Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Five for Five: Air India crash points to systemic problems at Boeing that CEO Ortberg must fix June 15, 2025
- Airbus sees Boeing as medium-term competitor, with Comac next June 14, 2025
- Boeing bullish on 20-year forecast, despite short-term headwinds June 14, 2025
- Embraer’s 20-year market forecast under 150 seats: fewer turboprops, jets about the same June 14, 2025
- Airbus Canada CEO: Airbus is here to stay in Canada June 14, 2025
Excluding China in Boeing forecast recognizes trade, geopolitical realities
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By Scott Hamilton
Nov. 8, 2022, © Leeham News: Boeing CEO David Calhoun last week said Boeing’s future through at least 2025/2026 doesn’t include assuming China is part of its equations.
It’s a good thing. Relations between the US and China are heading south. The Pentagon last week outlined an extremely pessimistic outlook pointing to future military conflict with China. The Biden Administration not only didn’t reverse tariffs imposed in 2017 by the Trump Administration, but in some respects, Biden upped the game.
Related Article
Boeing started remarketing 737 MAXes ordered by China. It also began taking engines off those airplanes to put onto new production aircraft. Boeing—and others—don’t see China taking any new deliveries from China in the next two or three years or placing orders with Boeing.
Michael McAdoo of Boston Consulting Group. Credit: Leeham News.
Trade publication Airfinance Journal reported Oct. 31 that nearly one in five leased aircraft owned by Chinese lessors are being offered for sale to non-Chinese interests. LNA previously reported that Chinese lessors were being allowed to accept a small number of MAXes providing they were leased outside China.
A trade expert for Boston Consulting Group outlined how he sees relations between China, the US and Europe in an Oct. 26 interview with LNA.
Summary
- China considers the US to be the enemy, one well-placed observer notes.
- The US, EU see China differently.
- Airbus has a window of opportunity.
How Boeing can pursue new airplane sooner than 2030 decade
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By Scott Hamilton
Nov. 7, 2022, © Leeham News: Boeing is methodically working through the full return of the 737 MAX to service, a process that will continue to early 2025 to clear the stored inventory. There were 270 stored MAXes at the end of the third quarter, Sept. 30.
David Calhoun. Source: Boeing.
Delivering 115 787s that were built but stored during a pause of nearly 20 months from October 2020 will also take two years to complete.
Ramping up production of each line is a slow, arduous process. The 737 line was shut down in December 2019. The line now is geared to produce 31 737s a month, though meeting this target has been erratic.
The 787 line in Everett was shut down permanently and the Charleston (SC) line was reduced to just half an airplane per month. It will be a couple of years before production returns to 5/mo, the level at the start of the pandemic and reduced when deliveries were suspended.
CEO David Calhoun said stability and reliability are keys to Boeing’s recovery from the MAX and pandemic crises that sapped finances and all but destroyed a once-sterling credibility.
Calhoun also said he has no plans to launch an airplane program to fill a gap in the product line—a reference to Boeing’s weak position vis-à-vis the Airbus A321neo. Rather, he wants to launch a game-changing airplane that at a minimum is 20% more efficient than today’s aircraft. He believes engines coming off today’s technology will only host a 10% gain.
He added that Boeing won’t launch a new airplane program until the next decade because a new engine won’t be ready until then. He made his remarks at the first investors day since 2018. Three weeks before that, Boeing hosted a meeting with advisors, consultants, and opinion makers.
Pontifications: Boeing is fighting the last war instead of the present one
By Scott Hamilton
Nov. 7, 2022, © Leeham News: With the firm declaration that Boeing won’t launch a new airplane program until the next decade, CEO David Calhoun is signaling he’s content to see the company shrivel into a distant number two position after Airbus.
Amazingly, one Boeing executive told one of the attendees of the investors day event that he (the executive) was okay with that for now.
It’s a recipe for Boeing to follow the path of McDonnell Douglas Corp. (MDC) in its long decline into commercial oblivion. MDC merged into Boeing in 1997. Boeing hasn’t been the same since. Its legacy as an engineering company shifted into one focused on shareholder value. McDonnell Douglas had become a company where Derivatives-R-Us prevailed. Boeing long ago shifted to this mode as well.
Calhoun is a creature of Jack Welch’s GE mantra. Cut costs. Emphasize profits and shareholder value. And while Welch’s philosophy that GE should always be No. 1 or No. 2 in any industrial sector it played in, Welch’s vision of No. 2 was a close No. 2. Boeing’s decline into a distant No. 2, with only a 40% market share against Airbus (and less when looking only at the total single-aisle sector) began long before Calhoun became CEO in January 2020.
