Turmoil in aerospace

A Seattle public radio station, KPLU, has a five minute audio report wondering about Boeing’s future in the Puget Sound area.

CNN reports Embraer will lay off 20% of its 21,000 workforce. Here is the Reuters report.

Airbus adjusts production

Update, Feb. 20: Flight Global has this report with a dire prediction from the IATA General Director that Airbus and Boeing won’t be able to deliver half of the aircraft scheduled this year because of the credit crunch.

And we’re told that many in the Airbus supply chain have already made plans for lower production rates than announced yesterday by Airbus.

Original Post:

Market Watch had this report today:

Airbus said it’s reducing the production rate on its A320 single-aisle family of aircraft to 34 a month from 36. Additionally, it now plans to hold work on the wide-body A330/A340s at 8.5 a month, instead of increasing it further as previously planned.

We think this is just the tip of the iceberg. See our report from February 13. For now Airbus reaffirms its delivery target for 2009, with the production adjustments scheduled to take place from October. But Airbus’ CEO said in a statement that “I do not exclude further production cuts if the need arises.”

Dow Jones filed this report about France’s Safran, the parent of Snecma, which is the joint venture partner of CFM international, supplier of engines to the Boeing 737 and Airbus A320:

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Go ‘Bama

We’ll be off line for five days while we go for a ride:

USS Alabama, SSBN 731: Source Wikipedia

We write for Armed Forces Journal magazine and for the next few days we will be on a Trident nuclear submarine. Eight years ago we had the opportunity to have a short ride on the USS Alabama. It’s not Airbus or Boeing, but it’ll be more fun.

Update, February 18: We’re back from our trip on the USS Maryland into the Atlantic. We need a few days to catch up and then we’ll write a piece, probably during the weekend, about this embark.

USS Maryland, SSBN 738: Source-US Navy

Assessing production cuts

The big question being asked by just about everyone with an interest in aviation these days is what are Airbus and Boeing planning for production rates this year and next.

Jobs are at stake in an economic environment where, in the USA, the number of jobs lost since the start of the current recession is equal to or more than the population of Chicago. European labor laws make it more difficult to simply chop jobs, but even so this is a concern.

Suppliers are worried that Airbus and Boeing will cut production rates, hurting their businesses (and leading to more job reductions).

Here’s an encapsulating review of what’s going on.

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Puget Sound conference looks at Boeing, aviation

We just attended a two-day conference organized by the Pacific Northwest Aerospace Alliance, a major event in Seattle’s Puget Sound region.

Michele Dunlop of The Everett Herald wrote several stories; here are our impressions.

  • Surprisingly, given the downturn in the economy, there were about 50 more attendees to the conference than last year. This speaks to the growing importance of this event and the desire on the part of suppliers to prepare for what all expect to be production cuts by Boeing.
  • Although Boeing is now openly talking about a 10% production cut in 2010, two major suppliers at the conference we talked to believes this could happen in the second half of this year.
  • Boeing on Tuesday at two separate investors’ conferences reaffirmed its schedule for first delivery of the 787 in 1Q10. One supplier we talked to at the PNAA conference believes first delivery will be later in the year than that.
  • Airbus touted its US supply base at the conference. Washington State ranks #4 in terms of dollars spent in the US.
  • Washington State and Snohomish County (Everett, where the wide-bodies are built) officials at the conference are considering strategies to keep Boeing’s next new airplane programs in Washington and Everett. Proceeding on the assumption that Boeing may try to relocate these to other states, the county economic development group in particular is concerned that Legislators don’t believe Boeing might pick up and move–that all discordant notes espoused by Boeing are just talk. (Our comment: the Legislators seem to have short memories; Washington barely retained the 787 assembly; Boeing officials have about had it with the unions.)
  • Richard Branson’s tongue-lashing of Boeing and the unions was a topic of networking discussion. One Seattle newspaper reporter who covered the Branson threat to cease buying Boeing because of labor strife at the company believes the entire tirade was choreographed by Boeing and Branson to send a harsh message to the IAM, which struck the company for 57 days–delaying delivery of a Boeing 777 to Branson’s VAustralia airline.

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787 lightning protection

Dominic Gates at The Seattle Times had a long story Sunday (Feb. 8, 2009) about the Federal Aviation Administration relaxing rules on lightning strikes as too stringent and which the new composite Boeing 787 cannot meet.

