IAM, Boeing have tentative deal; Washington State steps up for 777X

The International Association of Machinists and Boeing have a tentative agreement that means the Boeing 777X will be built in Everett. The new contract is eight years, to 2024.

The IAM membership is to vote on the contract next week.

Gov. Jay Inslee has called a special session beginning tomorrow to approve a bi-partisan incentive package. Inslee said that if the IAM membership and the Legislature approve the packages, the 777X will be built here.
The state package includes:

  • A package of statewide transportation improvements, which Inslee calls an essential piece of the aerospace future as well as the state generally;
  • Expand investments in education;
  • Expansion of policies for industry;
  • Extend the 787 tax incentives to 2040 and to include the 777X. This has a “ballpark” value of $8bn through 2040.

All this has to be approved in a week.

Inslee noted that this deal “reverses the outflow of work from this state.”

Inslee’s statement is below the jump.

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Odds and Ends: Looking toward the South; Lion Air updates CSeries interest; 787 fuel advantage

Looking toward the South: As a follow-up to our previous post, Implications of the IAM-Boeing talks on 777X, here is a commentary from The Wall Street Journal about the migration of US industry to the South, were unions have a more difficult time.

Lion Air and CSeries: Indonesia’s Lion Air, which made news a few months ago with the prospect of a large order for the Bombardier CSeries, poured cold water on the prospect of placing one any time soon, according to this article in Aviation Week. Seeing actual flight test results from the larger CS300 is key, the airline’s head told AvWeek.

We previously raised our own doubts about the prospect of another large order because of the prospect of over-commitment of existing orders from Airbus and Boeing.

But Lion Air told The Wall Street Journal that an order for 50 CSeries could come by the end of the first quarter. A key piece of information in the AvWeek and WSJ articles is this, from the WSJ:

Mr. Kirana said Bombardier claims the larger of two CSeries models with 160 seats will be able to fly with the same economics as much larger Airbus A320neo jets, which carry around 160 to 180 passengers. He said the Bombardier CS300 jet’s range and economics makes it attractive for new longer international routes to smaller cities in China.

787 Fuel Advantage: In the never-ending war of words between Airbus and Boeing, readers know we always connect with airlines to cross-check what the OEMs say.

As readers also know, Boeing promotes its 787 as being 20%-25% more fuel efficient than today’s airplanes. With the (also) never-ending prospect of Airbus proceeding with an A330neo, the question arises over what the delta is between the A330 and the 787. We asked a fleet planner. The answer: 10% in favor of the 787, a gap that an A330neo could narrow considerably (but be unlikely to close altogether) with new engines and sharklets. So how about that 20%-25%? These figures compare with the 767 and A340 respectively, the fleet planner tells us.

Implications of IAM-Boeing talks on 777X (Updated 11am PST Nov. 5)

Update, Nov. 5, 11am PST: The Seattle Times has this update of the secret talks (well, not secret any more) between the IAM and Boeing over the site location for the 777X. Boeing wants health care and pension costs cut. These were key issues in the SPEEA contract negotiations (in the end, pensions were shifted from defined benefit to 401(k) for new employees but health care cuts were saved for another day).

When the health care and pension plans came under Boeing attack in the SPEEA negotiations, behind the scenes the IAM was said to be already planning to gear up to hold the line when the current contract expires in 2016.

The Seattle Times report also includes some reaction to the leaked terms.

Original Post:

The news that the International Association of Machinists has been engaged in secret talks to win Boeing’s site selection for the 777X for Everett (WA) carries implications beyond the obvious jobs, economic benefits and Washington vs South Carolina rivalry.

Reuters broke the story. The Seattle Times has more detail.

As readers of this column know, we’ve suggested that the Washington Legislature consider making the State a right-to-work state. Understandably, this suggestion hasn’t gone down well with IAM 751, the local here in Puget Sound, with SPEEA, the engineers’ union, or with Gov. Jay Inslee, a Democrat with close ties to the unions.

We have urged this consideration because Boeing has been moving SPEEA jobs out of state and has leveraged South Carolina (a right-to-work state) against Washington.

If the IAM and Boeing reach an agreement to extend the current contract from 2016 to the mid-2020s (we believe 10 years to 2026 seems to make sense), assuring Boeing steady production, many of the issues facing Boeing that enable it to leverage RTW over unionized Washington become moot.

RTW has been a sword wielded by Boeing over the IAM and Washington. It has been a sword of Damocles. The IAM, typically a highly militant union, took an enlightened approach two years ago when it extended a contract in place by four years in exchange for Boeing selecting the Renton (WA) plant for the final assembly line for the 737 MAX. This prospective 777X deal would carry this innovative approach further.

