FlightGlobal reported yesterday (May 7) that supplier GKN’s CEO predicted Boeing will cut production next year of the 737 to 21 a month. This would be 32%, roughly in line with a forecast made in January by Steven Udvar-Hazy, CEO of mega-lessor ILFC. He also forecast Airbus will have to do likewise.
Most people scoffed at Hazy’s prediction, including many in Boeing and Airbus, who said Hazy was talking out of self-interest. Whether he was or wasn’t, Hazy has an uncanny knack of accurately predicting things. He also predicted that cancellations and deferrals will outpace orders and so far, he’s correct about that at Boeing and pretty close at Airbus.
Boeing’s weekly orders update shows another 25 787s have been canceled, bringing the total net cancellations for this aircraft to 57 so far this year.
The latest customer is not identified.
Update, May 8: Our colleagues at FlightGlobal have the story of who the customer is (which is why we could not say, because of our affiliation with Flight’s Commercial Aviation Online, and we could not break the news ahead of them). We expect them to publish as early as today but more likely next week. Watch their website (or their premium affiliates or Flightblogger–we’re not sure just which entity will break the news).
As for us, we’ll be at Airbus in Europe next week getting briefings and talking with executives. Watch for periodic postings next week on no particular timetable.
Update, 9:25 AM: Flightblogger just posted.
A bit of a controversy arose this week when Bernstein Research published a report following the media briefing on the 787 program in which Bernstein predicted a delay for entry-into-service (EIS) from 1Q10 to 2Q10; a six month delay in going to production of 10 787s a month (from YE2012 to mid-year 2013); and a discussion that based on its interviews with customers and Tier 1 suppliers that early 787s will be 8% overweight (about 20,000 lbs) and 10%-15% short in range (about 6,900nm vs. 8,000nm).
Boeing disputed the overweight and range conclusions, saying that it was making progress in getting weight down and that range ought to be closer to 8,000nm than to the project 6,900nm.
We obtained a copy of the report and after a thorough reading conclude that the controversy is pretty much a tempest in a teapot. None of this is new news and furthermore, by the way Bernstein worded the report, there is plenty of room for interpretation.
Well, not really an office pool. Internet gambling is illegal in Washington State (another example of misplaced priorities, but we won’t start up again). So we’ll just do a poll.
Update, May 5:
Seattle’s Technical Alliance said Washington State is dead last among 10 states it ranks for graduate programs in science and engineering. Check out this article in The Seattle Times. Even Utah ranks higher.
As we said in our EDC speech, that Washington ranks so poorly in an epicenter that include Boeing and Microsoft is simply pathetic.
We blasted Washington’s governor and Legislature in our speech to the Economic Development Council of Snohomish County for inaction over the past several decades to promote aerospace here and to get off the dime on education.
Well, guess what? The Legislature ended its session April 26 and–no action. See this story in The Everett Herald.
Now the governor says she will take action into her own hands. We were totally unimpressed with her first cut. We’ll see how she does with the second.
Here are our stories from Commercial Aviation Online about the Boeing 737 refresh.
The stories speak for themselves, and one of them gives the reaction of Southwest Airlines, Boeing’s biggest 737 customer.
Our personal observations: the new interior, with 787 features, is a major improvement over those in today’s 737s (and Airbus A320s) from a passenger perspective. Boeing wasn’t able to increase passenger shoulder width comfort because the fuselage width is what it is, but there is more headroom space with the redesigned bins and the lighting is much more pleasant.
The 737’s aerodynamics were pretty clean to begin with, so getting a 1% airframe gain in fuel burn was probably about as good as could be expected. CFM likewise has a pretty efficient CFM 56, so another 1% was probably as good as it gets, too.
This illustrates the challenges Boeing has in tweaking the 737 without a re-engining before going to an all-new airplane. Airbus is hoping for up to 5% fuel burn improvements for the A320 Enhancements, but Boeing told us some time ago these would only at best match the 737 and not better it (Airbus probably would take a different view).
Anyway, here are the stories we did for CAO.
Update, May 4: Veto threat over split tanker effort: read all about it.
Update, May 3:
US Rep. John Murtha (D-PA), chair of a House appropriations committee, has dropped (for the moment) his effort to insert into the FY2010 budget language requiring a split buy between Boeing and Northrop for the KC-X tanker. See this story.
Well, blow us down. Loren Thompson, the defense analyst, now favors a split buy.
He’s been all over the map on this procurement. A big defender of the Boeing KC-767 lease deal when that was on the table. For the KC-767 vs. the Northrop KC-30. Defending the KC-30 award after it was given. Supporting the Boeing protest. Now this.
Followers (including this column) of Thompson, who is quoted frequently as a defense expert, respect his thinking but can’t help be a little baffled on this program.
Thompson’s rationale is what we’ve been advocating since we began following the competition several years ago: split the buy for operational reasons. The two tankers are differently sized: some missions are better suited for the KC-767 and some are better suited for the KC-30. Double the procurement, retire the old KC-135s more quickly.
