Leeham News and Analysis
There's more to real news than a news release.
Airbus Group 3Q results; Increase of A320 production to 60 a month
By Bjorn Fehrm
Oct. 30, 2015, ©. Leeham Co: Airbus Group announced its increase of the production rate for the best-selling A320 range to 60 a month in conjunction with its 3Q
2015 results. The rate increase shall be seen against a backdrop of ever-increasing backlog for the A320neo, now at over 4,300 aircraft. The sales bonanza of the A320 is continuing with another 100 aircraft committed at Chancellor Merkel’s visit to China in October.
Airbus Group booked solid results for the third quarter, with order intake for Airbus for the year already secured in 3Q at 815 aircraft (791 3Q 2014). Noteworthy are the A330 bookings of 87 aircraft which have also continued in October with another 30 aircraft committed by China.
Revenue was up 6% to €43bn (€40bn 3Q 2014) and core operational EBIT was up 6.5% to €2.8bn compared to €2.59bn 3Q 2014. Free Cash Flow (FCF) was better than 3Q 2014, with €-1.8bn instead of €-2.1bn4. Airbus group expect FCF to be breakeven for the year.
Given the strong results Airbus Group has decided to buy back €1bn of shares before June 2016.
Details from the Airbus programs are:
Bjorn’s Corner: Aircraft programs
By Bjorn Fehrm
30 October 2015, ©. Leeham Co: There has been dramatic news this week around Bombardier’s (BBD) CSeries program. I wrote a subscribers article about what to expect in terms of the cash flow problem that the BBD management has been wrestling with. The announcements yesterday and the following earnings call confirmed the financial modelling I did with our aircraft modelling tool.
Having watched experienced Wall Street analysts being hard pressed to understand what has happened with the CSeries, I thought I could use this week’s corner to explain the overall economical flow of an aircraft program like the CSeries (there will be details in a follow up subscriber article). I will also put it in context with how it affects a company like BBD and what one must think about when it comes to timing of such projects.
To give the timing aspect more colour, I will also compare with Embraer and their E-Jet E2 project and Boeing’s 787 program. The three programs are very different and they demonstrate in an illustrative way the challenges of making a new civil airliner and that one must adapt the project to the company’s position and its strength and weaknesses.
Bombardier 3Q2015 earnings call
Oct. 29, 2015: “I feel confident in our liquidity going forward,” following the investment by the Quebec government of $1bn in the CSeries program, says Alain
Alain Bellemare
Bellemare, president and CEO.
With that, Bombardier launched its third quarter earnings call.
Cancellation of the Learjet 85 program was due to a lack of sales due to a prolonged downturn in the business jet market, Bellemare said. The $3.2bn charge against the CSeries program was driven by delays. Bellemare said that production aircraft are moving down the production lines. “We’re getting traction with potential customers” with the new sales team. The partnership with the Quebec government “is excellent news.”
Key initiatives have been identified for cash savings over the next five years. More information will be forthcoming on November 24 at a New York investment conference.
Bombardier: $3.2bn charge, $1bn from Quebec
Oct. 29, 2015: Bombardier today announced a US$3.2bn charge against the CSeries program and a $1bn investment from the province of Quebec, about half of what
CS100: Certification 97% complete. Photo via Google images.
had been rumored, with its 3Q2015 earnings. The press release is here.
BBD also canceled its Learjet 85 program. Revenues declined $800m to $4.1bn. Exclusive of charges against the CSeries and Learjet programs, BBD reported net income of $71m vs $171m. Total reported net loss was $4.9bn, including the charges against the two programs.
“Today, we are proud to announce that the government of Québec will invest $1 billion in the C Series aircraft program. This partnership comes at a pivotal time, with the C Series on the verge of certification. The market is there, our leadership is in place, we have the best product and with the support of the government, we are ready to make this aircraft a commercial success,” said Alain Bellemare, president and CEO.
Northrop wins, Boeing/Lockheed lose bomber contract
Oct. 27, 2015: Northrop Grumman, builder of the B-2 bomber in the USAF inventory, was awarded the contract to build the next generation long-range bomber, which is yet to be named. For the moment, we’ll call it the “B-3.” For now it’s official name is the Long Range Strike Bomber (LRSB).
