Leeham News and Comment
Intelligence for the Aviation Industry
Leeham News and Comment
- Bjorn’s Corner: Pitch stability, Part 4 December 14, 2018
- Has the A380 worse economics than the 777-9 or A350-1000? December 13, 2018
- Tanker wars may be back December 10, 2018
- Pontifications: Nordic quietly rises to #4 world lessor December 10, 2018
- Bjorn’s Corner: Pitch stability, Part 3 December 7, 2018
767 sales keep line alive for tanker
Boeing last week announced an order for four more 767s (in this case, -300ERs) that help keep the line alive pending a new competition for the USAF aerial tanker.
Boeing previously booked an order for nine 767s for All Nippon Airways, a customer affected by delays with the 787. Japan Air Lines is expected to take nine 767s as well; there are nine listed on Boeing’s website as unidentified–these are believed to be JAL’s. Another airline ordered two 767s.
All four carriers are 787 customers affected by the delays.
There are now 68 unfilled orders listed on Boeing’s web site for the 767. Boeing’s production rate is currently one a month but it likely will go to two a month as early as 2010.
This is good news for Boeing in keeping the 767 line active while Boeing competes for the KC-X contract. (Good news, that is, which originates from the bad-news 787 delays, of course.)
It’s unclear how the Department of Defense and the Air Force will handle the new round of KC-X competition. DOD hasn’t said if it will simply restart the competition suspended from the GAO decision upholding the Boeing protest or completely restart the competition. If the former, a decision could be rendered within a year and the 767 production rate is moot. If the competition is completely restarted, worse-case, it could take up to four years. Before the 767 orders were placed to take care of 787 customer delays, the backlog was about four years at one a month. The current backlog and production rate gives Boeing four years to keep the line open.
Update, November 11: Lan Chile just announced the acquisition of four 767-300ERs for delivery starting in 2012 to accommodate delays in its 787 order.
Were they at the same meetings?
Boeing and SPEEA have two very different views of the progress of the bargaining to date and contract offer that was presented by Boeing to the engineers’ union Thursday.
The SPEEA contract expires December 1. Many of the contract provisions proposed by Boeing are similar to those offered to the IAM, which rejected the Boeing contract and struck for 58 days. SPEEA said that if it strikes, one will come in January or February, just about the time Boeing returns to pre-IAM strike production levels.
Below is the Boeing communique issued by chief negotiation Doug Kight; the SPEEA response follows. (We can’t do anything about the type size differences–there is no hidden meaning in the different sizes in the following messages.)
Airbus, Boeing news from around the world
Update, November 6:
2:40 PM PST: Boeing is to make its contract offer to SPEEA today, with plans to conclude talks next week.
Armed Forces Journal: We wrote this article for this magazine’s November issue taking a look at the next competitive battle between EADS and Boeing over a military program.
Seattle Post-Intelligencer: UBS’s aerospace analyst thinks Boeing stock hasn’t hit bottom, due to the downturn in the aviation industry. He echoes Goldman Sachs and other analysts in a growing consensus that the worst is yet to come.
London Guardian: Airbus foresees Chinese deferrals.
Bloomberg News: There could be 200 whitetails next year as airlines find they can’t pay for airplanes.
AeroNews: Embraer considers jumping into larger airplanes.
China Daily: China looks to build 150-200 seat jets.
Update, November 4, 11:30 AM PDT: James Wallace of The Seattle P-I reports that Boeing officially told him the 787 won’t make its first flight until 2009.
November 4:
A sampling of news about Airbus and Boeing.
Seattle Post-Intelligencer: Slow restart on production, 787 first flight to February or March.
London Guardian: Lessor BOC Aviation orders 20 A320s.
Defense News: Airbus suspends A400M production.
International Herald Tribune: IAM strike delays 80 Boeing airplanes.
ATWOnline: New fastener problems with the 787.
Corporate website updated wk 11/4
In our bi-weekly update at our Corporate website, we take a look at the challenges Boeing has now that the IAM strike is settled.
We also identify the company that is the largest customer of 7-Series airplanes and the largest customer of 737s later in the same commentary.
Bad news for Northrop?
With Pennsylvania Congressman John Murtha (D-Foot-in-Mouth) suddenly in danger of defeat in Tuesday’s election after calling his constituents racist and rednecks, Norm Dicks (D-Boeing/Washington) is in line to succeed Murtha as chairman of the House Appropriations Committee.
This would be bad news for Northrop Grumman and its effort to sell the Airbus-based KC-30 to the USAF instead of Boeing’s KC-767. Regular readers need no reminder of the dynamics here.
Update, 10:15 PM EST, November 4: Northrop can breath easier; NBC News just declared Murtha was reelected.
“I can see Russia from my house.”
Air Force Magazine has an interesting article about beefing up the USA’s air defense.
