Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Embraer downplays tariff impact on 2025 results May 6, 2025
- JetZero readies effort for private equity fund raising May 5, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 20. May 2, 2025
- Supplier Howmet exceeds expectations despite tariffs May 1, 2025
- Airbus 1Q2025 results: So far, so good, but US tariffs make future results unpredictable May 1, 2025
Odds and Ends: 787 fuel savings at ANA; Airbus will benefit from Boeing
ANA 787s: Market Watch quotes an ANA official saying the Boeing 787-8 is saving 21% in fuel over eh previous airplanes. The article didn’t ID the previous planes, but they were the Boeing 767-300ER. Note, too, that the initial 787-8s are heavy and with Rolls-Royce engines that don’t initially meet specs.
Airbus to benefit from Boeing: The latter is closing its Wichita operations. The former will likely hire some of Boeing’s soon-to-be-out-of-work engineers. Here’s the article. Note that former Kansas Sen. Sam Brownback, who is now governor, was present garbed in Airbus colors. This is the same Brownback who couldn’t diss Airbus enough during the EADS-Boeing tanker competition. Now Airbus seems to be Brownback’s best friend.
China-EU showdown over ETS: China continues to refuse to comply with the European Union’s demand that carbon emissions information be provided. China, which already refused to firm up orders for 45 Airbus A330s, threatened to impound European airplanes if the EU retaliates against China’s refusal to comply.
Air Lease Corp to order MAX: Steve Udvar-Hazy, CEO of the lessor, plans to order the 737 MAX within the next few weeks. Boeing wants to firm up orders from ALC, CIT Aerospace, ILFC, GECAS and Aviation Capital Group by or at the Farnborough Air Show.
Odds and Ends: Price vs Price in Indian contest; China theat; 787 financial impact on Boeing
Price vs Price: More on the price war between Airbus and Boeing in the A320 v 737 contest. Dominic Gates of The Seattle Times has this analysis of hot contest to win an order from India’s Jet Airways, hitherto an exclusive Boeing customer. He takes a larger look at the troubled Indian airline industry.
Finalizing Orders: Norwegian Air Shuttle finalized its order for 100 Airbus A320neos, breaking Boeing’s monopoly here. NAS was also a launch customer of the 737 MAX.
China threat: Maybe, maybe not. Jim Albaugh, CEO of Boeing Commercial Airplanes, cites China as the biggest emerging threat to Boeing and Airbus. Reuters, in Beijing for the IATA AGM, has this article saying, not so fast. The article takes a close look at the ARJ-21, China’s first effort at a modern jet. Although this is a regional jet and not competitive with Airbus or Boeing, it’s a “makee-learn” effort that leads the way to the Comac C919, which is directly competitive with the A320 and 737 class. Implications of the ARJ-21 are also discussed in the article.
LionAir and the 787: Confirming news reports this week, LionAir announced it has committed to the Boeing 787, agreeing to buy five. We’re told these are from the so-called “terrible teens,” those early 787s that required an enormous amount of rework and which were rejected by the original customers. Transaero and Rwanda Air are said to also be taking some of these early aircraft.
EADS Bank: More information on the reports EADS is considering getting a banking license.
Boeing economics and the 787: Jon Ostrower at The Wall Street Journal has an excellent piece today talking about the milestone of 787 #66 and the implications for cost reduction. Unfortunately, the full article is available only for paid subscribers. Contained within the article is this key data:
The losses don’t show up on Boeing’s bottom line, because accounting rules let the company spread the Dreamliner’s costs over years—effectively booking earnings now from future Dreamliners that it expects to produce more profitably. With previous models, Boeing initially spread its costs over 400 planes, but with the Dreamliner it is distributing the costs over 1,100 planes—a number it says reflects unprecedented demand. Boeing already has 854 Dreamliner orders from 57 customers.
Boeing reported that first-quarter profit at its Commercial Airplanes division more than doubled to $1.08 billion from a year earlier. But the company acknowledges that accounting for the costs of each individual plane would have resulted in a first-quarter loss of $138 million—a drop UBS analyst David Strauss says is almost entirely attributable to the Dreamliner.
