Leeham News and Analysis
There's more to real news than a news release.
No plateau on 737NG: Boeing
“There is no plateau in interest on the 737NG,” says Boeing’s Beverly Wyse, VP and GM of the stalwart program.
“Even though there are a lot of challenges in the industry, the growth, particularly in the single aisle market in emerging markets and Low Cost Carriers, continues to give us a lot of confidence the demand is out there. Even with the struggles in Europe, there seems to be a little tension between replacement demand and growth demand. We don’t see any pullback in the demand on the 737 at our current production rates or a weakness in demand as we transition to the MAX.”
Wyse gave this assessment during a briefing to the media in advance of the Farnborough Air Show. The briefings were embargoed until July 5.
“Basically we are full all the way through to the middle of 2016. We do have some capacity left in 2016 and 2017 prior to the introduction of the MAX,” she said. “We do have some NGs out in 2018 but that capacity is filling up. We still have customers coming in for NG and MAX four or five or six years out.”
She predicted there will be a two-three year transition period of NG and MAX overlap, though she prefers two years. Wyse acknowledged that the 737-based BBJ and P-8A Poseidon could further extend production of the NG even if passenger models are discontinued.
Boeing’s 2012 Current Market Outlook
Randy Tinseth, VP Marketing for Boeing, outlined Boeing’s update for the Current Market Outlook for the 20 years from 2012-2031. Aircraft in the world fleet has nearly tripled from about 6,500 to more than 19,000 today.
(We will post more detail July 5.)
- Fuel prices have forced some regional jets out of the market because they are no longer viable, Tinseth says.
- There will be 13,000km in of high speed rail in China by the end of this year, more than the rest of the world combined.
- By 2020, China will open 97 new airports.
- 60%-80% of travel is tied to GDP and economic demand.
- Passenger travel has historically grown at 5% per year.
- Non-stop, point-to-point, more frequency growing and airplane size is shrinking.
- Expect to see world fleet grow to nearly 40,000 airplanes by 2031. 40% of demand will be for retirements, 60% for growth.
- Replacement market is very, very important for us. 500 retirements last year.
- There will be demand for 940 production freighters.
- China, Asia, Asia-Pacific will grow the fastest. 35% of demand will be here.
- Cargo traffic has been much more volatile because more closely tied to economies. Growth has been steady but has slowed.
- Over next 20 years see demand for 2800 freighters, 940 new, rest conversions. 940 airplanes valued at $250bn.
Q&A
- About Airbus Mobile: I was a salesman and to be successful you have to do three things: it’s about the product and pricing; it’s about people; it’s about your relationship. Your customers are focusing on those things, not the address on your business card. What drives US and North American airlines, it’s about the business case. I don’t see how this drive the business case. You have to ask Airbus about efficiency. They are building airplanes in four different places.
- About the $500bn increase in value over 20 years: We will see some modest up-gauging in single aisle market, from A319/737-700 size to address airport issues to A320/737-800 and will see it go to 737-9/A321. This is driving some of the change. The twin-aisle market sees the strength in the 777-300 size aircraft.
- On the twin-aisle market: it’s split about 50-50 between small twins and large twins, a little heavier toward large twins. Long-term expect shifting up from 787-8 to -9 and -10.
- On Very Large Aircraft: demand down about 1%. Big airplanes are operated by a handful of carriers in a handful of markets. We’ve probably been a little optimistic in this. A380 after 10 years has sold about where we expected (there are 258 sales–editor).
Odds and Ends: Coverage on Airbus’ Mobile move and other thoughts
Randy Tinseth, VPO of Marketing for Boeing, is always fast with the quip–via Flight Global’s Twitter: “Market is about product, people and customers, not the address on your business card.”
Mobile Press-Register: general overview.
Reuters: Unions aren’t happy–but guess what, it’s US unions.
Chicago Tribune: Boeing’s home-town paper has this about Boeing losing a tactical edge–according to Airbus.
The Economist: Slaps Boeing and Airbus for their continued bickering over trade. Hear, hear.
Searching for Amelia
Like many, we’re fascinated with the search for Amelia Earhart, which has resumed. Here are some articles.
