Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Engine makers tout “Plan A” but have “Plan B” backups in R&D June 23, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 27. June 20, 2025
- Pontifications: A Personal Note June 19, 2025
- Airbus books 142 firm orders as Boeing retracts from the Paris Air Show June 19, 2025
- AIN Media Group Agrees to Acquire Leeham News & Analysis June 17, 2025
Bob Crandall assesses the situation at American
Following our post yesterday about American Airlines, Terry Maxon, the aviation reporter for The Dallas Morning News and one of our oldest friends in this business, sent us this link to a long letter Robert Crandall wrote to an American pilot.
Crandall, of course was the hard-charging CEO of American for many years. Ever the straight shooting, Crandall has some forthright opinions.
One we disagree with, however, is his defense of Tom Horton. Crandall notes that Horton had been CEO (at the time of Crandall’s letter) for only 10 months and should be given a chance. We note, though, that Horton was CFO from March 2006 before his elevation to CEO 5 1/2 years later. He shares in the decisions made during this time and the responsibility for them.
Crandall absolutely right in his critique of the pilot actions involving sick-outs and frivolous maintenance write-ups, leading to massive delays and cancellations. This drives customers away. We’re a million-miler on American and right now any time we travel, it’s not on American. The pilots are acting like those at Eastern Airlines in their battle with Frank Lorenzo, the scourge of unions at the time. (The International Association of Machinists also engaged in open warfare with Eastern.)
Eastern’s pilots and mechanics destroyed that airline. They would rather have killed Eastern than work with Lorenzo, or in the case of the IAM local, even his predecessor, Frank Borman.
What the pilots at American are doing today is threatening the airline. Some Wall Street analysts are talking about American entering Chapter 7 liquidation, a view with which we so far disagree.
But it’s also clear that Horton and his team are giving short shrift to a possible merger with US Airways if they aren’t the surviving management. The future of American’s thousands of employees is at stake. Management ego shouldn’t be involved.
Aside from Crandall’s defense of Horton, we agree with his critiques.
The downward spiral of American Airlines
We’ve been watching with dismay the downward spiral of American Airlines.
This once-great carrier is hardly recognizable any more. It is perplexing to us how a management team that got its training under Robert Crandall and helped create such a great carrier could have gone so wrong.
Crandall retired in 1998 and was succeeded by Don Carty. We have to admit we preferred that Bob Baker, the EVP of Operations, succeed Crandall but Baker already had battled cancer and was viewed as probably on a shorter life span given the nature of his cancer. Unfortunately, this assessment was correct and Baker died a few years later.
Carty, on the other hand, was Crandall’s number two (to Baker’s number three) in the company. But Carty had also been CEO of Canadian Airlines and frankly, we were never too impressed with his leadership there. It was this that gave us trepidation when he succeeded Crandall.
The Crandall team also included Gerard Arpey, who subsequently succeeded Carty after Carty so screwed up labor relations that he had to go. Carty acquired Reno Air, a small MD-80 operator with a hub in Reno (NV) and in the course of doing so, created immense discord with the AA pilots union, having failed to lay the ground work with them for the acquisition. Reno Air brought zero to American and less than zero when the labor relations debacle is considered.
Odds and Ends: GOL orders 60 MAX-8s; Qatar says GEnx engine fault delays 787s; SPEEA deal “within few weeks”
GOL Orders the MAX: Boeing and the Brazilian airline GOL announced an order for 60 737 MAXes. The press release did not specify sub-type but GOL tells us the order is for the MAX 8.
Qatar’s 787s: Qatar’s CEO says the shaft issues on the GEnx engines are what’s behind the airline refusing to take delivery of its Boeing 787s.
SPEEA Deal: Boeing CEO Jim McNerney says he expects a deal with SPEEA within a few weeks, according to this article.
SPEEA rejects Boeing contract; negotiations commence; no strike possible till after Nov. 25
SPEEA, the engineers union for The Boeing Co., rejected the company’s proposed contract Monday by a 96% vote margin. The Seattle Times has this story.
Boeing issued this statement:
The SPEEA negotiations team notified Boeing that SPEEA’s membership rejected Boeing’s initial contract proposal. Our focus now is on resuming discussions on October 2 with your negotiations team.
In the spirit of good faith, we will continue to listen closely to your negotiations team. We want to understand your viewpoints and objections, which is what the bargaining process is all about. As was true when we made our initial proposal – we are committed to continuing discussions, answering questions and considering any proposals or counter-proposals from your negotiations team.
While Oct. 6 is the expiration date of the contract, it remains in effect until Nov. 25, 2012. On Nov. 25, the contract will terminate as a result of SPEEA filing a 60-day termination notice per Article 23 of the contract. No strike can take place until after Nov. 25.
We will continue to provide updates on the progress of negotiations and encourage you to check the negotiations website on a regular basis.
