Leeham News and Analysis
There's more to real news than a news release.
Airbus to cut new airplane R&D, focus more on derivatives
Airbus is going to cut back its new airplane research and development spending and redirect efforts more toward derivative airplanes, EADS CEO Tom Enders told aerospace analysts at the EADS Global Investors Forum.
Buried in a Bloomberg News report of the GIF is this:
Enders also wants to curb cash-hungry development efforts in favor of milking existing products for higher returns. At Airbus, he backed the re-engining of the A320 narrow-body over building a new plane. No new jets are planned at Airbus beyond the A350, which is due to commence deliveries late next year.
“Why should we spend large amounts of money when we can make significant incremental improvements?” he said. “This principle can be applied outside of just civil aircraft.”
Airbus, like Boeing, suffered under the strain of new aircraft programs, notably the A380 and A400M. As yet, the A350 doesn’t seem to have been a black hole, with normal development costs.
Richard Aboulafia of The Teal Group was critical of Boeing for years for starving R&D for new aircraft and over-relying on derivatives while Airbus invested in new aircraft programs. He had this to say about Enders’ news:
This is only possible as a percent of sales. Airbus is at a twin aisle product line disadvantage relative to Boeing, so this isn’t the time for them to rest on their laurels. Some kind of response to the 777-9X is essential, even if it arrives a few years after the Boeing jet. Whether it’s an A350-1100 or a clean sheet, it requires a significant investment right after A350XWB-800/900/1000 spending winds down. Thus, in absolute numbers, the company would be advised to keep spending high for the next ten years. But on the positive side, since Airbus’s revenue will grow with A350 (and incrementally with the A320 neo), the company’s percent of revenue spent on IRAD will decline.
Enders’ comments reflect the changing nature of Airbus’s shareholder relations more than anything else. They’ll need to focus more on profitability rather than new product development over the next ten years; they may wind up looking more like Boeing.
IAM, Boeing talks fail; 777X site selection evaluation continues; Update: Members to vote on deal
Update, 11:30pm PST: KIRO TV (CBS Seattle) quotes Boeing spokesman Doug Alder as saying the Boeing offer has not been withdrawn, contradicting the IAM 751’s understanding.
Update, 9:10 PM PST: The Seattle Times reports the IAM 751 membership will get to vote on Boeing’s counter-contract offer after all.
Original Post:
Talks between Boeing and the IAM 751 machinists union failed to reach an agreement when Boeing presented a counter-proposal to the union’s offer that did’t budge on the pension issue, according to The Seattle Times.
KING5 TV (NBC Seattle) has this story.
Boeing’s statement is here.
IAM 751’s statement is below the jump (there isn’t a unique link to it).
The Boeing and IAM 751 statements paint a very different picture of the offers.
Our take:
Although both sides now have said talks have ended, we fully expect political pressure on both sides to resume talks before Boeing makes a final decision on the 777X assembly site.
Boeing said it will make a decision early next year; our sources suggest this timeline is the end of January.
This leave a small window for a third try, but we’re not optimistic.
We believe that barring an agreement, Boeing Chicago will elect to put the 777X assembly site and wing production somewhere other than Washington.
We believe that those within the IAM membership who believe Boeing is bluffing are mistaken. One need look no further than the events leading to putting 787 Line 2 in Charleston. Members believed Boeing was bluffing then, and it wasn’t.
As we have written many times, while Boeing Commercial Airplanes is understood to want to assembly the 777X in Everett, headquarters in Chicago has a very different view–and in the end, it’s only that view that counts.
One item in the Boeing statement stands out like Braille to us as well:
In addition, a separate agreement committing final assembly of the 737 MAX at the Renton, Wash. site would have been extended through 2024.
For those who think it impossible Boeing wouldn’t start another 737 assembly line elsewhere, we understand from two sources close to Boeing that a study is underway about opening a 737 assembly line in Charleston. Some 737 MAX work has already been assigned there, and Boeing continues to buy land there.
We firmly believe that the industrial logic–and all other logic–demands that the 777X (and the 737 MAX) assembly be in Puget Sound. But Boeing CEO Jim McNerney is clearly intent on moving work away from the unions (and from Washington State) absent dramatic changes in contracts and the cost of doing business.
Boeing offered terms and conditions in the IAM contract that were sure to be rejected.
The PR war of who is responsible will continue for some time to come. But just as we firmly believe the 777X should be built in Washington, we also firmly believe it won’t be without some last minute agreement.
Washington politicians need to step up their effort to look Beyond Boeing for the future of the state’s aerospace industry.
Odds and Ends: Airbus’ 5th quarter; 777X RFP responses
Airbus’ 5th quarter: John Leahy, COO-Customers of Airbus, is so well known for announcing a whole bunch of orders at the company’s annual review press conference (January 13 this time) that Boeing dubbed it the “5th quarter,” and the quip has stuck. Aeroturbopower has a wrap up of how many orders could be announced at the 5th quarter.
Boeing, IAM Meet: Dominic Gates of The Seattle Times reports that Boeing and the IAM met for the first time since the 2-1 vote rejection November 13 of the contract offer in connection with the 777X site selection.