Secondly, we have heard–anecdotally to be sure–that customers are concerned over the prospect of Boeing Charleston being selected because of the history of quality control challenges from this 787 assembly site, preferring the proven history of Everett’s quality control.

Next up, SPEEA is now faced with coming to a peace agreement. After a highly contentious contract negotiation last year, culminating in an odd set of ratification votes early this year, Boeing has systematically moved SPEEA jobs out of state. As the weaker of the two unions, SPEEA needs to use the example of the IAM to tone down the rhetoric. We know conversations are underway. We don’t know what direction they are taking, however. But if SPEEA can follow IAM’s example, aerospace in Washington State will be able to look at the future with more confidence.

The trick will be for Washington politicians to avoid becoming complacent, as it has time and time and time again.

Airbus’ A350-800 dilemma

Last week we discussed Airbus’ A350-1000 dilemma. The -1000 will be a fine airplane, but we concluded the company needs to go forward with a larger capacity “A350-1100” to match the size of the Boeing 777-9X, but take the Boeing 787-10 approach and be content with sacrificing range in lieu of designing a new wing and engines.

Airbus’ A350 dilemma doesn’t end there. What’s it to do with the A350-800? One fleet planner told us a year or more ago that the “-800 is an expensive A330-300” with the same operating costs as the larger capacity A350-900.

Airbus has been encouraging customers to move up to the larger A350-900, with Hawaiian Airlines and US Airways the key hold outs. Conventional wisdom says US Airways will swap its order once the merger with American Airlines goes through (which is looking more and more likely, given settlement talks with the Department of Justice). American has a large order for the Boeing 787-9, making the -800 unnecessary in a combined carrier fleet plan.

There are now around 80 -800s in Airbus’ backlog, and even officials at Airbus have been ambiguous about green-lighting production of the -800, which is supposed to enter service in 2016 (after the -900 but before the -1000). We have written several posts in which we concluded the -800 would be re-sequenced to 2018, after the 2017 EIS of the -1000.

We believe there is a very good chance the A350-800 will be dropped in favor of proceeding with an A350-1100.

So what’s Airbus to do in the 250-300 seat space now occupied by the -800 and the aging A330 family?

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Odds and Ends: Boeing to hike 737 rate; Passenger comfort, fees and PEDs

You read it here first: In June, we reported Boeing planned to take the 737 production rate to 47/mo by 2017 (and to 52 in 2019). Boeing announced on Halloween that it is taking the 737 rate to 47/mo in 2017.

Passenger fees and experience: We recently appeared on China’s CCTV, talking about passenger fees and seating comfort. Here’s the video:

[youtube=http://www.youtube.com/watch?v=adZHJTYpNIs&w=420&h=315]

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Speaking of passenger experience, Personal Electronic Devices, or PEDs, will be allowed to operate on airplanes gate-to-gate (though no cell phone calls), under a new FAA rule. Airlines have to create new policies and submit them for FAA approval. This article provides a good summary of the status of US carriers. Alec Baldwin should be pleased.

Airbus’ A350-1000 dilemma

Airbus has a dilemma with what to do about the A350-1000.

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Does the OEM stick with the -1000 as it is, ceding the 400 seat segment to Boeing with its new 777-9X? Or does it stretch the -1000 (we’ll call it the “1100” for a placeholder) for what appears to be a very limited market segment?

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If Airbus does stretch the -1000, what does this stretch look like? One that will match the 9X range and capacity? Or one that matches the capacity but not the range?

Here are the implications of the dilemma facing Airbus.

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Stay the Course

For a long time, Airbus officials said they were satisfied with the design, once tweaked, of the -1000 and they didn’t need to respond to a “paper” airplane. The characterization had a ring to it, for that’s what Boeing officials often said about the -1000: it wasn’t a “real” airplane, they didn’t know what it was, it was a “paper” airplane or some variation thereto.

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Of course, this was rhetoric by both parties. Lufthansa Airlines ordered 34 777-9s. A huge order+option commitment is anticipated at the Dubai Air Show from Emriates Airlines for the -9 and the smaller, ultra-long range (ULR) -8 that is sized directly across from the -1000. Airbus is now faced with the prospect of Boeing once more having a monopoly position with the 777-9 as it did for many years with the 777-300ER.

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Does Airbus want to cede the 400-seat segment to a Boeing monopoly? The question is, how big is this segment? Is there a business case to build the airplane, or one that’s big enough for two airplanes?