On the other hand, US Rep. Norm Dicks (D-Boeing/WA), claims he was quoted out of context by KIRO TV a while back, which reported Dicks could “live with” a split buy. Now Dicks is back on his sole-source band wagon (for Boeing), even though Boeing now is fine with the idea.
And now, a plug for our Eco-Aviation conference. More information may be found here.
We attended the joint anouncement April 28 by Boeing and CFM International for the enhancements to the 737NG, something we had forecast in an article for Aviation and the Environment magazine way back in December. Except for the possibility of re-engining the 737 with the Pratt & Whitney Geared Turbo Fan (a prospect that was only evaluated and not forecast in our AE piece), we were right on the money.
Some interesting items came out of the Boeings 1Q09 earnings call yesterday (April 22) with regard to production and deferrals.
Oversales of the 737 have been a key element in Boeing being able to maintain current production levels of 31/mo, despite the global recession. As was previously acknowledged by Boeing, 2009 737 oversales were about 100. On the year-end 2008 earnings call in January, CEO Jim McNerney acknowledged that oversales for 2009 had been reduced to about 15% over the production (which mathematically equated to about 55-56 737s).
Update, April 27: It has been pointed out to us that The Everett Herald wrote that we advocated changing and cutting unemployment insurance and taxes during our speech to the Economic Development Council of Snohomish County. This is not correct. We took no position on the then-pending legislation in Washington State. What we did say is that we agreed with County Executive Aaron Reardon’s characterization that a change by the Legislature in 2005 to the 2003 Boeing 787 incentive plan was “bait-and-switch.” This concurrence apparently led the paper to conclude we supported the change proposed this year.
The Washington State Labor Council wrote us with this information about the 2005 change:
Update, April 24: Bryan Corliss wrote a five page article for the May issue of Seattle Business Monthly that just hit the web. The article, entitled “Boeing, Boeing…Gone,” is an excellent analysis of the current state of affairs in the perennial controversy over the issues involved in Boeing staying in Puget Sound or moving elsewhere. We knew he was working on a piece–we’re quoted extensively in it–but did not know who else he was talking to. We note that other observers touched on virtually the identical points and came to the identical conclusions we discussed in our EDC presentation below. Corliss knows Boeing as well as any local reporter. He covered the company for years for The Everett Herald, leaving when he obtained a fellowship at New York’s Columbia University. Michelle Dunlop succeeded Corliss, who returned to the Seattle area after conclusion of his Columbia work to resume his coverage of Boeing for other publications.
Update, April 23: Michelle Dunlop of The Everett Herald, in her reporting of our EDC appearance, inserted this little reminder:
Last fall, during the Machinists’ strike, analyst Richard Aboulafia, with the Teal Group, predicted a Boeing exodus over the next decade.
“Over the next 10 years, (Boeing Commercial Airplanes) will move to southern states with weaker unions and right-to-work laws that diminish union power,” Aboulafia wrote in a briefing. “This move will likely happen in phases, with new programs … established elsewhere and the 787 line shifting locations.”
Update, 3:00 PM: In response to an analyst question on the Boeing earnings call, CEO Jim McNerney said a decision on ramping up 787 production beyond the goal of 10/mo (ie, this effectively means a second production line) will be made about a year from now.
Note: This is a 2,400 word report.
We were the speaker today (April 22) at a meeting of the Economic Development Council of Snohomish County, which is the county in Washington State where Boeing’s Everett wide-body production facility is located.
The meeting was scheduled before a flurry of press activity following the unauthorized release of a study by Deloitte Consulting about Washington’s aerospace competitiveness and a second study about Boeing’s impact on the Puget Sound (the greater Seattle area) economy. The second study was by the Washington Research Council (WRC).
The Deloitte study concluded Washington is not competitive with Texas, Kansas and some other Southern states due to its business climate deficiencies, labor issues and other factors. The Washington State Labor Council and the national headquarters of the International Association of Machinists (IAM local 751 represents thousands of Boeing workers in Puget Sound) dismissed the veracity of the Deloitte study because Deloitte has done work for Boeing in the past.
The validity of the WRC study was discounted by a close observer of Boeing because WRC officials have previous connections to Boeing.
Our view on the two studies is this: we don’t really care whether Deloitte has done work for Boeing in the past or not, or if some Boeing talking points were included in the study (which, generally, seems to be true). The underlying thesis that Washington hasn’t attracted significant new aerospace business is indisputably true and most if not all of the statistical data comparing states-to-states is publicly available. (How this is interpreted may be a different and legitimate issue of debate.)
Bottom line: there is something wrong in Washington where new business avoids this state.
As for the WRC study, the conclusions contained therein are probably sound. Whether this study, or the Deloitte report, are orchestrated efforts by Boeing to send a message to the Legislature is hardly the point. There is a problem (a challenging business climate), solutions need to be found or there could be ramifications (the prospect of Boeing leaving Puget Sound in whole or in part). The nature of the solutions are the proverbial devil in the details.