The Dreamliner’s drain on cash is balanced by strong sales of the profitable single-aisle 737 and long-range 777 models. And analysts estimate Boeing is reducing the losses per Dreamliner by about $10 million each quarter. But maintaining the pace of cost reduction gets harder as the simplest problems are solved. Meanwhile, Boeing aims to increase production of Dreamliners to 10 per month at the end of 2013, up from 3.5 per month today—meaning the losses per plane will be magnified, but will also be tempered by the decreasing cost of each jet.
Some analysts believe Boeing’s target for cost reduction on the Dreamliner could be too optimistic. Mr. Strauss of UBS says the company appears to be assuming it can reduce its cost 50% faster than it did with the 777. If instead the pace of cost reduction matches the 777, says one of UBS’s models, the estimated $20 billion hole could double.
Air India accepts 787, Boeing produces first “clean” version
Good news for Boeing on two fronts: Air India and Boeing agreed to a compensation deal, reported to be valued at $1bn, that paves the way to deliver the first 787s to the embattled airline. The first airplane comes from Everett, and Charleston’s first completed 787 is also slated for Air India. Air India has 27 787s on order.
Boeing produced the first 787 that is “clean” of the problems that have plagued the program for years and which caused massive rework that takes an average of 13 months to complete. This is a major milestone for the program.
Meantime, Boeing hopes to firm up some MOUs on the 747-8I soon.
Finally, a bit of history. This story contains an interview with one of the surviving Tuskegee Airmen. Their story has been depicted in the awful George Lucas movie Red Tails and the far better Ted Turner movie Tuskegee Airmen. The latter is available on DVD through Amazon.com.
Odds and Ends: A320 v 737 debate continues; Embraer on its future planes; ATR’s life story
A320 v 737 Debate: This continues over at AeroTurboPower, where an analysis of fuel burn cost per seat has been undertaken.
Embraer reiterates futures plans: No plane in the 130-160 market segment. EMB will continue to concentrate on its 70-125 seat market.
ATR 1000: This is a very clever video by ATR celebrating its 1000th ATR turbo-prop.
Boeing’s space plane returns after nearly a year
This isn’t our usual gig, but we’re fascinated by this story. Kudos to Boeing on this one.
Boeing 787s require 13 months of rework, concludes UBS
UBS Securities, in a research note issued today, estimates that the Boeing 787s delivered so far spent an average of 13 months getting rework done, with three delivered in April reduced to 9-12 months. Writes UBS:
On average, we estimate that the 11 787s delivered thus far spent 13 months in change-incorporation. While it appears Boeing did not deliver any 787s in May, we estimate that the three delivered in April (LU 37/38/42) spent between 9-12 months in change-incorporation.
Change-incorporation key component of 787 unit costs: Change-incorporation work is a key component of 787 unit costs. We estimate Boeing’s 787 unit production cost at ~$240M in Q1, more than double its assumed average cost at ~$109M over the first 1,100 units. We expect 787 unit costs to trend lower as mix of change-incorporation deliveries lessens.
JP Morgan, also in a note issued today, had this to say:
787 still on the right track, but it’s never easy. Boeing delivered no 787s in May, a step backward following three deliveries in each of March and April. This does not appear to be due to execution issues, but rather to a pilot strike at Air India and the carrier’s efforts to extract more compensation for delays. We anticipate that there could be at least four deliveries in June, which would bring Q2 deliveries to seven, above Q1’s five. Boeing will need a significant ramp in 2H to reach its guidance for 35-43 deliveries this year, but the ability to deliver aircraft directly off the assembly line rather than sending them through change incorporation should improve the flow, and more aircraft should be delivered from change incorporation as well. Management has indicated in the past that aircraft #66 would be the first to go from the assembly line to the flight line without passing through change incorporation, and this aircraft is now in the last position on the Everett final assembly line, although it is unlikely formal delivery will take place until July. While there will be ups and downs, such as May’s lack of deliveries, we continue to expect 787 execution and financial metrics to improve through the year.
The sky is falling, the sky is falling–and other such nonsense
Within minutes of the Houston City Council approving an international terminal plan for Houston Hobby Airport (HOU) requested by Southwest Airlines, United Airlines announced laying off 1,300 employees at cross-town Houston Bush Intercontinental Airport (IAH) and cancellation of the planned IAH-Auckland, New Zealand, Boeing 787 service.