777X responses to RFP: The following news articles try to detail some of the responses by states to Boeing’s 777X site selection RFP:
California and another California
Missouri: The county votes to add $1.8bn in tax breaks to the State’s $1.7bn.
Washington: The State adds Spokane to the list of alternative sites, according to Glenn Farley at KING5 (NBC, Seattle). (No link available.)
New York Times: Losing 777X would start a death spiral for WA State.
On Tuesday, the day the RFPs were due to Boeing, the Washington Congressional delegation released a letter to Boeing CEO Jim McNerney urging that the 777X be assembled in the state. The letter is below the jump.
This follows an Open Letter to Boeing on December 6 from Snohomish County officials (Everett is in this county), published in The Everett Herald.
777X saga, continued: KING5 speaks with rank-and-file in 45 minute interview
777X saga, continued: KING5 (NBC, Seattle) has a 45 minute panel interview with several rank-and-file members of the IAM 751 Machinists Union to talk about the contract and the Boeing 777X site selection.
As of this moment, the interview follows a commercial from Roto-Rooter. With our warped sense of humor, we could come up with all kinds of ribald comments. But we won’t.
Separately:
- Los Angeles Times: Boeing families in Seattle feel spurned.
New American Airlines now a reality; big challenges ahead
December 6 passed without fanfare, but the New American Airlines is a reality.
The first day of stock trading, under the symbol AAL, begins today. The Ft. Worth Star-Telegram–the hometown paper of the Ft. Worth-based AA–has this story, posted Saturday. The New York Times provides this analytical piece.
We know the US Airways management team reasonably well and we think they will be much better than the former American management. American hasn’t been the same since Bob Crandall retired in 1998. Crandall’s successor, Don Carty, had a lousy tenure. He originated the acquisition of Reno Air, a small airline headquartered in Reno (NV), for reasons that passed all understanding. In doing so, he created ill will with the AA pilots union (which, in fairness, wasn’t hard to do with this bunch of malcontents), creating all sorts of labor issues. Carty also acquired Trans World Airlines, another merger of mysterious motives that appeared more to do with market share than business sense. TWA’s only US hub by this time was St. Louis (MO), a mere 250 miles from AA’s massive Chicago O’Hare hub. TWA’s fare structure was low, competing as it was with fellow-hubber Southwest Airlines and able to attract traffic on price rather than quality.
We’ll never know whether the TWA merger would have been a success. The 9/11 terrorist attacks happened shortly after the acquisition, and by 2003, American was on the ropes. Carty negotiated steep concessions from the employee unions, but the deal unraveled when it was revealed that management simultaneously lined up for tens of millions of dollars in executive bonuses. Carty was forced out in the quid pro quo to complete the concession deal.
Carty’s successor, Gerard Arpey, gained respect from the employees. Over the next few years, more concessions were sought by Arpey as he strove to keep American from following all its peers into bankruptcy. But those bankruptcies allowed all the competitors to shave pension plans, cut wages and benefits and other costs while American remained burdened with higher costs across the board. In November 2011–10 years after 9/11–American finally succumbed and filed for Chapter 11. Arpey, who disagreed with the decision, resigned and was succeeded by Tom Horton.
We were never impressed with Horton, particularly with his view that he deserved $20m in the bankruptcy restructuring. He’s non-executive chairman of American but will leave the company soon. He provided this farewell message to employees.
Doug Parker, the CEO of US Airways and America West Airlines, who engineered the merger, is the new CEO of American. Parker and his team never got the respect we think they deserved for keeping US Airways alive, profitable and competitive with perhaps the weakest route system of the US legacy airlines.
Parker was an early proponent of adopting ancillary fees, a practice passengers really don’t like. But the industry had changed dramatically and free meals, free checked baggage and other stuff of history became just that for all the airlines: history. Today, most carriers make their profits from fees and not the tickets they sell.
Parker will have challenges to bring American back into the forefront of top tier airlines. Its reputation and employee morale have been battered. US Airways continues to rank near the bottom of passenger surveys. Employee group integration at US Airways from the merger with America West continues to be difficult; now add American to the mix.
AA and US will continue to fly under separate banners and certificates for some time, following the examples of United-Continental and Delta-Northwest. Integration of reservations systems, frequent flier programs and so on will undoubtedly present huge challenges. We fully anticipate passenger disruptions, also following the pattern of the other mega-mergers.
One of the things we expect to see is an employee contest for a new livery to replace the one adopted by Tom Horton. The tail logo is just awful, though the fuselage and stylized eagle are fine. When America West and US Airways merger, Parker held an employee contest and the winner is what’s painted on the US Airways planes today. It was a good was to involve employees. Then legacy paint jobs of the predecessor airlines were added to the fleet. We have no doubt this will happen at the New American. There are plenty of aviation geek ideas for an American livery. Some may be found here. From this link, you can click through to various other sites for some pretty creative ideas. We like several of the renderings at this website. The last two are what Horton should have adopted.