The Seattle Times has this story.
This is a big blow to Boeing, whose declining defense business was already in trouble from defense cutbacks and previous contract losses. The contract is worth $80bn.
Boeing’s strategy in acquiring McDonnell Douglas Corp back in 1997 was to even the revenue stream between commercial and military, in which Boeing then had a small portion and MDC was predominately military. Boeing was a sub-contractor to Northrop on the B-2, gaining a lot of its composite experience there which ultimately benefited development of the 787.
Unless Boeing finds grounds to challenge the contract award, prevails and wins a second competition, its Defense unit will continue to shrink.
Goldman Sachs, as with many other investment banks, called this a big win for Northrop.
Pontifications: Is the end in sight for program accounting?
By Scott Hamilton
Oct. 26, 2015, © Leeham Co.: Is the end of program accounting, the staple of The Boeing Co. profit and loss reporting, on its way out?
It is in Europe, where it is called contract accounting, the end of its use is required by January 1, 2018. (LNC’s Bjorn Fehrm has talked about contract accounting in the past.) Companies have the option to eliminate it in 2017.
The fundamentals between contract and program accounting are similar: defer costs of the goods or services, and recognize profits sooner.
Europe’s International Financial Reporting Standards (IFRS) 15 says this has to stop.
Bjorn’s Corner: Increasing an aircraft’s range, further considerations
By Bjorn Fehrm
23 October 2015, ©. Leeham Co: In last week’s Corner, we went through how Airbus can offer an Ultra Long Haul (ULH) aircraft to Singapore Airlines by increasing the Maximum Take-Off Weight of its A350-900, increasing the tankage and lower the payload. There are a couple of other considerations when extending the range of an aircraft that we did not touch upon. For completeness, we go through them here.
When increasing the allowed weights (really, masses) of a certified airliner, there are a few things that need to be re-evaluated and perhaps modified. First of all, the airframe needs to withstand the higher loads caused by the higher weights. Secondly, the aircraft’s field performance will be affected by higher weights. Required take-off field length must stay within usable limits, as must landing performance.
If the increase in flying weights are significant, it will also require a check on what happens to the aircraft’s flight profile when fully loaded. A heavier aircraft will cruise at lower flight levels and the One Engine Inoperative (OEI) service ceiling will diminish.
We now go through these additional areas and evaluate their impact on overall aircraft performance in general and on an A350-900ULR in particular.
Do the Boeing 787 sums add up, Part 2
By Bjorn Fehrm
Subscription required.
Introduction
Oct. 22, 2015, ©. Leeham Co: This is an update on our article about Boeing 787 program costs now that Boeing has presented its 3Q 2015 results.
It was a good quarter for Boeing with solid performance in revenue and in cash generation. The results for deferred costs for the 787 program were also above Boeing’s guidance (guidance: same losses as for 2Q), with a $577m increase in deferred costs instead of $790m for 2Q.
Boeing’s CFO, Greg Smith, commented that this result and also gave new values for when the 787 goes cash positive and what the learning effects are for the 787-8 and 787-9. We update our analysis based on these further data points.
Summary:
- Boeing reports less deferred costs than expected but Greg Smith put this in perspective in his comments. We decode what this means for the deferral curve for the 787.
- Smith also gave new information regarding learning effects for 787-8 and 787-9 and when the 787 goes cash positive. We check if this changes any of our assumptions in our original article.
Boeing 3Q15 earnings call
Oct. 21, 2015: Dennis Muilenburg, Boeing president and CEO raised 2015 raised revenue and EPS guidance as a result of the strong third quarter results and he said $8bn in share buyback has been completed through the nine months.
Power on for the 737 MAX was achieved.
Dennis Muilenburg, Boeing president and CEO. Reuters photo via Google images.
Extensions of the KC-46A refueling boom and refueling drogues were achieved in the quarter.
Commercial unit business environment remains “healthy” but the cargo market continues to be watched. Demand for the 737 MAX “remains high.” Given the strong market demand, “we continue to see upward pressure on production rates above the [announced] 52/mo.” But Boeing is not yet ready to go forward.
On the 777 Classic, 44 orders and commitments have been received YTD.