Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Airbus 1Q2025 results: So far, so good, but US tariffs make future results unpredictable May 1, 2025
- Does an Airbus A220-500 need a new wing and engines? May 1, 2025
- Teamsters, Boeing have a new contract April 29, 2025
- Boeing wants to remarket China’s airplanes. It’s costly and time consuming. April 28, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 19. April 25, 2025
A350 EIS delayed from 2H2013 to 1H2014
EADS announced today (Thursday in France, Wednesday night in Seattle) what many of us have been expecting for some time: the entry-into-service (EIS) of the A350-900 will slip into 2014 from late 2013.
“Maturity of the A350 XWB main components at Final Assembly start remains one of the Group’s top priorities. Start of Final Assembly is now scheduled for Q1 2012 and Entry-into-Service is now scheduled for H1 2014,” EADS said in its earnings release. As a result of the delay, EADS is taking a 200m Euro charge.
The program has had several creeping delays, slipping from an EIS of the first half of 2013 to the second half of the year, with very few deliveries listed in the Ascend data base–just five, starting with launch customer Qatar Airways.
We previously opined that we thought the first delivery would slip into the first half of 2014.
Each delay of the A350 program and the individual models allows Boeing to recover some breathing room on the 787 program and to develop the 787-9. The delay of the A350-1000 greatly benefits Boeing as it decides what to do with the future of the 777, through minor or major enhancements, at a time when cash flow continues to be constrained by the 787 and 747-8 programs and development of the 737 MAX.
The news comes just in advance of the Dubai Air Show, where Boeing is expected to announce a number of 777 orders from Emirates Airlines and possibly other carriers. Assembly of the 1,000th 777–for Emirates–began November 9 in Everett (WA).
Airbus also terminated the A340 program, it was announced in the EADS earnings release.
AirInsight takes a close look at the GTF, CFM LEAP
AirInsight’s Ernie Arvai has a long analysis of the Pratt & Whitney Geared Turbo Fan and CFM LEAP engine.
It is very detailed, and involves information obtained from both companies.
737 MAX vs A320neo: the debate continues
During yesterday’s tele-press conference by Boeing with a program update for the 737 MAX, 737 chief program engineer John Hamilton frequently said the MAX has a 7% operating cost advantage over the A320neo.
He also touted the advantages of the 737-900ER over the A321, with the obvious implications that the 737-9 MAX will have an advantage over the A321neo.
Here is a recap by the Puget Sound Business Journal (there are many others which may be found through Google News).
AirInsight, our affiliate, has written several pieces of the 737NG and 737 MAX vs the A320 family, both legacy and NEO.
See the following articles for additional color on this debate.
737 MAX ‘commitments’ and what these mean
Note: As a follow up to our previous post about the 787 break-even, Blog by Javier added a third post to simplify his very detailed analysis. You may jump to the link here.
Also: AirInsight has this commentary on the MAX.
Boeing today (Nov. 3) announced it now has more than 600 commitments for the 737 MAX, as well as confirming the 68 inch fan selection and discussed some other issues related to MAX.
Our immediately preceding post synopsized Jim Albaugh’s presentation to Goldman Sachs. Shortly after this, Boeing offered up to the media a tele-press conference with John Hamilton, 737 chief program engineer, to update the status.
One of the things he also referred to was the 600+ commitments by eight airlines for the MAX. Based on questions from the media, focusing on when “commitments” become “orders,” we thought it might be useful for the Reader to discuss this.
Albaugh announces more than 600 commitments for 737 MAX
At an appearance with Goldman Sachs today, Jim Albaugh, CEO of Boeing Commercial Airplanes, announced there are now more than 600 commitments for the 737 MAX.
- Announced what we reported weeks ago: Boeing selected 68 inch fan for CFM Leap 1B. Also talking to CFM about a custom core for the engine.
- Striving for an EIS earlier date than 2017.
- Doesn’t want team to use “simple” and “re-engine” in the same sentence, but wants to minimize changes.
Boeing slide from Goldman Sachs investors’ conference Nov. 3, 2011
- I want to be more responsive to customers we have [by increasing rate]. We drive customers to competitors if we don’t have availability.
- We certainly over-promised and under-delivered on 787. The composites are coming together very well. I’m not going to tell you getting up to rate won’t be a challenge. Biggest challenge is in Charleston. It’s month-by-month. I see a very detailed dashboard on supply chain.
- We have brought a lot of 787 work back in-house. We have 500 engineers who have nothing to do but to drill down…and manage our suppliers as if they were in our factory.
- Final assembly won’t be in quite three days, as originally promoted. But we are pleased we now own Charleston because we have control over it. If we didn’t we wouldn’t be as far along as we are today.
- I’d be getting ahead of myself if we are going to do the Dash-10, but I think we will. It won’t have the range but it will have the value.
Odds and Ends: The selling of the 707
Selling the 707: Fortune magazine reprinted this article from 1957 of the Selling of the 707. Pretty good return to nostalgia.
From Twitter: .@Boeing CFO James Bell to retire next April. Corporate Controller Greg Smith to replace him.
Republic Airways Holdings is sliding deeper into financial trouble as a result of Frontier Airlines. Aviation Week has a detailed story that reports the Embraer E190 order will be deferred and casts doubts about the viability of the Airbus A320neo and Bombardier CSeries orders. RC has an earnings call November 8.
Airline Books: Arcadia Publishing, which is largely known for specialty books about local cities, towns and topics throughout the US, has a number of books about airlines. We were at the Museum of Flight at Boeing Field and discovered this line of books, which is new to us. We picked up books on Northwest Airlines and Pan Am but there are a number of others here.
