Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Bjorn’s Corner: Air Transport’s route to 2050. Part 19. April 25, 2025
- How good is the C929? Part 2. April 24, 2025
- Boeing First Quarter Results Update: China is 10% of the backlog, with 500 in “Unidentified” April 24, 2025
- Boeing First Quarter Results: Tariffs, Return flights, $10.55bn asset sale April 23, 2025
- RTX Q1 2025 Earnings: GTF Talk Takes A Back Seat To Tariffs April 22, 2025
Odds and ends
As the year trickles down to a close, we’re going to post some news items in one post with any commentary we see fit to add. We don’t expect to be posting at all (unless some huge happens) between Christmas and New Year’s.
December 22:
Air Transport World reports that Boeing has set the end of April for the first flight of the 787. We hope that works, but there is still risk of unknown-unknowns that could delay this until the third quarter. Boeing has previously announced first flight will be in the second quarter, which could be any time from April 1 to June 30.
The Seattle Times has this year-end story, looking at Airbus and Boeing.
The tanker competition is back in the news, with this editorial and this news story, both from The Mobile Press-Register, and these items quoting Boeing IDS president James Albaugh and Northrop Grumman president Ron Sugar that kick off the latest controversy.
December 17:
From: Schaeffers Research comes this item:
The Boeing Company
Dow component The Boeing Company (BA: 
sentiment, chart, options) was slapped with a “sell” rating today by Societe Generale, as the French firm made its way through the aerospace-and-defense sector. Also in today’s note, B/E Aerospace (BEAV) was initiated at “hold,” General Dynamics (GD) was started with a “hold” rating, and Lockheed Martin (LMT) was started at “buy.”
The downbeat initiation today comes on the heels of Boeing’s warning last week that the launch of its 787 Dreamliner would be delayed by yet another 6 months, due to issues caused by a machinists’ strike and improperly installed fasteners.
As its Dreamliner drama drags on, analysts have grown increasingly skeptical of BA. Zacks reports 9 “holds” and 1 “strong sell,” compared to 8 “buy” or better ratings. As today’s note from Societe Generale reveals, there’s still plenty of room for more negative brokerage notes to hit the shares. Any additional skeptical notes could extend the stock’s year-to-date drop of 55%.
Schaffers also has this related item:
The Boeing Company (BA: sentiment, chart, options) was broadsided with another bearish brokerage note this morning, marking the second straight session of negative news from the analyst community. Yesterday, Societe Generale initiated coverage on BA with a “sell” rating following yet another delay in the company’s much anticipated 787 Dreamliner. This morning, Deutsche Bank cut its price target on the shares to $39 from $48. The brokerage firm also reiterated a “hold” rating on the equity.
There is room for the situation to deteriorate further on Wall Street, as 8 of the 17 analysts following BA rate the shares a “buy” or better, according to Zacks.com. Meanwhile, Thomson Financial reports that the stock’s average 12-month price target rests at $57.11 per share – a 47% premium to the stock’s Monday close at $38.74.
Our comment: Societe Generale, or SocGen to those of us in the business, is awfully late to the party. We agree (unfortunately, since we have a long position in Boeing stock) that there is more downside left in the price. Until Boeing clearly is positioned to achieve first flight with the 787, doubts remain and the company’s credibility is shot. “Performance” is now the only thing that will count–not predictions and projections by Boeing.
Many brokerage firms consider a “Hold” rating a negative recommendation.
Back to the Tanker
Reuters has this story about the debate between Northrop Grumman supporting a “best value” approach to the re-compete for the KC-X contract and Boeing supporting a “low price” selection.
Northrop’s “best value” combines the most-capable concept that won it the contract last year. Boeing’s “low price” relies on the total life cycle analysis that favors its airplane. Northrop says the lowest price might not be the best product. (An interesting position to take since its price was $3bn less than Boeing, but Northrop fears that Boeing–knowing Northrop’s price–can now low-ball the next round of bidding.)
We’re reminded of the story when former astronaut Frank Borman became CEO of Eastern Airlines. Borman, commander of the first Apollo mission around the moon, was facing the notoriously militant IAM during one of his early meetings at the new chief of Eastern. A grizzled machinist finally asked Borman, “Why should we follow the advice of someone dumb enough to sit on top of a rocket built by the lowest bidder?”
Borman found the humor in the question as the entire crowd cracked up.
Overwrought concerns
As the world economy and the airline industry seemingly implodes, there is an increasing amount of concern emerging among some aerospace analysts and Internet bloggers over what this means for Airbus and Boeing.
The consensus is that Airbus and Boeing will begin seeing serious declines in aircraft deliveries as early as next year.