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Boeing’s current 20 year forecast indicated there is a need for 4,530 “small” twin aisle, 200-300 seat jets and 3,300 for “medium” twin aisle jets, 300-400 seats, for a total 7,830. Airbus forecasts a need for 4,694 250-300 seat jets and 2,085 350-400 seaters, for 6,779 jets, a difference of nearly 1,100-but, then, Airbus doesn’t have a competitor to the 787-8 at the lower end of the small jet sector.

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Airbus further breaks out its forecast: 2,438 250-seat and 2,256 300-seat jets within the “small” twin; and 1,306 350-seat and 779 400-seat jets within the “medium” twin category. Boeing doesn’t subdivide its forecast.

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The 777-9 will kill the near-dormant 747-8 Intercontinental and will likely eat into sales of the Airbus A380. Does Airbus avoid cannibalizing its own product or does it allow Boeing the monopoly to do so?

A350 Range

Source: Great Circle Mapper

Match the 777-9

Airbus could decide that, despite a its own narrow forecast for a 400 seat segment, it would be better to play in this sandbox, whatever the impact on the A380, than to cede this segment to Boeing. The question then arises, does an A350-1100 match the 777-9 in seats (or come close to it) and range, around 8,100nm-8,400nm?

To match means a major undertaking for a small number of airlines that need a plane with this range. It means a new wing–typically a $3bn project, more or less–and new engines in the 104,000-105,000 lb thrust range. The Rolls-Royce Trent XWB on the A350-1000 is 97,000 lbs and it can’t be pushed any farther, our information tells us. The cost of developing an entirely new engine for such a narrow market doesn’t have a business case. One might exist on the presumption that engines have to get bigger, and a new engine design would provide the basis for an entirely new generation of engines. After all, the Trent fundamentally has been around since the A330. It may well be time, but is an A350-1100 the product from which to develop it? Furthermore, it takes at least seven years to develop a new engine and probably a lot longer. The engine is the pacing item, far more than the airframe. Even if the go-ahead were given this minute, Airbus and RR would be hard-pressed to come up with an A350-1100 by 2020, when the 777-9 EIS is anticipated. So…

The 787-10 Approach
The most viable option for stretching the A350-1000 appears to be following the approach Boeing took with the 787-10: a couple of simple fuselage plugs, some enhancements to the existing engines, the same wing and reduced range that covers 90% of the markets required by the airlines–foregoing the miniscule need by Emirates Airlines for that last 5%-10%.

DXB ranges

Source: Great Circle Mapper

An A350-1100 with reduced range of 7,000nm-7,500nm and a 400 seat capacity would have highly favorable cost per available seat miles. It wouldn’t get you from Paris to Tahiti, but how big is this market? It wouldn’t get you from Dubai to Los Angeles, but are billions of dollars worth of R&D to do so going to get the return on investment to make sense for this airplane?

The clear choice, the financially responsible choice, and the expeditious choice appears to follow the Boeing approach and develop an A350-1100 (or, perhaps, the “A350-1000-10”).

Odds and Ends: Air France may cut A380 orders; Boeing Everett history; BBD, EMB miss targets

Air France May Drop A380s: Bloomberg reports that Air France may cut back its orders for the Airbus A380s. This continues the challenge of Very Large Aircraft sector sales. Boeing has cut production rates twice for its 747-8. The Los Angeles Times has this story about the eventual demise of the 747-8.

Boeing Everett History: Airchive has Part 3 of its history of Boeing’s Everett plant here. This covers the 777 and what especially caught our eye was the photo of the model of the 777-200 with folding wings, a concept that didn’t go into production. The new 777X will have folding wings. The difference is that the 777-200 concept included the outboard control surfaces, which highly complicated the matter. The 777X folding wings are beyond the control surfaces.

BBD, EMB miss targets: Bombardier missed its earnings estimates on fewer deliveries than analysts expected for the third quarter. Here is the press release.

On the Bombardier earnings call, officials didn’t address whether there will be a delay in the entry-into-service, planned for about 12 months after the September 16 first flight. Only four test flights have occurred, and UBS aerospace analyst David Strauss estimates that the program needs to fly an average of 1.8 hours a day to meet this timeline. Flight Test Vehicle #2 is “weeks away” from entering service.

Pierre Beaudoin, president and CEO, says that some customers are considering swapping the CS100 for the larger CS300, which could influence EIS. He added that discussions with customers about schedules, and the pace of ramp-up of production, are factors to be considered for EIS. “We will answer this question in the next few months.”