Airbus-Mobile press conference
Fabrice Bregier, CEO: Customers were asking, why don’t you come closer to us? Currently more than 200 aircraft a year for US, Canada. Capacity for more than 400. Expect to build A320neo to at least 2030.
Christian Scherer, head of strategy: An assembly line is not just an assembly line but a whole compound. 116 acres of industrial complex. Seven buildings. Shipped to deep sea port of Mobile and trucked to the facility. From shipment to roll-out, about 2 1/2 months. Expansion beyond 116 acres possible. It is pretty much a carbon copy of Europe. Reducing industrial risk by copying it.
Q&A
Scherer: This is limited to A320. We have negotiated option for land expansion, but no plans for that now. Could have support facilities.
Bregier: This is a strategy move first. We considered that despite procuring $12bn from suppliers in US, we needed to be visible. There is a wave of replacement aircraft needed, and we have the right product in A320neo and producing this in America will be an advantage. Our lines in Europe are competitive [but are costed in Euros]. We avoid transporting suppliers, engines to Europe for reimport to US; these will go directly to Mobile.
Scherer: Proximity to a very, very large market and international footprint for the company are strategic drivers. It is as simple as that.
Airbus official: More than half the value of A320 already comes from America (driven mostly by engines).
Alan McArtor, Chairman Airbus Americas: Typically there is a halo affect that will attract suppliers to the region.
Bregier: Right now struggling to achieve rate 42 in October this year due to supply chain. We need to first stabilize supply chain. First deliveries here in 2016. We know that if we could deliver much more than 42 NEOs a month from 2016, there is a huge potential. It’s premature to say we’ll ramp up beyond 42 a month but with NEO there is huge potential.
Bregier: Already have 220 Airbus engineers in Mobile.
Scherer: Incentives in excess of $100m.
Bregier: Euro-dollar exchange rate not a consideration to a long-term investment. Unions: every9one prefers to have investments in-country but we have invested $14bn Euros in Europe, so it’s time to invest in the US.
McArtor: Having an industrial citizenship in the US can’t hurt for future DOD contracts. It’s not the reason we’re doing it right now but the answer to the potential is yes.
Scherer: There are no plans to convert passenger-to-cargo planes here. If and when [our other facilities] have exhausted their capacity, then it would make sense to consider here.
Separate from the press conference, we asked about CEO and NEO production: CEO will be assembled first at Mobile.
Airbus makes it official: A320 FAL comes to Mobile
Farbrice Bregier, CEO Airbus: We operate state-of-the-art factory, will create jobs, invest and grow the economy here in Mobile. We are proud to call an American town ‘home.’
We have more than 1,000 aircraft with 12 aircraft operating in America.
We invest more than $12bn a year in US economy, 250,000 jobs in more than 40 states. We are the largest export customer in US aerospace.
Why now? We’ve been talking about building aircraft here for seven years but pieces never came together. [Now they have.] Sourcing the best talent is a global challenge. A320neo is the best selling aircraft in its category. It would be foolish not to seize the opportunity.
Gov. Robert Bentley: Because of the groundwork laid…on the tanker project, we succeed today. The Airbus project will indeed accelerate Alabama’s [economic progress]. We’ve created a business-friendly environment in Alabama. I believe Alabama has the opportunity to build a major aerospace center just like we did with the automobile industry. By 2018 40-50 aircraft a year, first delivery in 2016.
The full press release:
Airbus and Mobile: Implications and analysis
Before getting to the meat of things, a couple of key stories:
Mobile Press-Register, June 30. Details of the plan.
Wall Street Journal: Boeing complains.
It’s now one of the worst-kept industrial secrets: Airbus will announce at 10am CDT July 2 that it will construct a $600m A320 Family Final Assembly Line (FAL) in Mobile (AL).
This is a major strategic and tactical move in the intense, often bitter competition between Airbus and Boeing.
Even before the plans became official, Boeing issued a pissy slam, harking back to the World Trade Organization dispute, rather than stating that it is in a position to compete against Airbus and its A320 with what Boeing otherwise routinely characterizes a better airplane with the best workers in the world.
Perhaps the pissy statement was chosen because in many respects, Airbus has mouse-trapped Boeing—and there is very little the company can do about it.
Before explaining, here are some facts to keep in mind. Click on the graphic to enlarge.
