Leeham News and Analysis
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How good is a used 767-300ER? Part 3
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By Bjorn Fehrm
Introduction
Jan. 4 2016, ©. Leeham Co: Before Christmas we started our Boeing 767-300ER article series around acquiring used twin-aisle 767 aircraft to upgrade Boeing 757-based long haul services. We compared the aircraft’s base characteristics in Part One and then their Cash Operating Cost (COC) in Part Two.
Now we continue by analyzing the Direct Operating Cost (DOC) of the aircraft. This adds capital costs to the other operating costs for the aircraft. As the reason for our renewed interest in the 767-300ER is the attractive prices on the used market combined with low fuel prices, the capital costs are an important part of the overall understanding of the costs for the aircraft.
In our assumptions, the 767 is bought as a 10 year old aircraft and then refurbished. It is then operated on a six year financial lease, as is our 757 that we replace. Our benchmark aircraft, the Airbus A330-200 flying in a mainline airline, was bought new in 2009 and is operated on a 10 year financial lease.
Summary
- The low capital costs of the 767-300ER makes it cost competitive in the fuel scenarios that are likely within its six year lease period.
- The 757-200W has fractionally lower direct seat mile costs than the 767, but it has lower capacity and its more limited range reduce its operational usefulness.
- The A330-200 has the best operational flexibility but its higher capital costs makes it the most expensive aircraft to operate in the period of interest.
- In a final article, we will add the revenue capability of the aircraft. This is where the A330-200 gets the chance to show if it can cover its higher direct costs with its higher earnings capability, thereby generating more value for the airline.
Mitsubishi delays MRJ90 EIS one year, IDs “issues”
- HOLIDAY SCHEDULE: Unless there is major, breaking news, Leeham News and Comment is taking the Christmas-New Year’s holidays off. We resume our normal publishing scheduled Jan. 4, 2016.
Update, Dec. 25: The Seattle Times reports the MRJ90 doesn’t meet the 150% certification requirement.
Update, Dec. 24: Mitsubishi’s biggest customer for the MRJ90 weighed in on the latest news of a delay and structural issues. From today’s Wall Street Journal:
SkyWest Inc., the largest U.S. regional airline operator by revenue, has as many as 200 of the Mitsubishi jets on order. In advance of Mitsubishi’s news conference Thursday, a SkyWest spokeswoman said the company was sticking with its order, but said it was “dependent on flying contracts, scope and aircraft availability.”
There are enough caveats in that statement to be cause for worry about the solidity of the order. Trans States Airlines of the USA, the second largest customer, could not be reached (it was after hours) by the WSJ for comment. Launch customer and launch operator ANA stood behind the company, the WSJ reported.
Original post:
Dec. 23, 21015: Mitsubishi issued a press release at 4pm Tokyo time Dec. 24 (11pm Seattle Time Dec. 23), announcing a delay of entry into service by about a year from 2Q2017. The press release said “issues” arose during flight testing, but the PR did not identify what these are.
The press conference is going on as this is posted. The press release is below. The short PPT/PDF presentation is here: 20151224_Update on MRJ Development Status
Boeing stock sell-off on 777-200ER deal over-blown
- Stock sell off on Boeing 777-200ER purchase price overblown.
- Wells Fargo stock downgrade the next day spurs larger sell-off.
- Credit Suisse takes a deep dive into Boeing cash flow.
- Accelerating PDPs, purchase payments continues to support cash flow.
- HOLIDAY SCHEDULE: Unless there is major, breaking news, Leeham News and Comment is taking the Christmas-New Year’s holidays off. We resume our normal publishing scheduled Jan. 4, 2016.
Dec. 22, 2105, © Leeham Co.: The sell-off in Boeing stock last week tied to the Delta Air Lines purchase (Letter of Intent) of a 777-200ER for $7.7m was overblown.
The stock was off 2.6% Thursday after Delta CEO Richard Anderson Tweeted an LOI had just been signed to buy a 777-200ER. This sell-off, and an earlier one when Anderson said the -200ER could be acquired for $10m, prompted hand-wringing over 777 values and the potential impact on new 777 Classic sales needed to build the bridge to the production of the 777X.
CS100 certified; We review CS100’s birth with VP CSeries, Rob Dewar
Introduction
By Bjorn Fehrm
21 December 2015, ©. Leeham Co: Bombardier (BBD) received certification of the smaller CSeries, the CS100, by Transport Canada Thursday. Rob Dewar, vice president of CSeries, reflected on the journey to certification in an exclusive interview with LNC.
CSeries VP Rob Dewar with CS100 Certificate. Source: Bombardier.
