,” Bellemare said.
The Air Canada, Air Baltic and Delta orders will result in a 2Q2016 charge of $500m, or nearly $4m per aircraft, BBD announced in its press release. This means the aircraft were sold at a loss, but the gain of these blue chip customers were needed. This is about the learning curve and unit accounting (see below).
Delta deliveries begin in 2018.
Belleman said the C Series will be the largest driver of future growth for BBD.
The CRJ and Q400 saw soft orders in the first quarter. Bellemare sees a stronger second quarter. He vowed increased attention by management this year.
Airbus Group 1Q 2016 results: Slow start to the year, guidance maintained.
By Bjorn Fehrm
28 April 2016, ©. Leeham Co: Airbus Group has had a slow start to 2016. Deliveries of A320neo, A350 and A400M are slowed by problems with engine and cabin suppliers. Only 127 aircraft were delivered out of a total guidance of 670 deliveries for 2016, a mere 18%. Group 1Q 2016 (1Q 2015) revenue were €12.2b (€12.1b) with EBIT of €501m (€651m), down 23% year on year.
The group expects to recover the shortfall in deliveries during the year and to reach guidance levels for revenue and EBIT, except for the troublesome A400M. This time it’s a engine gearbox item which is the culprit. Airbus CFO, Harald Wilhelm, gave a clear warning during the quarterly conference call: the A400M program “risks a significant charge” during the year.
The financial results for the divisions for the quarter were:
- The commercial aircraft division delivered 125 (134) aircraft with revenues €8,668m (€8,565m) and EBIT €407m (€569m).
- Airbus Helicopters delivered 56 (62) helicopters with revenues €1,158m (€1,285m) and EBIT €33m (€52m).
- Airbus Defence and Space revenues were €2,534m (€2,603m) with EBIT €109m (€90m).
Details of the Airbus Group 1Q 2016 results are below.
Bombardier wins breakthrough C Series order, from Delta
April 28, 2016, (c) Leeham Co.: At long last, after years of disappointment for that big, breakthrough order, Bombardier finally got it: a huge deal from a blue chip
Delta Air Lines ordered 75 CS100s and optioned 50 more. This is the breakthrough order Bombardier has been waiting years to receive. Source: Delta Air Lines.
airline, and one from North America: a firm order for 75 C30S100s and options for 50 more from Delta Air Lines.
Delta has conversion rights to the CS300. Bombardier now has more than 300 firm orders, although many of these are iffy, and commitments for up to 500 more.
This is the order that observers, analysts and aviation geeks have been waiting for during much of the development and production of the C Series.
The announcement came concurrently with highlights of BBD’s first quarter results.
Boeing 1Q results reveal “underlying strength”
Dennis Muilenburg, CEO of The Boeing Co.
April 27, 2016: Boeing delivered better financial results in first quarter that reflect “underlying strength” in the company, said Dennis Muilenburg, CEO of The Boeing Co., on the first quarter earnings call.
Excluding charges of $243m pre-tax charges on the KC-46A tanker, earnings per share equaled last year. Charges related principally to engineering change to the completed tankers, required after flight testing began. Muilenburg said the program remains “on path” to meet the commitment to deliver 18 tankers by August 2017. With a potential program of 400 deliveries over the life of the program, Muilenburg said the program should be profitable.
Boeing takes new charges on tanker, 747-8
April 27, 2016: Boeing took new charges on the KC-46A tanker and 747-8 programs, but not on the 787, its first quarter financial results announced.
Boeing took a $162m pre-tax charge on the tanker at Boeing Commercial airplanes. A charge of $80m was taken on the Defense side of the business for the tanker. Another $70 pre-tax charge was taken on the 747-8 program.
Cash levels were lower than that at year end, due to the shareholder buyback, lower deliveries and the “timing” of cash flow, the company said. With marketable securities, Boeing ended the quarter with $8.4bn cash and equivalents vs $12.1bn at year end. Year-over-year, cash and securities were $8.4bn to $9.6bn.
Initial analyst reaction follows.
737-7X, 737-10 studies illustrate Boeing weakness in single-aisle market
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The Wall Street Journal revealed last week that Boeing is planning the airplane, which is larger than the current 737-7 but smaller than the 737-8. Jon Ostrower, the reporter, dubbed the plane the 737-7.5. Internally, it’s called the 737-7X.
Summary
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Posted on April 27, 2016 by Scott Hamilton
Airbus, Boeing, Bombardier, CSeries, Delta Air Lines, Leeham News and Comment, United Airlines
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