These concerns have been exacerbated by the announcement from China’s central government that it wants the airlines to defer deliveries next year. As we pointed out some weeks ago, this is highly unusual: China historically has been a stalwart through bad times for Airbus and Boeing, growing and ordering airplanes when other regions in the world were going through major downturns.
This has led some to particularly point to the new Airbus assembly facility in China as a risk factor for Airbus.
There certainly is sound reason for concern, but so far this is overwrought.
We participated in a conference last week that included Airbus and Boeing officials. During our private conversations with them, we came away more comfortable that for 2009 at least, the two companies are not going to see major declines in deliveries, based on current market conditions.
This is a different distinction than deferrals, and a this is an important distinction.
“Excusable delay”
If anyone had any doubts about Boeing paying penalities for delays as a result of the 58-day IAM strike, in which the conventional wisdom was that Boeing did not, doubt is removed with this contract language we found (while looking for something else) between Southwest Airlines and Boeing.
“The Customer acknowledges that (i) the obligations of Boeing…are premised upon Boeing’s manufacturing capability prior to the IAM Action; and (ii) delay in the performance in any obligation of Boeing under this Purchase Agreement resulting from the IAM Action is an Excusable Delay….”
Boeing revises 787 schedule again
As expected, Boeing revised its 787 schedule, now listing the first flight in the second quarter next year and first delivery into the first quarter of 2010. These represent slips of about six months.
The Boeing press release may be found here.
The timetable infers a nine month flight test program. Most observers believe this is aggressive. Aerospace analysts are nearly unanimous that a full year is more likely.
Boeing’s statement is vague about when in the second quarter it now expects first flight. Based on information we have, we think the end of the second quarter is the most likely scenario, but the first flight could also slip to the third quarter. This is also based on information we have.
Boeing wants to get the program moving, but insiders tell us that there remain risks and uncertainties that continue to cast doubts on any schedule announced.
Update, 10:15 AM PDT: Addison Schonland, Jon Ostrower and Scott Hamilton have a 20 minute podcast discussing the 787 delay and new management changes announced by Boeing shortly after the 787 delay was announced.
Update, December 12:
Reaction is mixed about the delay and the management changes.
First, on the delays: These had been widely expected, both as a result of the strike by the IAM, the discovery of fasteners incorrectly installed and of reports (including our own) that software integration continues to be an issue.
Aerospace analyst Howard Rubel of Jefferies Co. calls the newly announced schedule “realistic” and has a buy on the stock. Robert Stallard of Macquarie Capital (with an Outperform) is less kind. He writes in a note issued afterward:
Given its 100% failure rate in forecasting the 787 timetable so far, we expect airlines, suppliers and investors to be suitably skeptical on to whether this latest revised schedule will actually be achieved.
Goldman Sachs (Sell) believes Boeing will run over both new time estimates. Goldman projects a 3Q09 first flight instead of Boeing’s projected 2Q09; and a 3Q10 delivery instead of Boeing’s projected 1Q10, the major difference being a one year flight test program instead of a nine-month schedule put forth by Boeing.
The market reacted benignly to the announcements Thursday, with the stock trading down less than 2%. But today is a different story. While the market is off (at 9AM PST) less than 1%, Boeing is off 4.75%.
On the management changes:
Surprisingly, some inside and close to Boeing don’t know whether Pat Shanahan’s appointment to oversee all new airplane programs is a promotion or a kick upstairs because of the continuing problems with the 787 program, which he was brought in from Boeing’s Integrated Defense Systems unit to oversee and fix. Shanahan still oversees the program, as well as the troubled 747-8 development, but a new person, also from IDS, has been appointed to directly manage the 787 program. This person reports to Shanahan.
It’s telling of Boeing’s credibility problems that even some inside Boeing question just what the Shanahan moves means. The efforts to read between the lines is like reading The Kremlin at the height of the Cold War.
Analysts generally applaud the moves as an effort by Boeing to fix problems. One of Boeing’s industrial partners believes Shanahan has done a good job and that he is on track to do greater things at Boeing. The Wall Street Journal reporting suggests Shanahan is now one of two candidates to succeed Boeing Commercial Airplanes president Scott Carson, who is on countdown to mandatory retirement in about four years. The other contender, announced in the management restructuring, according to The Journal, is Ray Conner. Conner comes from a top position in sales but has a solid background in supply management and this is his new position position within BCA–something that has been a key stumbling area for the 787. Conner doesn’t report to Shanahan; he reports directly to Carson.