The rules, adopted following the in-flight destruction of TWA Flight 800, a Boeing 747 (which crashed for reasons other than originating with a lightning strike), could not be met by other manufacturers, either, according to the Gates story. What we find eyebrow-raising is that the FAA proposes changing the rules to permitting only one system for lightning protection, abandoning the decades-long concept of redundancy for safety.

You have to read the Gates story for the details and why the FAA thinks this move is OK in the case of the 787.

But we’ll point out that there is a recent example of an aircraft design without a second back-up system leading to a fatal crash: Alaska Airlines Flight 261, when the McDonnell Douglas MD-83 lost control, inverted and crashed into the Pacific Ocean when the vertical tail’s jackscrew failed. This system controls the horizontal stablizer on the top of the T tail. Alaska, with approval of the FAA and Boeing (which by then had acquired McDonnell Douglas), changed suppliers for the grease and the maintenance interval for the jackscrew. This proved a mistake; the new grease wasn’t as durable as the old. Then the grease wore out, the jackscrew failed and because there wasn’t a second system, the flight crew lost control of the airplane. Everyone was killed in the ensuing crash.

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Airbus A400M program in doubt: report

Just so readers don’t think Boeing is the only one with problems, Germany’s Der Spiegal reports things may be going far south with the Airbus A400M. Here’s their report, via Business Week.

Boeing: 2010 production cut possible

James Bell, the CFO of The Boeing Co., appeared today at a Cowen & Co. investors conference. Here is a synopsis of his presentation, as he gave it. The third bullet point refers to potential production cuts in 2010.

  • This is one of the toughest commercial and financing markets we’ve ever seen.
  • 2008 challenging: progress made, but outweighed by IAM strike and financial markets.
  • 2009: expect up to $68bn in revenue as return to full production rates (from the IAM strike.) We still think stable production rates for commercial are appropriate, based on conversations with customers, strike-adjusted schedules. 2009 financial guidance assumes may have to make modest schedule adjustments starting in 2010 [NOTE: this statement is more definitive since the earnings call last week–see our additional comment at the end of this column]. (No detail on possible production rates was provided.)
  • If network carriers don’t start taking delivery of new airplanes in next several years, they will face unmanageable fleet replacement in the middle of the next decade.
  • Productivity on mature programs: 737 has been on Lean track for years, 777 improved by 20% with more improvements possible.
  • Boeing Capital Corp. believes it has adequate sources to support airplanes in 2009 from diverse sources. BCC will be financing in 2009, the first time in several years. We assume BCC will finance $1bn this year, issuing debt to cover a large portion of this.
  • Defense: International markets provide significant growth opportunities from 14% of revenue in 2008.

Q&A begins:

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LCAL Cancels 787 order

Also see the Updates after the jump.

LCAL, based in Dubai, has canceled 16 Boeing 787s, it has now been confirmed. This is the cancellation we wrote about on January 14 and hinted overtly about in this post.

LCAL canceled 16 of the 21 787s it had on order.  Five of the aircraft were under contract to be delivered to Royal Jordanian, and these remain on the books to be delivered directly to the airline, we understand.

While the number of cancellations isn’t a “wow factor,” what is especially significant here is that LCAL was formed for the express purpose of being a 787 lessor. Because of the 787 program delays, canceling the order puts LCAL out of business, if the Royal Jordanian aspect of this is confirmed. (We’re working on that.)

We understand that penalties paid by Boeing, based on the delays, to LCAL are significant. Boeing attributes the cancellation to “tough challenges” and “other factors;” we understand this is really about the delays to the 787 program.

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Assessing the 747 program

Since Boeing’s earnings call last week, spurred on by the Flight International and Everett Herald stories doubting the future of the 747-8 program, we’ve received media inquiries whether we think the program will be canceled.

For those who missed or already forgot our first post of 2009, the answer to this is No. We called 2009 the year of program recovery for Boeing, and this included then and includes now the 747 program. Nothing has happened to change our view.

Our post earlier this week, Keeping or Ditching the 747?, added some color and independent reporting to the stories in Flight and The Herald. We reported–as did Flight–that Boeing has run various scenarios about what to do with the program: cancel it entirely, or keep the freighter but cancel the passenger model, or slow the program down.

For those who understand Boeing’s way of doing things, running all scenarios is SOP, Standard Operating Procedure. For those who understand Boeing CEO Jim McNerney, he’s going to want all options laid out for him. This is his SOP.

Word of these studies quickly became known.

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