Good News, Bad News for Boeing
The good news is that the IAM strike is over and the union members are starting to return to work (all of them have to be back by November 10). The bad news is that two analysts take a negative view of the near-term future.
Bernstein Research has further downgraded its 787 delivery projections, according to ATW Online in this story.
Boeing held off predicting any potential impacts to the 787 line while the strike was underway, other than saying there is a day-for-day additional delay. Although this is the case, we believe the 787’s first flight will now be well into the first quarter. Boeing’s original timeline for a first flight was October 29; at the Farnborough Air Show, program chief Pat Shanahan predicted November. A 58-day delay takes the first flight to the end of December or end of January or later, depending on when in November Shanahan thought the first flight would be. If he was thinking the end of November, then the strike put the first flight at the end of January or February.
Ramping up the work schedule from the strike will likely further delay, suggesting perhaps even a March first flight. If any more technical issues surround the 787, this could slip the first flight to the second quarter.
ATW Online reports that Qantas expects an additional six month delay for its 787s. ANA now expects its first 787 delivery in 2010, says ATW.
Goldman Sachs returned Boeing to its “Conviction” Sell list, according to this report. Goldman remains concerned about economic conditions and the capital markets leading to deferrals that will depress Boeing’s delivery stream in the coming years.
China’s Big Three airlines report big losses and are seeking government money, according to this ATW Online report. JP Morgan cites ATW Online in reporting that China Eastern plans to defer airplanes, which will affect Airbus and Boeing.
News that China’s airlines are struggling and deferring airplanes is bad news. Airbus and Boeing each tell everyone who will listen that their backlogs are solid, in part because of the geographic diversity. China historically has been a rock-solid customer for both manufacturers, where deliveries were maintained through thick and thin. If China is hurting, the could well be the underpinning that belies the theories at Airbus and Boeing.
Update, 1:45 PM: American Technology Research doesn’t expect the first flight of the 787 until February or March. See this item from James Wallace at The Seattle Post-Intelliencer. This is in line with what we write for our Corporate Website update tomorrow. We also will report a 2Q09 first flight is not beyond the realm of possibility.
Back to the Tanker: Price Competition
A new strategy for the competition to award an Air Force contract for the aerial tanker might be a compromise for the next president, according to this article.
A sidebar to the home page has the following item, which does not have its own URL and may disappear after a few days. So with full credit to the USAF Aimpoint:
AMC: Securing Today’s Energy, and Fueling Tomorrow’s Mission
A 2006 study revealed 82 percent of the Air Force’s total energy consumption is aviation fuel. Air Mobility Command, through its fleet of tankers and airlifters, used 27 percent of that total, or roughly $1.5 billion. For over a year, AMC has undertaken an ambitious fuel efficiency program making use of the best airline industry programs/practices. Doing so not only ensures our mobility fleet operates more efficiently, but will secure today’s energy in order to fuel tomorrow’s missions.
Our Airmen aggressively identified and implemented numerous initiatives to reduce aviation fuel consumption and operate the fleet more efficiently. Here are just a few:
-Removed standard ramp fuel loads using only the required fuel for the mission
-Reduced weight by eliminating excess equipment carried on our aircraft
-Enhanced flight planning with accurate computer programs and shorter, direct routes
-Streamlined ground operations through engine shutdown and taxi procedures while minimizing APU usageTransferred additional aircrew training, including practice emergency procedures, to more capable simulators
-Continuously improved data collection tools and metrics to capture improvements
-Standing up a fuel efficiency office to oversee all fuel efficiency initiatives and policy
Although these initiatives are helping to avoid an extra $120M annual fuel bill, we can’t rest on these accomplishments. Other efficient initiatives can be identified, implemented and performed not just by our aircrews, but by Airmen at all levels — throughout the entire Air Force. From commanders, aircraft maintainers, flight planners, to the aircrews who execute the missions, we all need to ensure we do our part to be able to “Secure Today’s Energy, and Fuel Tomorrow’s Missions!”
IAM Vote Results
6:25 PM PDT
We’re here at IAM HQ; the first votes have arrived and are being sorted “I Accept” or “I Reject” the contract offer. We’ll eyeball bestr we can and report throughout the evening.
6:35 PM PDT: VERY early eyeballing, it looks like 3:1 to Accept.
6:45 PM PDT: In a lull waiting for more ballots to arrive. Few members hanging around. Very quiet. Eyeballing looks like 3 or 4 to 1 to Accept. Will be offline until next round of ballots.
7:05 PM PDT: Oregon and Kansas ballots have been counted but results not announced. Green River precinct in Seattle have arrived and result pattern (eyeballing, of course) is consistent with previous posts. We’re going to call this election as an “Accept.” Actual results between 8-830 PM PDT.
7:35 PM PDT: The voting pattern to “Accept” holds up.
8:20 PM PDT: It’s official: the contract was Accepted with a vote of 74%.
