Leeham News and Analysis
There's more to real news than a news release.
China’s closed airspace hasn’t changed much in 20 years
China’s military continues to so control–and close airspace–in China that delays are rampant, this AP story reports. We’re reminded on the era when we were doing business in China, going there nine times in a 4 1/2 year period from December 1988-mid 1993.
Visiting a number of airlines there, one of which was operated by the military, along with CAAC, CASC and the McDonnell Douglas Shanghai factory, we were struck by the low aircraft utilization: only six or seven hours. Western standards were 10 or more. Even then, we were told, the military control of the skies was a key factor. The low utilization rate then clearly contributed to the need to buy more airplanes to meet traffic growth than was necessary. We haven’t seen any data on today’s utilization rate, but we have to believe this nexus remains.
Flying Chinese carriers then was pretty alarming at times. A ramp worker smoked while refueling a plane, with the refueling connection spraying fuel on the ramp. Carry-on baggage was in the aisle on take off. A person was in the lav on take off. We’ve read some stories in recent years that suggest not much has changed.
Back then, getting into China had limited options. We flew to Tokyo and pretty much had to take Air China into Beijing. A direct air route would go over Korea. We couldn’t go through North Korean air space and apparently flying over South Korean to China was then forbidden, so we had to route south around the Korean peninsula, adding a great deal of time to the flight.
The McDonnell Douglas Shanghai factory was primitive even by standards of the day then, well before robotics and moving production lines. The factory was producing one MD-80 a month and the planes were essentially hand-built. This antecedent might be why the MD-80-looking ARJ21 is having such difficulty. The factory drew so much power that parts of Shanghai went brown-out or black-out during the day, an issue presumably long-since overcome in the Shanghai power grid.
The MD-80 plant was supposed to be MDC’s “in” to gain market share. While selling something like 40 MD-80s/90s (if memory serves) to China via this plant, the venture clearly was a failure and the Chinese used the operation to learn a bit about commercial aviation. Embraer had an ERJ plant in China for the same purpose, and likewise came up short of its goal while the Chinese benefited more. The Airbus plant in Tianjin seems to have been more successful, but we don’t think it’s coincidence that the COMAC C919 looks a lot like the A320.
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.
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.