David Calhoun. Source: Boeing.
Calhoun told his audience of investors and aerospace analysts that he’d like nothing more than to return cash to shareholders. Knowing who your audience is is part of any speaker’s requirement, so in isolation, I’m not going to chop Calhoun up for this statement. The trick is to balance shareholder return against the future of the company.
As I’ve written in the past, returning 100% of free cash flow to shareholders isn’t necessary. Before suspending the dividends and stock buybacks after the MAX grounding, Boeing returned more than $62bn to shareholders over a decade. Using part of this for new airplanes would have been a good approach.
Calhoun declared that even if all the advanced design and manufacturing is ready this decade, he won’t support a new airplane until the next decade when a new engine that can reduce fuel consumption by at least 20% is ready. Any new airplane must hit this target to benefit airlines and the environment, he said.
Well, there are other ways to hit this target. LNA discusses this behind today’s paywall.
In the meantime, Boeing is content to rest on the past.
Boeing’s product move kills direct 767F replacement, puts 787F in doubt
By Scott Hamilton
Nov. 4, 2022, © Leeham News: David Calhoun’s decision to tank all-new airplane development kills the direct replacement for the Boeing 767-300ERF that was under development. It also places in doubt the development of the 787F.
Calhoun, the CEO of Boeing, said on Nov. 2 that Boeing won’t launch any new airplane until the mid-2030 decade.
Will Boeing’s cancellation of all new airplane development until the next decade breath new life into the 767-300ERF? It might. Source: Leeham News.
Boeing’s Product Development (PD) department was working on a 767-sized airplane that would begin with the freighter. For lack of a better term, we’ve called it the NMA-F in previous articles. The NMA-F would then be followed by passenger models for a full family of airplanes.
PD was also working on a derivate freighter for the 787, the 787F. Internally, the two teams were competing, as is Boeing’s process.
Killing all new airplanes kills the NMA-F. Funding for the 787F has been reduced, LNA is told. But there is no assurance that the 787F will be launched. If it is, as a derivative its launch would not be considered a “new airplane” program.
Although not the principal reason for Calhoun’s move, killing the NMA-F and casting doubt over the 787F may help Boeing in its effort to exempt the 767 from stringent standards adopted in 2017 by the International Civil Aviation Organization (ICAO). The Federal Aviation Administration announced earlier this year it plans to adopt the ICAO standards. The emissions standards cannot be met by the 767. (Nor could the 777 Classic freighter, the 777-200LRF, meet them. Boeing launched the 777-8F program which will meet the standards.)
Under the ICAO standards, production of the 767-300ERF (and 777-200LRF) must cease from 2028. Boeing already seeks an exemption should the FAA’s plan become US policy.
Bjorn’s Corner: Sustainable Air Transport. Part 44. eVTOL operating costs.
By Bjorn Fehrm.
November 4, 2022, ©. Leeham News: This is a summary of the article Part 44P, eVTOL operating costs. It discusses the operational costs of a typical eVTOL flying a feeder mission from a city center to an airport.
The dominant cost factors are not the ones eVTOL companies love to discuss, like the electricity bills.
Figure 1. The Vertical Aerospace VX4 in an early rendering with similar looks to the eVTOL we discuss. Source: Vertical Aerospace.
Bjorn’s Corner: Sustainable Air Transport. Part 44P. eVTOL operating costs. The deeper discussion.
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By Bjorn Fehrm
November 4, 2022, ©. Leeham News: This is a complementary article to Part 44, eVTOL operating costs. It discusses the typical operating costs we can expect from an eVTOL when used in an air taxi operation.
Despite the operation of such transports being years off, an eVTOL has dominant cost factors that can be estimated today.
UPDATE: Spirit close to breakeven in a ‘dynamic’ environment, CEO says
By Bryan Corliss
Nov. 3, 2022, (c) Leeham News: Spirit AeroSystems said today its third quarter revenues grew by 30% year-over-year, driven by an increase in deliveries for Boeing’s 737 MAX program.
The company posted positive operating income of $4.5 million for the quarter – its first positive income since 2019 – but reported an overall net loss it said was due mainly to charges connected with the cost of terminating an employee pension plan.
Spirit said it delivered 69 Boeing 737 shipsets during the third quarter — 23 a month — compared to 47 shipsets in third quarter 2021.
Boeing deliveries are expected to be stable at 31 a month for the foreseeable future, Spirit President and CEO Tom Gentile said.