Here is the IAM Press Release:
Machinists Approve New Boeing Contract by 74%; 57 Day Strike Ends
The International Association of Machinists and Aerospace Workers (IAM) announced today that its members voted to ratify a new 4-year contract with the Boeing Company by 74 percent.
The new agreement covers 27,000 IAM members at Boeing facilities in Washington, Oregon, Kansas and California, and ends a strike that began on September 6, 2008.
Machinists will begin returning to work as early as November 2 (for third shift employees) and November 3 for first and second shift employees. Per the Settlement Agreement, members have until the beginning of their shift on Monday, November 10 to return to work.
“Our Union has delivered what few Americans have – economic certainty and quality benefits for the next four years. Each of you stood up and did your part to win this battle,” said District 751 President Tom Wroblewski. “Your solidarity brought Boeing back to the table and made this Company address your issues. After 57 days of striking, we have gained important and substantial improvements over the Company’s offer that was rejected on September 3. I am proud to be a member of the Machinists Union and want to thank our members for their solidarity and commitment.”
“This contract gives the workers at Boeing an opportunity to share in the extraordinary success this Company has achieved over the past several years,” said Aerospace Coordinator Mark Blondin. “It also recognizes the need to act with foresight to protect the next generation of aerospace jobs. These members helped make Boeing the company it is today, and they have every right to be a part of its future.”
Among the many job security gains, the Union reasserted its jurisdiction over the scope of work of bargaining unit represented jobs that was lost in the 2002 contract. The Union members’ share of medical costs will remain unchanged from 2002 through 2012. In addition to the many monetary gains achieved in the new contract, the takeaway language that was riddled throughout the Company’s 9/3/08 proposal was withdrawn – retiree medical is preserved, survivor benefits are returned, reinstatement of seniority lost due to layoff is returned, promotional rights restored and the list goes on.
As part of the Settlement Agreement, the Union negotiated insurance and benefits will be considered continuous for all returning employees and their dependents. The Company will return all insurance premiums that were paid during the strike and all valid insurance claims will be paid.
Boeing has not issued a statement at this hour.
Update, 10:15 PM PDT: Here is the Boeing statement.
Boeing releaseMachinists Vote To Ratify Contract Offer and Return To Work
SEATTLE, Nov. 1, 2008 – Striking Boeing [NYSE: BA] machinists in Washington, Oregon and Kansas voted to ratify a new four-year contract that includes excellent wages and an industry-leading pension. About 27,000 employees, represented by the International Association of Machinists (IAM) will begin returning to work with the third shift Nov. 2, ending a 58-day walkout.
“We’re looking forward to having our team back together to resume the work of building airplanes for our customers,” said Scott Carson, Boeing Commercial Airplanes president and CEO. “This new contract addresses the union’s job security issues while enabling Boeing to retain the flexibility needed to run the business. It rewards employees for their contribution to our success with industry-leading pay and benefits and allows us to remain competitive.”
The contract calls for general wage increases of 15 percent over four years, an immediate 16 percent pension increase and lump-sum payments of at least $8,000 over the life of the agreement.
The new contract is for four years, longer than Boeing has typically negotiated with the IAM, which adds to long-term stability for Boeing, its employees, customers, suppliers and communities.
ILFC gets $5.7bn in financing
Mega-lessor International Lease Finance Corp. (ILFC) obtained a $5.7 billion commercial paper financing via the Federal Reserve Bank Commercial Paper Funding Facility.
This just goes to show what government ownership can do for you, after all.
ILFC, of course, is more than a little important to commercial aviation and to Airbus and Boeing in particular. ILFC has ordered more airliners from the Big Two manufacturers than any other customer–747 from Boeing (7-Series airplanes only) and 609 from Airbus. It is Boeing’s largest customer for the 787, with 74 on order.
ILFC is a subsidiary of insurance giant AIG, which narrowly missed filing for bankruptcy when the US government initially committed to loan $85 billion (with another $37 billion coming later). A Chapter 11 filing by AIG would almost certainly have meant a bankruptcy filing for ILFC, even though its financial condition was never in doubt; subsidiaries are routinely put into Chapter 11 if the parent files in order to protect assets from liens and seizures by creditors.
As a result of AIG’s troubles, the commercial paper market dried up for AIG and ILFC. ILFC had to draw down $6.7 billion from its credit lines to repay CP coming due; at the time, ILFC said this would provide enough liquidity “into” the first quarter of 2009, an alarming statement that suggested liquidity problems might arise by then.
With AIG’s troubles, ILFC’s cost of funds had been rising throughout 2008. Its medium term note interest rate in January was under 3.5%; by September, just before the markets and AIG collapsed, ILFC’s interest rate had risen to nearly 8.5%.
The interest rate obtained for the $5.7 billion CP issued by the Federal Reserve to its new government majority-owned partner: 2.78%.
Airbus and Boeing can breath easier: ILFC’s orders are safe.
The financing was revealed in an SEC 8K filed today.