The interview was done against a backdrop of more than two years of delays, which in turn drained the coffers of BBD. To save the project and let it prove its game-changing character, management sold 49.50% of the CSeries program to the Province of Quebec for $1bn and 30% of its train division to Caisse de dépôt et placement du Québec, for an additional $1.5bn.
Dewar has managed the project from the program launch in 2008. The transcript of the interview follows.
Pontifications: Potential MRJ safety issue, delay impacts customers
By Scott Hamilton
Dec. 21, 2015, © Leeham Co.: Mitsubishi Aircraft announced last week that its MRJ90 program was undergoing a review following three test flights. A new schedule could be announced as early as this week, but by the end of the month is also possible.
The company didn’t indicate what prompted the review, but the 7news service reported that “safety” issues were involved.
A delay in delivery to the first customer, ANA, slated for 2Q2017, is almost a certainty. This isn’t good news for the program, which is already more than two years late.
How good is a used 767-300ER, Part 2
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Introduction
By Bjorn Fehrm
Dec. 21 2015, ©. Leeham Co: Last week we started our Boeing 767-300ER article series around acquiring used twin-aisle 767 aircraft to upgrade 757-based long haul services, like Canada’s WestJet has done. We compared the aircraft and looked at the base data for the aircraft in article one.
Now we continue by analyzing the Cash Operating Cost (COC) of the aircraft in a typical long haul configuration, using our normalized seating. We are assuming that the 767 and the 757 are a half-life state between overhauls of engines and airframe.
Our benchmark aircraft is an Airbus A330-200 which is flying in a mainline airline. Here we assume that it is 25% deteriorated since new for engines and airframe.
Summary
- The 767-300ER and A330-200 differ in fuel and crew costs per seat mile but are close in most other cost items for COC.
- The 757-200W has lower fuel operating and crew costs than a 767 for the sectors it can perform. It is more expensive in maintenance and landing/underway fees on a per-seat basis.
- Overall the 767 is sufficiently within range of the A330-200 for cash operating costs so that when we add capital costs, it could be close to a draw.
- Finally, we will look at the earnings capabilities of the aircraft by adding standard yields for the payloads the aircraft can carry.
Bjorn’s Corner: Engine efficiency revisited
By Bjorn Fehrm
18 December 2015, © Leeham Co:Part of the discussion following last week’s article around quad or twin engine airliner designs was about engine efficiency and specifically around the engine’s thermal efficiency as a function of Pressure Ratio, PR.
I got the question, if an engine working at a higher pressure ratio was therefore working at a higher thermal efficiency. I knew enough on the subject to know I did not have a good answer without doing a bit of checking; jet engines are no simple contraptions.
I have previously written about turbofan efficiency in a Corner. The article was focused around propulsive efficiency. Now we will have a look at the other part of overall engine efficiency, the thermal efficiency or the efficiency of the core.
How good is a used 767-300ER?
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By Bjorn Fehrm
Introduction
Dec. 16 2015, ©. Leeham Co: Fuel prices at a record low changes a lot of short- and mid-term planning scenarios for airlines. An introduction of a used aircraft with higher fuel burn for a typical lease period of five to six years is possible without endangering the airline’s economics.
The risk of oil prices going sky high in such a period is low, hence the attractiveness of complementing ones fleet with leased older aircraft like Canada’s WestJet has done. It will introduce ex. Qantas 767-300ERs on several traditional 757 destinations like Hawaii and presumably West Europe.
We therefore expand our in dept look of the deployment of used aircraft with a look at the WestJet choice; Boeing’s 767-300ER and compare it to a more contemporary twin, Airbus A330-200.
Summary:
⦁ The 767-300ER is around 25 seats smaller than our benchmark aircraft, the more modern A330-200.
⦁ The A330-200 previously put the 767 under pressure and Boeing responded with the 787-8. We will check if this is still the case when oil is below $40 a barrel and leasing cost for a used 767 is below $300,000.
⦁ We will also check what load-factors an airline like WestJet has to attain on the 767 to reach the same seat-mile costs as for the 757 that the route was up-gauged from.
⦁ We will follow the scheme of the 777-200ER vs. A340-300E comparison, Part 1 compares the aircraft, Part 2 the costs and Part 3 the revenue and margin performance of the aircraft.
Reaction mixed to Boeing increase in share buyback, dividend hike
Dec. 16, 2015: Reaction among Wall Street analysts was mixed following the announcement by The Boeing Co. that the board of directors approved a hike in the stock dividend payments and the share buyback.
The announcement had been expected. The share buyback was increased from $12bn to $14bn in aggregate and the dividend was increased by 20%, to $1.09 per share. The latter was somewhat higher than expected. Boeing has repurchased $6.75bn in stock so far.
Initial reaction from analysts ranged from positive to cautious.
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Posted on December 23, 2015 by Scott Hamilton
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