Odds and Ends: Plane Business analysis of AA-US merger; Air Canada’s single-aisle competition

AA-US Merger: Plane Business made available Aug. 21 its previous analysis of the proposed American Airlines-US Airways merger outside its paywall.

The analysis of the government’s analysis is pretty devastating to the government’s case. Read it and judge for yourself.

American’s general counsel, meanwhile, writes (in a report in The Dallas Morning News) that there is no Plan B to exit bankruptcy if the merger with US Airways is successfully blocked by the Department of Justice. Instead, AA would have to create a new bankruptcy-exit plan and return to all creditors and the court. This would take probably another couple of years, making it one of the longest (if not the longest) Chapter 11s in airline history–with all the related uncertainty to those affected by a Chapter 11. This is unfair to creditors and employees, and it will also wipe out any gains shareholders obtained in the current plan.

The DOJ clearly failed to take into account these impacts.

Air Canada eyes CSeries: The Globe and Mail reports that Air Canada is considering the Bombardier CSeries to replace the aging Embraer E-190 and Airbus A319 fleets. We expect the competition to be fierce: Airbus will certainly do what it can to block this sale (through pricing, no doubt) and we wouldn’t be at all surprised if Brazil would offer export financing for a replacement E-Jet fleet–something Bombardier can’t match because of the so-called Home Country rule prohibiting government financing for home-country airlines.

And then there is Boeing. The entire Airbus fleet is getting long in the tooth and our market intelligence tells us Air Canada is running a full narrow-body competition between Airbus and Boeing.

A re-fleeting decision is expected by year-end.

MRJ First Flight Delay: It’s been widely hinted, but now a supplier told Flight International that the first flight of the Mitsubishi MRJ is delayed to the end of 2014.

CSeries edges closer to first flight, as payoff for gambles await Bombardier and Pratt & Whitney

The Montreal Gazette did a little digging with Canadian regulators and came up with this interesting piece, deducing the first flight of the Bombardier CSeries will come within the “next 11 days” (the story was dated Aug. 19).

The Gazette also reported that the CSeries test program will extend to May 2015. Bombardier says this includes the CS300, which has an entry-into-service timeline roughly 12 months after the CS100. On Aug. 19, several Canadian media reported a new analyst note concluding that EIS of the CS100 will slip into early 2015, something we also suggested in an earlier post. The Gazette also quotes from the analyst note.

Bombardier has completed slow speed taxi tests (noted in our morning post of Aug. 19). Bombardier’s dedicated CSeries website is here and a number of YouTube videos are here.

The first flight, of course, while a major milestone is only the beginning of a testing program that BBD says will take a year and some believe will take longer. Since this is the first clean-sheet design in the 100-149 seat category (or even up to 200 seats) since the development of the A320 in the early 1980s, and it is the first airplane with the Pratt & Whitney Geared Turbo Fan engine, there are enormous stakes riding on the program. The CSeries is a huge gamble for Bombardier, its bet to move from the regional jet era it invented to mainline jets, into a sector largely abandoned by Airbus and Boeing but which has drawn fierce reaction from Airbus with aggressive pricing for the larger A320.

For Pratt & Whitney, the CSeries flight test and subsequent EIS is the culmination of a research-and-development gamble of more than 20 years to regain its once-dominant place in single-aisle aircraft power supply.

Since CFM retained the exclusive supplier agreement for Boeing on the 737 MAX, and because CFM so far has won about half the orders for engines on the A320neo, PW won’t reclaim the dominant position it had in the early years of the jet age. But With the A320neo, PW has half the orders, a vast improvement in market share from its IAE V2500 engine on the A320ceo family. But PW’s GTF gamble with CSeries led to the selection by Airbus for the neo, and along with the Mitsubishi MRJ sole-source engine supplier followed by a shared source on the Irkut MS-21 and more recently the sole source on the Embraer E-Jet E2, PW is clearly back as a major player.

Bombardier’s flight tests will validate (one presumes) the promises made by BBD and PW for the engine-airframe combination: the quietest engine, the most fuel efficient engine, the most economical engine-airframe combination.

The Boeing 787, for all its difficulties, brought a new level of excitement to aviation with its ground-breaking technologies. The A350 XWB didn’t have the same panache, coming behind the 787 as it did. If the CSeries lives up to its promises in flight testing, we believe the orders will start coming. The aviation industry has become the State of Missouri motto, “Show Me,” as a result of the program delays at Airbus, Boeing and now BBD. We look forward to a program that goes smoothly after first flight.

Key leaders hit back at Boeing “exodus” assertions; CSeries competition for the Big Two; A380 uses; Boeing hikes prices

Boeing’s WA ‘exodus’: Three key leaders in Washington State responded to the drumbeat from State. Sen. Mike Hewitt (R-Walla Walla) that Boeing is in an “exodus” from Washington. Read the article here.