Leeham.net back up, finally: After two months (don’t ask) our corporate website is back up.
More analysis on 787 accounting block, break-even
Update: Javier has answered (or responded to, depending on your viewpoint) many of our reader comments here.
Original Post:
A blog of which we were previously unaware came to our attention late last week that has the best, most comprehensive analysis of the 787 financial picture that we have seen anywhere by anyone.
This post is very long. Called “The Blog By Javier,” it is written by Javier Irastorza. He works for Airbus Military on the A400M program, which will automatically make his analysis suspect in some quarters. But we were darned impressed by this analysis.
Odds and Ends: Qatar, Cargolux and GE
For those who don’t believe there was a connection between the Cargolux-Boeing-GE dispute and the 787 and Qatar, watch the Dubai Air Show. We’re hearing Qatar will sign announce it has selected GEnx for the 787.
Speaking of Max, Boeing didn’t say much about the 737 MAX on the earnings call. In fact, Jim McNerney was downright ambiguous. Boeing is still considering where to build the airplane and it’s still talking to customers. Boeing said in August at MAX’s unveiling that design details would be forthcoming the following month. November is around the corner and we’re still waiting.
Boeing’s union nemesis, IAM 751, is already reaching out to membership about “wants” for contract negotiations next year. Overhanging negotiations will be the NLRB complaint–testimony is supposed to begin next month–and the MAX assembly site. Our prediction: this will be purely a testosterone contest. We have dour predictions at this point.
Airbus and the A350: assembly is supposed to begin by year end with first flight next year. We’ll see.
Boeing sets 787 accounting block at 1,100; earnings call summary
Update, from 7:30 am-the Earnings Call:
Jim McNerney (JM):
- Passenger traffic remains resilient, but cargo traffic weakening and needs watching.
- Interest in 737 MAX remains high, still working with customers [to define product].
- We’re monitoring European debt crisis for impact on financing airplanes but believe any outcome will be manageable.
- Defense spending will depend on outcome of Congressional Super Committee working to cut deficit and whether automatic cuts emerge that will harm national defense and the industrial base.
- Sticks with goal of 10 787s/mo by the end of 2013. Sticks with first 787 from Charleston next year.
- Change incorporation in 787s on track and defined. Challenge remains to burn down the work on timely basis.
- Defense: continuing emphasis on cybersecurity, intelligence which are growth areas.
- KC-46A completed first integrated review on technical specs, now focusing on preliminary design review in early 2012.
James Bell (JB)
- 1,100 block is consistent with accounting practices. Over 20 years estimate market demand at 5,000 units. 1,100 block is 10 years of production. Initial gross margin booking rate on 787s is in low single digits, to be assessed quarterly. Deferred production balance $9.7bn for 40 airplanes and will grow as more airplanes produced. Will begin to decline after hitting 10/mo.
McNerney
- Our clear priority [now] is executing ramp up across all programs and developing KC-46A and MAX.
Q&A
- JM: If 787 rate of 10/mo did slip a quarter or two it wouldn’t have an impact on accounting block.
- JM: Not really seeing cargo customers seeking 747-8F delays due to softening market.
- JB: When we get up to rate and stabilize for a year, year and a half 787 revenue will exceed costs to build it. (In other words, 2014-2015 is when on a purely revenue/cost basis, the 787 will be profitable–Editor.) [Later]: I would assume 2015 rather than 2014. Late 14 or early 15 to be stable.
- JB: We’ve never set the accounting block previously, so have not adjusted it. We never went through analysis to determine if there would have been a forward loss at 1,000.
- JM: We are not over-reaching market demand, we are following market demand [with production rates]. We are not going for market share.
- JM: We have pretty good fidelity on what the MAX is, still having discussions. It is settling down quickly on details, happy with design. We’re still thinking through where we would produce it.
- JM: Vast majority of rework is on first 40-45 airplanes. Our plan is that after 50-60 mark we are pretty much in the clear, pretty clean after that.
- JM: We’re in a sweet spot seeing demand for the 737NG and the 737 MAX.
Original Post:
Boeing set its long-awaited accounting block for the 787 at 1,100, an announcement coming with the third quarter earnings release today. Boeing said, “At quarter end, the 787 had 821 units sold firm and approximately 200 options. The company established the initial accounting quantity for the 787 program at 1,100 units, consistent with accounting practices applied on other new airplane programs.”
Previous airplane programs were typically set at 400, according to a good analysis by Jon Ostrower.
Ostrower, in Hong Kong following the 787’s first flight (and thus up long before we were), had this quick take on the earnings announcement and some observations about the 787 ramp up and deliveries this year.
Boeing also lowered its delivery forecast for the 787 and 747-8 to just 15-20 combined. Originally Boeing forecast 25-40 evenly split between the two airplane types then in July 25-30, weighted toward the 747. Since then, Atlas Air canceled three 747-8s that would have been delivered and Boeing’s internal plan for the 787 has been eight while key suppliers have been telling us four-six. Boeing said in its press release today that two thirds of the deliveries will be 747s, or 10-13. Thus, this means 5-7 787s will be delivered this year if forecasts are met.
“Optimizing” bad news
You have to hand it to the public relations staff for some real chutzpah.
Air Berlin has been struggling for years, over-ordering aircraft and canceling some of them (Boeing 787s among them). Today the airline deferred Airbus and Boeing airplanes and issues a press release entitled, “AirBerlin optimizes Airbus and Boeing order book.”