We expect the negotiations, which commence at 1pm today, to be difficult. Boeing is determined to reduce health care and pension costs; SPEEA is determined to prevent higher cost sharing on heath care premiums and shifting new employees from a defined pension plan to a 401(K) plan. Boeing offered raises of 2.5% to 3% and the union wants 5%. But, as The Times story notes, the big sticking point right now seems to be the union’s assertion that Boeing has language in the proposed contract that will allow the company to unilaterally change terms and conditions at a later date, particularly for current retirees on health care. Boeing says it has “no plans” to do so, which SPEEA labeled weasel words.
Boeing threatens to move engineering jobs out of Puget Sound (30% of engineering is already outside of the Seattle area), but SPEEA claims Boeing’s defense unit is already doing so.
Although there are no sanctioned job actions by members, there have been reports of work slow-downs. We expect these actions to increase.
The last time SPEEA struck, in 2000 for 40 days, Boeing’s deliveries dropped by 50 aircraft.
SPEEA rejecting Boeing contract
It’s 10pm Monday PDT and SPEEA is voting down the Boeing contract. New talks are scheduled for Tuesday.
SPEEA vote tally today, results expected late tonight
The contract offer vote count begins today at SPEEA headquarters at 5pm, with results anticipated by around 10 or 11 pm PDT.
The offer by Boeing is considered by the SPEEA leadership to be so bad that it was sent directly to the members for a vote rather than engaging in bargaining after Boeing laid the offer on the table.
Boeing calls the offer industry-leading but which reduces health care and pension costs.
A rejection by a wide margin is expected, but a vote on authorizing a strike is not on the table at this time. Once the contract is rejected, SPEEA and Boeing are expected to go to the bargaining table and negotiate a second contract offer.
787-10 decision anticipated very soon, perhaps within days
Boeing’s Board is expected to be asked very soon, perhaps at its meeting in October, to grant Authority to Offer the 787-10 to customers, according to two sources.
A Boeing spokeswoman said that ATO for the 787-10 is expected to occur before the ATO for the 777X, since the -10 is a more straight-forward project than the X, but could not confirm the October timeline.
The straight-forward stretch of the 787-9 will have less range (about 6,900nm) than either the -8 or -9 models, which comfortably top 8,000 nm but it is expected to carry around 323 passengers, putting it squarely in the class of the 777-200ER and the A350-900.
At 6,900nm, the airplane will cover most missions required by airlines. By foregoing a new wing and added fuel tankage, the operating weight of the airplane is expected to be roughly equal to the 787-9. A slightly higher-thrust engine will be required. Rolls-Royce announced a higher thrust version of the Trent 1000 now powering the 787 at the Farnborough Air Show, and insiders said this engine is specifically intended for the 787-10.
The 787-10 is billed by Boeing as the airplane that will “kill” the Airbus A330-300, but the 787 was also billed as the airplane that would kill the A330-200. The delays in the 787 program have given Airbus time to enhance the A330 family and the rival announced gross weight, range and engine Performance Improvement Packages to the 300 (and which are anticipated for the 200) at the Farnborough Air Show.
Airbus is also selling the A330 family at discounts to the 787 family today and this will continue in the future. The lower capital costs, Airbus believes, allows the A330 to remain competitive. Airbus COO-Customers John Leahy told us that Airbus expects to sell the A330 beyond 2020.
The 787-10 would replace the 777-200ER, which has largely been killed by the A350-900.
Odds and Ends: EADS faces unhappiness over BAE merger; EU rejects US WTO compliance claims; SPEEA Update
EADS unhappiness: In the weeks after the merger with BAE Systems was announced, it’s clear that the proposed merger with EADS hasn’t ben well received by shareholders or the EADS governments. This Reuters story details the reluctance from the German government. Even the head of BAE has been quoted saying the union won’t proceed if BAE’s US defense business is jeopardized. Boeing, after initially saying it sees no impact, now wants a full US defense review and plans to undertake its own evaluation. Some suggest Boeing will try and bring the WTO subsidies issue into the case.
Our take is that Boeing’s initial reaction was based on the largely non-competitive defense lines of BAE and EADS but belatedly realized the strength the combined companies would have to be future competitors across from Boeing’s lines.
But the larger issue seems to be the future role of the French and German governments in the new company. Their shares will be diluted and governance influence will eliminated under the proposed merger. The government influence has historically meant Airbus, the dominate EADS subsidiary, has had to carefully split jobs between France and Germany rather than being free to make commercial decisions without political considerations.
As readers know, we have advocated for years that the governments need to get out of Airbus’ hair.
The Washington Post has this story, aptly characterizing the “blood fued” between Airbus and Boeing.
WTO Claims: It’s absolutely no surprise that the European Union rejected claims by the US it is now in compliance with the WTO ruling that Boeing received illegal subsidies. The tit-for-tat continues.