We agree that the use of the term “exodus” is overblow, as we wrote in previous articles here, here and here. We also believe that the greatest threat to Washington’s future in aerospace is when Boeing designs clean-sheet replacements for the 777 and 737, as which point we think there is a real chance these new designs will be built at Boeing’s growing Charleston (SC) complex.

But this bickering between Hewitt, on behalf of the the State’s Republican party, and the Democrats gets Washington nowhere.

At least the Democratic gubernatorial administration has come up with a plan for Washington’s aerospace, although we’ve noted we think it falls short of being bold and innovative. Hewitt and the Republicans haven’t come up with anything except criticism.

The State is undertaking two more studies (on top of at least four we can remember) to come up with ideas about what needs to be done. There are several industry organizations and experts that could be tapped to provide ideas, which the state is not using: the Pacific Northwest Aerospace Alliance, the Pacific Northwest Defense Coalition and INWAC in Eastern Washington, just to name three. The state-appointed Washington Aerospace Partnership doesn’t have a single industry representative on it, which is astounding, but it could come up with suggestions for economic development since the membership is overly weighted with these organizations.

Let’s stop the bickering, roll up the sleeves and get to work coming up with a forward-thinking, bi-partisan aerospace plan for Washington.

CSeries Competition: The Puget Sound Business Journal has this article looking at the competition the Bombardier CSeries will give the incumbents.

Meanwhile, Bombardier has undertaken low-speed taxi tests for the CSeries. This is, of course, a prelude to first flight.

A380 deployments: This article goes down the list of Airbus A380 operators and how the aircraft are deployed and configured.

Boeing raises prices: Boeing hiked the list prices slightly of its commercial airplanes. Here is a report comparing Boeing’s new prices with Airbus.

Odds and Ends: Lorenzo weighs in support AA-US merger; lawsuit could delay AA RJ replacement; 93% airport concentration

Lorenzo supports AA-US merger: In a radio interview with Bloomberg news, Frank Lorenzo supports mergers in the US airline industry and the proposed one between American Airlines and US Airways. Lorenzo is the former CEO of Texas Air Corp, and Continental Airlines. Lorenzo said labor, shareholders and stakeholders would lose if the Department of Justice prevails in its effort to block the merger.

DOJ lawsuit might impact Bombardier: An analyst for a Canadian investment bank thinks the DOJ lawsuit could delay an order by American to replace some of its regional jet fleet. The Scotia Capital analyst covers Bombardier, so his focus is on the impact to this company but Embraer is competing for the business, too.

93% Airport Concentration: While DOJ whines about the prospect of the New American Airlines controlling 69% of the slots at Washington Reagan National Airport, the Dallas Morning News cites a report that 93% of the airport traffic at three airports is controlled by the combined Southwest Airlines-AirTran company.

Our own Milestone: Today we surpassed one million views in a single year, running about 55% YTD ahead of last year.

DOJ lawsuit vs AA-US reads like political document

Note: Some articles of interest:

  • Robert Crandall, former CEO of American, has this op-ed piece in The Wall Street Journal (via Google News, so it should be accessible to Readers).
  • With the concentration of airline service that the US Department of Justice is so worried about, this article argues that foreign carriers should be allowed to operate US domestic service.

The lawsuit filed by the US Department of Justice against the proposed merger of American Airlines and US Airways reads more like a political document than a legal brief.

It’s clear the true intent is to force American and US Airways to divest slots at Washington Reagan National Airport. But in throwing in the proverbial kitchen sink, DOJ has made a mockery of its own case.

DOJ claims more than 1,200 city pairs will be adversely affected by the merger, with most of these being connections since the non-stop overlapping routes number only about a dozen.

But lots of the city pairs cited by DOJ are pretty obscure. Just to pick a dozen examples:

DOJ Examples of Connecting Routes
1 Austin, TX-Palm Springs, CA*
2 El Paso, TX-Kahului, HI
3 Columbus, OH-Fresno, CA
4 Des Moines, IA-Kahului, HI
5 Kapaa, HI-Tucson, AZ
6 Albuquerque, NM-Salinas, CA
7 Albuquerque, NM-Kapaa, HI
8 Charlotte, NC-Grand Junction, CO
9 Charlotte, NC-Durango, CO
10 El Paso, TX-Salinas, CA
11 Charlotte, NC-El Paso, TX
12 Harrisburg, PA-Fayetteville, AR

Some of the cities listed in the DOJ complaint (like Salinas, CA) aren’t truly served by airlines but rather by nearby airports (in this case, Monterey (CA). In another, Palm Springs (CA) is actually shown in the complaint being served by Riverside (CA). DOJ seems obsessed with city pairs involving Kapaa (HI) and El Paso (TX). Figuratively speaking, the three people per year flying between some of the city pairs cited by DOJ are really going to drive the market (queue the sarcasm).