Papers play catch up on 787 delays
The Wall Street Journal, The Seattle P-I and other papers are only now playing catch-up to aerospace analysts who last week forecast the first deliveries of the Boeing 787 won’t be until summer of 2010.
We also forecast this on Tuesday.
Airbus critique of 787
Jon Ostrower of FlightBlogger has a stunning coup: a 48 page critique of Boeing’s 787 by Airbus. His blog link is here. He has a link to the full report.
Profiles of Airbus Financial, Boeing Capital
With the capital market crunch, Airbus and Boeing each said it is prepared to step up and help with customer financing. Below are two stories we did for Commercial Aviation Online, a subscription-only service, about Airbus and Boeing financial arms. Each is reprinted here with permission. The stories appeared on CAO’s website November 3.
Profile: Boeing Capital Corp.
Industry officials and observers fret that the capital market crunch will make it difficult for airlines to finance airplanes through the rest of this year and well into next. Accordingly, analysts predict that OEMs will have to step up next year with $5bn in financing support.
The Boeing Co. said its Boeing Capital Corp. (BCC) finance arm stands ready to provide $1bn in financing next year. Airbus, engine makers and regional airliner producers can be expected to pick up the rest of the OEM, based on history.
BCC’s federal 10Q filing with the US Securities and Exchange Commission shows that BCC has $1.9bn in financing commitments for 2009 out of $9.5bn in total on its books (see Table).
Boeing officials are clear that they want BCC to be the lender of last resort for its customers, and BCC officials are pounding the pavement looking for financing for its customers so BCC doesn’t have to step up.
The pressure on BCC is building, however. BCC received “a number of requests from both domestic and foreign airlines to reduce lease or rental payments or otherwise restructure obligations,” the company said in its 10Q filing. BCC did not provide any details, other than agreement to restructure the terms on 16 717s leased to Midwest Airlines. Midwest is hanging on by its flaps, returning these 16 airplanes to BCC and downsizing by contracting with regional airlines to operate the Embraer 170 jets. All 717s are to be returned by the end of this year.
787 update due shortly
In this week’s column:
- 787 Update Due Shortly
- Other program issues at Boeing
- The decline and fall of the Chinese aviation sector
- The impact of the Global economies on Airbus and Boeing
787 Update Due Shortly
Boeing plans an update of the 787 program by mid-December, with expectations that a new timeline for first flight and first delivery will be forthcoming. Aerospace analysts diverge on these predictions right now.
JP Morgan forecasts first flight in the first quarter while Goldman Sachs predicts 2Q09 or 3Q09. Based on conversations we’ve had with Boeing insiders, the unions and others, we believe the first flight is likely in the June-August 2009 period.
When, then, will be the first delivery? Cowen & Co. predicts 2Q10; JP Morgan and Goldman predict delivery will be a year after the first flight. Boeing has consistently maintained that it can complete flight testing within 6-9 months after first flight, but given the track record of its predictions so far, we’re inclined to side with JP Morgan and Goldman and go with one year after first flight.
SPEEA vote today
Update, 10:30 PM PST:
It’s official: 79% of the engineers and 69% of the technicians voted for the contract.
Update, 9:00 PM PST:
Unofficial returns: it appears that both contracts passed. It may be another 30-60 minutes before the returns are official.
Update, 8:00 PM PST:
SPEEA is still counting the votes. There was a record vote of more than 14,000. Estimates are another 60-90 minutes for the tally to be completed.
Original Post:
SPEEA, the engineer’s union at Boeing, will tally votes today on a new contract.
Actually, there are two contracts–one for the technicians and one for the engineers.
Up to now, technicians have been pretty vocal that they don’t like the terms negotiated by the SPEEA leadership, responding with a vitriol that surprised the negotiating team, who thought they had a good contract deal. This raised fears that the technicians might reject the contract, while the engineers are expected to approve it.
Final results aren’t expected to be counted until late tonight (Seattle time), but we’re geared up to post results as soon as we have them this evening.
If, by chance, either contract is rejected and a strike is authorized, don’t expect a walk-out. SPEEA historically goes back to the bargaining table to renegotiate if a contract is rejected. SPEEA has only struck twice in 40-some years.
Hazy has deal to buy ILFC
Bloomberg News has a story quoting the head of mega-lessor saying he has a deal to buy International Lease Finance Corp. from insurance giant AIG.
ILFC is the largest customer of Airbus and Boeing. It owns and manages a fleet of slight more than 1,000 planes with a value of $55 billion.
This is a highly positive development for the airline industry. But as is often the case, the devil is in the details. The deal has to close (next year) and it remains to be seen how it is structured and what flexibility the company has in the future.