We think UAL’s using Southwest and the City Council’s action to cover up a decision it likely already made, due to the continued weak economy and questionable viability of the New Zealand service. The Southwest/HOU plan is three years in the future–and UAL is cutting employees today and canceling service that Southwest isn’t remotely going to threaten.
It doesn’t pass the sniff test.
We’ve heard the “sky is falling” refrain before. Southwest, American Airlines, the cities of Dallas and Ft. Worth and the D/FW Airport board went to war over Southwest’s desire to do away with the so-called Wright Amendment, which limited service from Dallas Love Field to Texas and the adjacent states. American, the cities and D/FW shrilly contended the commercial viability of D/FW was at stake.
The Wright Amendment was modified to permit one-stop service beyond the five states immediately and to phase out this restriction several years later (2014, if we recall correctly). Lo and behold, the sky didn’t fall in. D/FW is doing fine. (American finally succumbed to Chapter 11 bankruptcy, but for reasons unrelated to Love Field.)
Chicago Midway International Airport transitioned from a purely domestic airport to one including limited international service (hence the adoption of “International” in the name). This wasn’t even a blip on Chicago O’Hare’s service, where United is the largest airline by airport market share.
UAL’s sky-is-falling hand-wringing over the HOU issue is pure poppycock.
A320 build rate, Alabama presents proposal to Airbus
Airbus won’t increase the production rate on the A320 family until introduction of the NEO and it’s now become public that Alabama has presented a proposal to Airbus for an assembly plant there.
Airbus disclosed the plan to freeze the build rate at the previously announced 42/mo during the Airbus Innovation Days we attended last week. Aviation Week has this detailed story.
We alluded to the prospect of a decision by Airbus by year end for an assembly site in Alabama in one of our reports of the Innovation Days. Yesterday, it became public that Alabama has presented a proposal to EADS, parent of Airbus.
Accordingly, here is our take: we think Airbus (EADS) will eventually make the decision to open an A320neo assembly site in Mobile. Here’s why:
- Going beyond rate 42 probably means Hamburg, Toulouse and Tianjin are out of room;
- Airbus wants to increase its US dollar-based footprint to reduce exposure to the volatility of the Euro;
- A US site might help US sales but would make it easier to sell a “Made in America” campaign to the Defense Department for future contracts (expanding Mobile into DOD work); and
- Opening Mobile in connection with neo would open nearer-term delivery slots to compete with the 737 MAX and help worldwide sales availability.
We think the odds are better than 50-50 but it’s tough to handicap this.
The moving numbers, redux, in the A320-737 game
For two years, Boeing claimed the 737NG was 8% more economical (and here) than the Airbus A320. Boeing told media, analysts, everybody who would listen. Boeing illustrated the point before and after the MAX.
Here is a recent illustration; note the NG advantage over A320ceo is reduced to 6%:
And Randy Tinseth, in Randy’s Journal, writes:
Combining the seat count issue with all our latest improvements gets you to a 6 to 7 percent difference. So, if the aircraft are not at parity today, what does that say about the rest of the story? It’s always fun to have spirited debate with our competitors. But in this case, the numbers really do speak for themselves. I’d love to hear your thoughts.
Our thought was, What happened to 8%? Is this a change in the Boeing messaging? So we asked Tinseth, and through a spokeswoman, the response was, “The 8 percent is our current operating cost per seat advantage over our competition and the other is a measure of fuel burn per seat.”
Airbus, as we’ve noted before, disputes Boeing’s analysis and offers up its own, where numbers are again at the forefront. A key assumption on Airbus’ part is using 157 seats for the 737-800 vs the 162 used by Boeing. Tinseth recently has this to say about that: according to Seatguru.com, Tinseth argues Boeing is closer to right than Airbus–hence his comment above.
Airbus also disputes the 20%-25% maintenance advantage Boeing claims for the 738. Boeing explained here where that comes from.
Here is an Airbus slide from the Innovation Days. Note the seat assumptions in the fine print.
The bouncing around is enough to make one airsick. This is why we remain skeptical of data from both OEMs and prefer to listen to the airlines, who tell use the two airplanes are very close.
Update, 3:30pm PDT: A reader linked this Airbus slide, which was previously posted but forgot about. It addresses Tinseth’s seat issue in the print at the bottom, and was created last year by Airbus.