Airbus issued this statement today:
The WTO final verdict had called in March for:
- Withdrawal of “at least $5.3 billion” of federal subsidies already received by Boeing.
- Elimination of an additional $2 billion in illegal state and local subsidies due in the future under existing illegal schemes.
- Termination of all U.S. Department of Defense (DOD) and NASA research grants to Boeing, including funding, Boeing use of government facilities and the illegal transfer of IP rights to Boeing
The EU’s requested 12 Bn annual penalty is justified by the WTO panel confirmation that the effect of the subsidies is significantly larger than their face value in light of their “particularly pervasive” nature. For example, according to the WTO, Boeing would not have been able to launch the 787 without illegal subsidies. Today’s request belies Boeing’s argument that the WTO’s findings will have no relevant consequences for Boeing.
SPEEA Update: Seattle Times has this update on the SPEEA-Boeing situation.
Debate over the 777X: still studying how far to take improvements
The quest to upgrade the Boeing 777 line, with particular focus on the 777-300ER, is heating up.
The Wall Street Journal has this detailed story. We found it on Google News, so it should be available to all readers but it may turn out to be a subscriber-only story.
Jon Ostrower’s WSJ piece indeed details similar information that we have been told. Flight Global has this story in which Steve Udvar-Hazy, CEO of Air Lease Corp., says Boeing is “gun-shy” about the new program because of the problems with the 787.
There’s more to it than that.
Here’s what we can add from a well-placed source familiar with Boeing’s recent thinking and events.
- Recent customer meetings indicated that the proposed 777-8X isn’t particularly well received. The concept as currently envisioned is actually slightly smaller than the current 777-300ER: 350 passengers vs 365 in three class. Customers are much more favorably inclined toward the 777-9X, envisioned at 407 passengers three class, more than 50 passengers larger than the Airbus A350-1000. The extra capacity goes a long way toward the economics, which according to sources, is targeted for the 9X to be 21% better fuel burn and 15% better operating costs, per seat.
- As a result of such cool reception toward the 777-8X, according to our source familiar with the thinking, Boeing is pondering covering the low end of the 777 class with the 787-10 and proceeding only with the 777-9X.
- The 777-9X would go a long way toward killing the already anemic sales of the 747-8I, even though in three classes Boeing advertises this capacity at 465 passengers. Boeing, however, notes that “Our product strategy focuses on a full array of products with seat count capacity in 15-20 percent increments to provide customers maximum flexibility to adjust capacity. The 747-8 is 15-20% larger than the 777X studies and serves those markets requiring more seating capacity.”
- Plans articulated by Jim Albuagh, former CEO of Boeing Commercial Airplanes, to seek Board approval for Authority to Offer (ATO) the X for sale by the end of this year has slipped to the end of 2013 or even early 2014, our source tells us. EIS is still contemplated for 2019. BCA’s new CEO, Ray Conner issued a note to employees following a Seattle Times story which said the program has slowed that it has not. Further, we are told by Boeing in response to this post that the anticipated timeline to seek Board ATO remains late this year or early next, but not as late as the end of 2013. Nonetheless, we did hear the later timeline from a well-placed source.
- Boeing still wants to see what the final design of the A350-1000 becomes. With EIS for this delayed to 2017 (if not longer), there is no rush to make immediate decisions for the X.
- The WSJ article suggests Boeing may elect to stick with metal wings instead of the more expensive and challenging composite solution. We understand that the composite wing remain the favorite but studies retaining the metal wing continue.
We need to emphasize that what may be true today may change tomorrow. The point is that the development of the 777X is fluid. With an extended timeline for the A350-1000, Boeing is in no hurry to make an early decision. The factors reported by the Wall Street Journal and FlightGlobal also are important.
Boeing continues to study whether to proceed with a major makeover of the aircraft–the 777X–or a less dramatic 777+ set of enhancements.
“Just like all other airplane development efforts, it’s an iterative process. We let the data from our studies and the input from our customers drive the best airplane design as we continue our work on this airplane that would enter the market later this decade,” Boeing tells us.
“As we’ve said for the last several months, when we are satisfied with the risks, costs and schedule, we intend to present a plan for offering the airplane to customers that would enter the market late this decade. Teams continue to study the many elements of a complex development process, and we continue to work with customers on their requirements. We are committed to this segment of the market and when we are confident in a plan we can deliver to our customers, we would formally launch the program following additional development work.”
Although Tim Clarke, president of Emirates Airlines, has been vocal in pushing Boeing toward the X model with range that will provide unrestricted non-stop service from Dubai to Los Anglese, this capability is needed for only about 5% of the world’s routes. Boeing (and Airbus) have been open in their reticence to build an airplane for only 5% of the market, considering the return on investment not worth the cost, the weight penalties or engine requirements for so few customers. It remains to be seen, however, what the outcome of the process will be.