“Given that our production rate is set at 31 aircraft a month on the 737 program now, and we will likely remain at that rate for much of 2023, we are initiating a focused effort to reduce structural costs to enhance our profitability and cash flow in 2023,” Gentile said in the company’s earnings release.
The company faces challenges, however. “We continue to see disruptions in our factories due to part shortages, increased levels of employee attrition and volatile schedules,” Gentile said.
Spirit, which had reduced its quarterly dividend to 1 cent a share in 2020, said it will suspend dividend payments entirely starting in the fourth quarter, “due to the current challenging macroeconomic environment.”
SUMMARY
- Labor and supply chain issues ‘dynamic’
- Spirit to slowly work through 737 backlog
- Defense diversification helps bottom line
- More demand for spares and maintenance
The A350 enhancements, Part 2
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By Bjorn Fehrm
Introduction
Nov. 3, 2022, © Leeham News: Last week, we described the New Production Standard (NPS) of the Airbus A350. Now we look at the economic performance of the A350-900 versus the Boeing 787-10 on the world’s busiest long-haul route, London Heathrow to New York JFK.
We compare the economics with a nine abreast economy cabin and what difference the NPS and a 10 abrest change for the A350 produces.
Summary
- The 787-10, with its long fuselage, is seat mile cost-optimized for medium long-haul routes.
- Airbus gives the airline the option with the A350 NPS, comfort, or seat mile optimization.
China still needs Boeing as much as Boeing needs China, despite interminable limbo
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By Scott Hamilton
Oct. 31, 2022, © Leeham News: China needs Boeing as much as Boeing needs China was the conclusion of an analysis by LNA in July 2021. A trade expert last week agreed. Airbus and China’s COMAC won’t be able to fill the future demand forecast for China.
Michael McAdoo, Partner & Director, Global Trade and Investment of the Boston Consulting Group (BCG) in Montreal and a former strategic chief of Bombardier Commercial Aircraft, told LNA in an interview last week that China needs the Boeing 737 MAX and widebody airplanes to meet demand in the near-to-medium term.
It will be long-term before China’s commercial aviation industry will be competitive with airplane designs and production.
Summary
Forecasts for China’s demand for jet aircraft are consistent between Airbus and Boeing. But COMAC, which is the leader of China’s burgeoning commercial aviation industry, is significantly higher in its forecast. The independent Japan Aircraft Development Corp (JADC) is significantly lower.
- Boeing forecasts that China needs 8,485 new jets through 2041.
- Airbus forecasts 8,420 new aircraft will be needed through 2041.
- COMAC forecasts China will need 9,084 aircraft through 2040.
- JADC is more conservative, forecasting a requirement for 6,172 new jets in China through 2041.
Source: Boeing Current Market Outlook.
China will account for 21% of the world’s new aircraft deliveries through 2041, Boeing says.
Pontifications: Analysts overlook Boeing losses for cash flow gain; what’s behind the jump in charges?
By Scott Hamilton
Oct. 31, 2022, © Leeham News: Boeing last week surprised Wall Street aerospace analysts with a huge loss instead of the expected profit for the third quarter.
But positive cash flow was the metric the analysts focused on. The loss was attributed mostly to big write-offs of five defense programs: the KC-46A, VC-25B, MQ-25, T-7A, and Commercial Crew (the Starliner) programs. Boeing wrote off $2.8bn for these programs in the quarter. The company previously wrote off $8.8bn for these programs.
The specifics: Boeing took charges of $1.2bn for the KC-46 tanker, $766m on Air Force One, $351m for the MQ-25 aircraft carrier tanker drone, $285m for the T-7 jet fighter trainer, and $195m for the Commercial Crew.
All are fixed price contracts that have come back to bite Boeing big time.
Boeing also had a loss of $643m in the quarter at Commercial Airplanes. Global Services reported a profit of $733m and Boeing Capital Corp (BCC)—the leasing unit—eked out a $23m profit.
For the nine months, Commercial Airplanes recorded a loss of $1.74bn. Defense lost $3.66bn. Services reported a profit of $2.1bn and BCC barely recorded a profit of $14m.
But cash flow was positive at $2.9bn. And this is what analysts liked. Yet there was a little smoke-and-mirrors involved in this. Boeing said the cash flow was helped by “higher commercial deliveries, favorable receipt timing, and a tax refund,” as analyst Robert Stallard of Vertical Research put it. The tax refund was $1.5bn, a huge chunk of the cash flow touted by Boeing.