DOJ appears to be really stretching in its attempt to make an anti-trust case.

DOJ’s lawsuit is replete with uninformed and ill-informed assertions that in aggregate make it clear the department simply doesn’t understand the dynamics of the airline industry.

Read more

Odds and Ends: Boeing’s secret 777X plan; Airbus wins big with British Airways parent

Secret 777X Plan: The Seattle Times reports that Boeing has some secret planning underway for assembly options for the 777X. This involves increasing the automation on the assembly (and thereby reducing manpower) and increasing the production rate to 10 or 12 a month, according to Dominic Gates’ story. This rate is still below the ultimate target of 13/mo Airbus has in mind for the A350, up from the announced 10/mo. And Airbus is considering yet a second assembly line for the A350, though it is unclear if Line 2 would be for the incremental 3/mo to 13 or more than 13.

The increased automation described by The Times, and the manpower-automation trade off, sounds very similar conceptually to the robotic process Boeing uses to paint 777 wings. In pre-Paris Air Show briefings, Boeing addressed the manpower issue. What jobs were lost to painting were shifted elsewhere as production of the 777 ramped up to the current 8.3/mo. According to The Times article, increased production of the entire 777X line would offset jobs lost to automation.

IAG goes with Airbus: In another huge order, assuming all options are exercised, Airbus scored a big win with the parent of British Airways, Iberia and Spain’s Vueling (an LCC), IAG, for up to 220 A320ceo/neos. Bloomberg has the details.

DOJ “a day late and a dollar short” on merger concerns

The US Department of Justice’s lawsuit to block the merger of American Airlines and US Airways displays a concern that comes a little late.

As far back as the Reagan Administration, DOJ had ample opportunity to take aggressive action to block mergers. It’s concerned now about hub concentration? The Northwest Airlines-Republic Airways merger eliminated competition at the Detroit and Minneapolis hubs, where both carriers competed. The TWA-Ozark merger eliminated Ozark’s hub at St. Louis.

The new American would control 69% of the slots at Washington Reagan National Airport, and this is a concern? Consider:

  • American is the only hub carrier now at DFW Airport.
  • Southwest Airlines monopolizes Dallas LUV Field and nearly so at Houston Hobby Airport and Chicago Midway.
  • United Airlines dominates Houston Bush Intercontinental Airport and Newark Airport.
  • Delta Airlines controls Detroit, Minneapolis and Atlanta airports with a lop-sided market share.

And so on.

There are actually few directly overlapping routes and no competitive hubs between US Airways and American.

DOJ is concerned about job losses? Even the unions support this merger.

DOJ is concerned about the effect on consumers? Welcome to the club. All the previous mergers mentioned above were detrimental to consumers, but these cleared DOJ.

If United-Continental and Delta-Northwest were OK, this merger is, too.

Odds and Ends: Hazy on the 787-10; five companies eye turboprops

Hazy on the 787-10: Steven Udvar-Hazy, CEO of Air Lease Corp and one of the most influential persons in the aviation business, weighs in on the versatility of the Boeing 787-10 in this Aviation Week article. Hazy and ALC were on the industry design team Boeing consulted during the discussions leading to the launch of the aircraft at the Paris Air Show. Originally Boeing planned a range of about 6,700 nm. Hazy constantly urged a range of 7,000 nm. This article gives an insight into Hazy’s overall thinking.

Turboprops: It’s a small market but five companies/countries are looking at whether to build the next generation of turboprops, as reported by Aviation Week.

China short on re-engine orders, but nearly 400 C919 “commitments”

The Chinese government and airlines have very few orders for the re-engined Airbus A320neo family and Boeing 737 MAX. There are no identified Boeing 737 MAX orders in China and just 19 A320neos.

There are 197 Unidentified MAX orders, some of them rather large. China in the past has placed large Unidentified orders with Boeing that remained so categorized for years, but there is no way to tell if this is the case right now.

Nor has China placed any orders for the Bombardier CSeries despite growing commercial ventures between Bombardier and the C919 developer, COMAC.

Read more

Odds and Ends: SuperJet 100; cell phones on airplanes; 787 real-time monitoring; Crikey

SuperJet 100: This airplane, which is basically the old Dornier 728 jet design, was supposed to be Russia’s leap to western standards. It hasn’t worked out that way, according to this article.

Cell Phones on Airplanes: There continues a debate over whether cell phones really have to be turned off for take-off and landing. This finally explains the technical issues of the cell phone and other electronic devices.

787 Real Time Monitoring: NPR (the national public radio in the US) has this report about Boeing’s real-time monitoring of the worldwide 787 operations.

Crikey: The ever-direct (and cranky) Ben Sandilands weighs in on the Airbus-Boeing advertising tiff.