Leeham News and Analysis
There's more to real news than a news release.
Washington State: tie jobs-for-tax breaks like other states do
By Scott Hamilton, Managing Director of consultancy Leeham Co. and Editor of Leeham News and Comment.
March 12, 2015: Legislators in Washington State are coming down to the wire on a proposed bill promoted by two key Boeing labor unions to tie job levels to tax breaks. Irrespective of party lines, this is a bill that should advance from committees to the full Legislature and win approval. Gov. Jay Inslee should sign this bill if it reaches his desk.
Here’s why.
In 2003, the Washington Legislature, approved $3.2bn in tax breaks provided in a hastily prepared bill in order to win the assembly site for what was then known as the Boeing 7E7. These tax breaks were for 20 years and assured what was renamed the 787 would be assembled here. But there were no jobs-for-tax breaks guarantees. Six years later, in October 2009, Boeing chose North Charleston (SC) to be the assembly site for 787 Line 2. I called former Gov. Gary Locke, who was in office when the 2003 tax breaks were approved, and asked, How could this be? Locke said there was nothing in the tax breaks legislation to prevent Boeing from siting Line 2 outside Washington–nor was there anything to prevent Boeing from moving Line 1 out of Washington, should officials choose–the tax breaks would go away. Read more
Boeing showing 737-8ERX concept in response to A321LR
By Scott Hamilton and Bjorn Fehrm
March 12, 2015: Boeing is showing some airlines a concept it calls the 737-8ERX, a long range version of the 737-8 MAX, in response to the Airbus A321LR, Leeham News and Comment has learned. Sources within Boeing confirmed the concept but Boeing Corporate Communications did not make someone available for an interview. A spokesman said in an email, “Boeing studies many advanced concepts, innovations and technology. However, just because Boeing studies a particular concept or technology does not necessarily mean that we will be introducing that airplane or concept in the near future. Boeing makes decisions based on market and customer demand.”
Figure 1. The Boeing 737-8ERX concept. Boeing photo, modified by Leeham Co., based on information from Market Intelligence. Click on image to enlarge.
In our article series around A321LR we concluded that Boeings 737 MAX 9 was not a good base from which to launch a long range 737, it could not be stretched in take off weight due to rotation limitations. Better would be to upgrade the take-off weight of MAX 8 for longer range, it can carry the extra fuel tanks needed and is not rotation limited in the same way.
As happened with the A321neoLR (we pointed to the possibility of the concept and Airbus was indeed working on it) Boeing now shows selected airlines a higher gross weight 737 MAX 8, Figure 1. In contrast to Airbus, which beefed up the A321neo to form the A321LR, Boeing is apparently using a concept they developed for the Navy 737 derivative, P8 Poseidon. They grab in their LEGO box of 737 components to form the 737-8ERX with minimal additional development.
Redefining the 757 replacement: Requirement for the 225/5000 Sector, Part 5.
By Bjorn Fehrm
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Introduction
11 March 2015, c. Leeham Co: After having analyzed the different alternatives which would be available to Boeing for its Middle Of the Market, MOM, studies and having singled out the most competitive configurations, we will now add revenue to the equation. In the work to establish Cash and Direct Operating Costs for the aircraft, we saw which variant had the best cost for a certain capacity and utilization. We could not see which aircraft would be the most profitable however; this requires that we bring in the revenue side.
Revenue management analysis of different aircraft types on an airlines network is a science in it selves. Sophisticated fare class strategies with connected marketing activities makes such studies elaborate and beyond the scope of our analysis. Our primary goal is to understand the difference in operational efficiency of a single versus dual aisle aircraft with the same seating capacity. For this, a simpler average margin concept will work that shows us the effects of single versus dual aisle for aircraft margins in the MOM segment.
Summary
- We select based on Cash and Direct Operating Costs the best aircraft for the different market segments.
- To understand the revenue earning capability of the different alternatives we introduce a revenue model which takes into account aircraft utilization.
- With the costs and the revenue side represented we can develop a good understanding for the cross over between single and dual aisle for MOM.
- We will use this knowledge as we subsequently look into Airbus response to what Boeing would bring to the market.
ISTAT: Industry stability as good as this CEO has ever seen it
Despite the constant fears of an impending order bubble, the CEO of one of the world’s largest leasing companies says the airline industry’s stability is as good as he’s ever seen it in his career.
Jeff Knittel, president of CIT Transportation, to which CIT Aerospace reports, told a press briefing Tuesday at the ISTAT conference that US network carriers are stronger than they have ever been, low cost carriers (LCCs) are maturing and ultra low cost carriers (ULCCs) are changing the dynamics of business. Read more
ISTAT: Economist Adam Pilarski on oil prices
Adam Pilarski, the economist from Avitas who years ago predicted oil prices would hit $40/bbl to the near-total disbelief by delegates attending the ISTAT convention where he made his prediction, proved nearly right. Prices dipped into the mid-$40s two-three years ahead of his forecast and for somewhat different reasons.
At this year’s ISTAT conference, Pilarski said that to predict oil prices, you need to look at two basic facts: the industry is not competitive and we are not running out of oil.
Here is a paraphrase synopsis of his comments.
ISTAT: Randy Tinseth: pax traffic going from 3bn today to 7bn by 2033
Randy Tinseth, VP Marketing of Boeing, presented today to the ISTAT conference. Here is a synopsized summary of his comments.