Challenge 777X tax breaks, “correct” US ExIm Bank Boeing funding, says Airbus CEO

Challenge Boeing 777X tax breaks and adjust the US ExIm Bank rules.

This is the view of Airbus CEO Fabrice Bregier.

We had the opportunity for what amounted to a one-on-one, on-the-record discussion with Bregier during the Airbus Innovation Days media briefings two  weeks in Toulouse. We sat at Bregier’s dinner table, which although filled with media, was in a noisy setting, allowing us to have some elbow-to-elbow conversation on a variety of topics that couldn’t be heard in the din.

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Southwest sticks with continuous hub/point-to-point as core business strategy

American Airlines plans to shift from continuous hubbing at three of its major cities–an operational process where flights flow throughout the day–to return to traditional peak-and-valley hubbing. But Southwest Airlines, despite many significant changes to its business model over the years, will stick with continuous hubbing which has been at the core of its business model since the airline was founded in 1971.

After attending the American Leadership Council Wednesday in Dallas, we went across town on Thursday to talk with Gary Kelly, CEO of Southwest Airlines. One of the first things we asked him was about the American shift, which we wrote about yesterday.

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American easing away from continuous hubbing, returning to peak banking

American Airlines will ease away from the continuous hubbing that smooths operations at key airports, increases aircraft utilization and cuts costs as it returns to the peak-and-valley hub-and-spoke system adopted decades ago under former CEO Robert Crandall.

Although this will mean higher costs and big gaps in airport activity, the increased revenue potential–called the power of the hub under Crandall–will offset the increased costs, says Derek Kerr, CFO of American.

We were at American’s Leadership Council meeting for 1,500 employees yesterday. The meeting itself was off the record but we talked with Kerr afterwards on the record.

Kerr, CFO at US Airways prior to the merger between AA and US, said that the continuous hub can’t connect as many passengers as the traditional hub, leaving revenue on the table. Continuous hubbing allowed a 45 minute ground time, which is too short–an hour is needed to maximize connections.

Re-hubbing will occur this year at Chicago, Miami and Dallas.

Southwest Airlines was a pioneer in continuous hubbing, though it wasn’t called this until perhaps a decade ago. Southwest essentially rolls the airplanes up, deplanes, enplanes and departs. At its origin, long before carry on bags, bag fees, security issues and other factors arose, Southwest “turned” its planes in as little as 10 minutes. Today turns are 30 minutes or longer, in part as planes get larger and carry-on bags slow the enplaning process. Still, Southwest eschews the term hubbing and indeed its connection percentage is far lower than American and other traditional airlines.

The de-hubbing is just one step the US Airways management team is taking to remake American following its emergence from bankruptcy last year and the merger in December.

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Next new, clean sheet airplane around 2030, says Airbus

Airbus currently is planning for the next new, clean sheet airplane around 2030 and now are focusing on incremental improvements to the existing product lines, officials said at the Innovations Days annual media briefing last week in Toulouse.

Fabrice Bregier, CEO of the Airbus commercial aircraft unit, said that “innovation is on a case3-by-case basis,” with a successor to the A320 family requiring an engine “with great benefit.” He did not define this, but previously Airbus indicated a successor needs a combined 30% airframe/engine improvement to make an entirely new airplane design worthwhile.

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PW works toward 10% fuel efficiency gain for 2020’s GTF

With the Airbus A320neo expected to enter flight testing this fall, equipped with the Pratt & Whitney P1000G Geared Turbo Fan and the Bombardier CSeries, also with the GTF, already in testing, PW is already engaged in research to improve fuel efficiency by up to 10% by the middle of the next decade.

During the PW Media Days last month, we sat down with Robert Saia, vice president of Next Generation Product Family, to discuss how this will be accomplished.

Saia describes what he calls a 10-year technology road map PW follows in its development process.

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Airbus Innovation Days, Part 5: wide body twin development

Kiran Rao, executive vice president, strategy and marketing.

Rao discussed the wide-body strategy for Airbus at Innovation Days on Wednesday. The following paraphrasing synopsizes his remarks.

  • More than 3,500 wide bodies have been sold by Airbus, starting with the A300B2, the first wide0body twin.
  • 1,200 wide-bodies are in backlog. A330: 250-300 seats; A350: 280-370 seats; A380 more than 500 seats (two-class, long range layout).
  • Airbus officials, including Rao, continued to promote the company’s 18-inch seat campaign, comparing the A-Series against the Boeing 777/787 17-inch 10 abreast and nine abreast respectively.
  • Boeing has to go 10 abreast with the 777 “because the economics don’t work at nine abreast.” Boeing had to go with nine abreast on the 787 rather than eight abreast because the “economics don’t work” compared with the A330 otherwise.
  • Economics is the “most important criteria” and the “Airbus aircraft come out ahead.”
  • Rao claims the A330 has lower maintenance costs, lower airport, lower navigation and lower capital costs. The A330 has simpler systems so costs less to maintain, particularly on the engines. The A330-300 is slightly lighter than the 787-9.
  • For the first time we’ve heard, an Airbus official referred to the “A330ceo.”
  • Each seat for a long-haul operator is worth $2m per year, so an A350-900 vs a 787-9 with 35 more seats can generate $70m more revenue per year.
  • The A350-1000 has a 15% COC per trip and a 5% COC per seat advantage, Rao says. Assumptions: 4,000nm, $3/gal, 2 class configuration, 369 seats for A350, 405 seats for 777-9.
  • 777-9X is inefficient without the stretch and a longer wing. It has inferior comfort, Rao says.