He said the flight test results so far are “exactly” as planned, but data won’t be shared with customers for some time. Beaudoin said that the pace of the flight tests are also as planned, and that there hasn’t been a delay despite the perception.

Embraer also missed its 3Q targets and likewise reported lower earnings. Here is its press release.

Odds and Ends: XYZ–Next USAF aerial tanker specs; Analysts on CSeries ahead of earnings

KC-XYZ: The USAF hasn’t even received the first Boeing KC-46A, which was the tanker award from the KC-X competition, and it has begun drawing up specifications for the follow-on competition, the KC-Y. The KC-Y is the second tranche of replacements for the Boeing KC-135. The KC-Z will be the replacement for the Boeing/McDonnell Douglas KC-10.

Conventional wisdom suggests that one would presume Boeing will likely get the KC-Y award, since this is almost certainly to be a virtually identical specification to the KC-135/KC-Y replacement criteria. The KC-Z, on the other hand, could well be a face off between Airbus and Boeing with their KC-330/KC-777 aircraft (for Airbus) and concept (for Boeing). The Boeing 777-200LRF would be the baseline design and it is more closely the size to the KC-10 than is Airbus’ KC-330.

But it’s not as if this is immediately over the horizon. KC-Y is envisioned from 2040-45 and KC-Z in 2050-2060. So perhaps the contenders will by aircraft based on the A350, the 777-8, a Blended Wing Body or an entirely new set of airframes.

BBD CSeries: Canadian aerospace analysts believe the entry into service for the Bombardier CSeries will slip to 2015, according to Bloomberg News. Bombardier’s third quarter earnings call is October 31. There should be some guidance, we think.

Boeing 777X engineering assigned outside Washington State

The Seattle Times, Reuters and others are reporting that Boeing has decided to assign 777X engineering outside the State of Washington.

The news went down like the proverbial lead balloon in Seattle. The fear, of course, is that this is a precursor of locating the Final Assembly Line away from Everett, to either Charleston or the “undisclosed location” that is also said to be under consideration, which is thought to be Texas.

Boeing hasn’t ruled out doing engineering work in Seattle, but Boeing has been moving engineering jobs out of Washington all year as it clearly works to diminish the influence of SPEEA, the engineers’ union.

SPEEA Tweeted in response to The Seattle Times story, “This would appear to be work that had been outsourced on the 787 program…..not work being moved out of Puget Sound.”

We think this is an ominous development for Washington, but at the same time it could well be another of Boeing’s masterful chess game to extract incentives from Washington, South Carolina or the undisclosed state.

Update: The Wall Street Journal has this story. The WSJ broke the news.

This WSJ story from April is worth re-reading.

CFM LEAP accelerating in test program; Airbus and the A350-800

Aviation Week has a long, detailed story about the test program for the CFM LEAP engine, which is accelerating rapidly.

In its 737 MAX program update yesterday, Boeing said the LEAP-1B has begun testing and it will benefit from the testing already underway for the LEAP-1A, the version that is designed for the Airbus A320neo family. The LEAP-1C for the COMAC C919 is on its original schedule for certification in 2015, despite the fact the C919 has slipped to at least 2017, reports AvWeek.

The 737 MAX is exclusively powered by the LEAP, as is the C919. The former has more than 1,600 firm orders and the latter just hit its 400th order/commitment. CFM faces competition on the A320neo family from Pratt & Whitney’s P1000G Geared Turbo Fan, where PW holds a 49% market share against CFM, which previously held a larger, more dominate position in the A320ceo competition. A large number of orders don’t yet have an engine selection.

PW is the sole-source engine provider for the Bombardier CSeries, the Mitsubishi MRJ and the Embraer E-Jet E2. PW splits the engine choice on the Irkut MC-21 (soon to be renamed the YAK 242) with a Russian engine.

Just as Boeing’s LEAP-1B will benefit from the experience of the LEAP-1A now in testing for Airbus, Airbus will benefit from the testing and experience of PW’s testing of the GTF on the Bombardier CSeries.

Aviation Week also has a story about the Airbus A350-800 with the blunt headline, The airplane Airbus doesn’t want to build. This refers to the A350-800. AvWeek muses that the outcome of the merger between US Airways, now the largest customer for the airplane, and American Airlines, may be the deciding factor for the airplane. We agree. With American’s large order for the Boeing 787-9, the A350-800 would be unnecessary.

That would then leave Hawaiian Airlines as a key decision-maker. We hear in the market that Hawaiian is just sitting back and waiting to see what kind of incentives Airbus will offer to entice a switch to the larger A350-900.