Airbus Innovation Days, Part 4: A330neo announcement at Farnborough not a sure bet; CEO questions market forecast

  • Bregier sees hundreds, not 1,100-1,200, market potential for A330neo–perhaps not enough to justify program.
  • A330neo needs to match operating cost of 787-8, officials say.
  • New engines will up maintenance costs.

Airbus officials say they are still evaluating whether to proceed with the A330neo, and that an announcement at the Farnborough Air Show next month is not a given.

John Leahy, COO-Customers, ticked off the considerations during the Airbus Innovation Days this week in Toulouse. These are corporate and strategic issues. A more tactical issue is what impact re-engining will have on maintenance costs, says Kiran Rao, EVP of Strategy and Marketing.

In his presentation, Rao said that the A330ceo has lower maintenance costs than the Boeing 787 (something Boeing would likely dispute), with engine maintenance costs being a notable factor.

In a sidebar press scrum after his presentation, we asked Rao about this. If the neo is equipped with either (or both) the Rolls-Royce Trent 1000 TEN or GE Aviation GEnx, or derivatives, what would the impact be on the claim of maintenance cost advantage?

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Airbus Innovation Days, Part 3: the A320neo

Klaus Roewe, SVP of the A320neo Family:

There are 2,700 A320neos in the backlog. Roewe provided a program update during the Airbus Innovation Days. Here is a paraphrased synopsis.

  • The first flight remains on target for 3Q2014. Final assembly began in the spring.
  • No further modification will be required to meet the target of 15% fuel burn improvement.
  • The GTF has been delivered to Toulouse; the LEAP-1A is in testing at the CFM factory.
  • Production rate is shown at 46/mo from mid-2016 through 2019.  We are investigating rate 50 and above.
  • Within the supply chain, the first NEO components are 70% better than target. More than 2,000 lessons learned from the A380 and A350 are incorporated into the NEO program. We are already testing control laws for the neo, a lesson learned from previous programs.
  • Airbus has discussed with regulators to determine that evacuation of the A320 for up to 200 passengers is possible but a configuration of 189 passengers is more feasible.
  • Maximum capacity A321neo (240 pax) reduces per-seat fuel cost by 6%.
  • Slim line seats at 28 inches feels like 30 inch seat pitch.
  • A321neo could carry 25 more passengers on a 2,500nm route departing Phoenix or Las Vegas, two hot airports that were challenging for the A321ceo (based on the CFM56 engine).
  • We are “well below” weight targets.
  • Meeting 95% commonality target.
  • There has been an increase of airlines configuring the A321 with more than 200 seats from 5% to 40%, which drove the larger-capacity design of the A321neo.
  • Flap extension will go up from 27 degrees to 34 degrees, and some changes to spoilers will be incorporated into the neo.

Airbus Innovation Days: A350 Media Test Flight Review

The 150 members of the media received an hour-long ride on A350-900 MSN002 (the “carbon fiber” liveried test plane in the Airbus fleet), a rare event.

Media at the Airbus Innovation Days flew on this, MSN002, for a 60 minute flight.

Media at the Airbus Innovation Days flew on this, MSN002, for a 60 minute flight.

Entry into the airplane gave a clean, spacious impression, though the Boeing 787 Sky Interior is more visually impressive. The A350, like the 787, has mood lighting.

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Analyzing the Emirates order cancellations

The cancelled order for 70 Airbus A350s before the company’s annual Innovation Days was a surprise and an embarrassment that took the edge off what was intended to be a two day promotion of Airbus programs.

The cancellation by Emirates Airlines was certainly not good news. But it probably should not have been a total surprise. That it was had more to do with people not paying attention. Emirates had been signaling for some time it had issues with the program ever since Airbus rejigged the A350-1000 a few years ago, without consulting Emirates in the process.

Headlines were bad and while most analysts were measured and reporting balanced, there were a few exceptions of hand-wringing disaster for breathless stories.

Airbus tried to downplay the cancellation, without much success. But an objective analysis suggests Airbus and the rationale analysts are correct: while a blow, it’s hardly a program-defining moment, any more than the Bombardier CSeries-Pratt & Whitney engine failure last month was a defining moment in that program.

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